Revocation of Acceptance and Cover Damages for a Defective Commercial Oven
Millie's Bakery, a Nebraska partnership, bought a commercial deck oven from OvenCo for $80,000. OvenCo installed it on January 10. By early February, bread was baking unevenly. OvenCo's technician adjusted the thermostat on February 12. Millie continued using the oven daily because she had no backup. On March 15, a bakery employee discovered a cracked burner assembly that OvenCo concedes was a manufacturing defect present at delivery. Millie sent written notice on March 20 revoking acceptance. She stopped using the oven on April 1 and bought a comparable replacement for $95,000. Reduced output caused $18,000 in lost profits. OvenCo argues that revocation came too late because Millie used the oven for nearly three months after the first symptoms and continued using it after discovery of the cracked burner; it also argues lost profits are too remote. Millie sues for cover damages and lost profits. Assume the UCC governs and that OvenCo had reason to know of Millie's seasonal commercial needs.
1. Was Millie's revocation of acceptance effective under UCC § 2-608?
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Revocation of acceptance requires (1) a nonconformity that substantially impairs the value of the goods to the buyer, (2) revocation within a reasonable time after the buyer discovers or should have discovered the grounds for it, (3) revocation before any substantial change in the condition of the goods not caused by their own defects, and (4) notice to the seller. The cracked burner assembly is a manufacturing defect present at delivery. A commercial oven that cracks at the burner and bakes unevenly can substantially impair value because it undermines the bakery's core production; the defect is not a minor cosmetic flaw. The timing is defensible: Millie did not know the cracked burner caused the earlier unevenness until March 15, and she gave written notice five days later. Her continued use before discovery was reasonable mitigation while she had no backup, and continued use does not automatically bar revocation when the buyer is waiting for repair or replacement. The change in condition between March 20 and April 1 appears to be ordinary wear from continued use caused by the defect, not a substantial change unrelated to the defect. On these facts, revocation is likely effective, though OvenCo may argue that the February symptoms put Millie on notice earlier.
2. What damages may Millie recover if revocation is effective, and how should the lost-profits claim be analyzed?
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Under UCC § 2-712, a buyer who covers may recover the difference between the cost of cover and the contract price, plus incidental and consequential damages less expenses saved. The cover price is $95,000 and the contract price is $80,000, so the basic cover differential is $15,000. Millie may also recover incidental costs of obtaining the replacement if proven, but she cannot recover the full $95,000 as though the original contract had not been performed. Lost profits fall under § 2-715 as consequential damages if they were foreseeable and proven with reasonable certainty. OvenCo had reason to know of Millie's seasonal commercial needs, so reduced-output losses are not categorically too remote. Millie must still prove the $18,000 figure is not speculative-for example, through sales records, production capacity, and the period of disruption. She must also account for expenses saved by not baking that volume. The court should avoid double recovery: cover damages restore the cost of replacement, while lost profits compensate for the separate downtime loss. If the lost profits are proven and foreseeable, they are recoverable in addition to the cover differential.