Allied Grape Growers v. Bronco Wine Company

Bronco Wine Company (Bronco) (defendant) was engaged in the business of crushing grapes and selling them to wine distributors. Allied Grape Growers (Allied) (plaintiff) was a cooperative corporation comprising grape growers in the business of supplying grapes for the purpose of wine production. In 1981 Bronco agreed to purchase 30,000 tons of grapes per year from Allied for use in bulk wines. In 1982 Bronco breached the contract by not accepting grapes or paying lower prices for the grapes by downgrading them under its three-tiered quality system. Allied alleged that the quality system was arbitrary and carried out to maximize profits. Bronco ultimately paid an average of $103 per ton. Allied alleged that its grapes met contract standards and that it was entitled to $150 per ton, commensurate with the contract. In 1983, despite Allied’s best efforts, Bronco repudiated the contract. After failing to find another buyer, Allied decided to form a subsidiary corporation, ISC, to purchase the grapes. According to ISC, the market value for its grapes was $100 per ton. The value to ISC for the grapes was $70 per ton. The $30 per ton loss was split between the growers and ISC, resulting in a purchase price of $85 per ton. Allied only sought damages based on the $15 per ton loss to ISC, not the $30 shared loss to ISC and the growers. A jury awarded Allied $2.65 million for Bronco’s 1982 breach of contract and $744,658 for its 1983 breach of contract. On appeal, Bronco contended that Allied’s resale to its own subsidiary was both commercially impossible and commercially unreasonable under California Uniform Commercial Code § 2706.