Group 8 Delchi Carrier, SpA v. Rotorex Corp 1994WL 495787 (1994) United States District Court (N.D.N.Y.) Members:孔薇 刘碧雅 李文彦 李翀鸣 潘秋苑 罗瑜玲

Plaintiff: Delchi Italian buyer Facts: Plaintiff: Delchi Italian buyer Defendant: Rotorex New York’s seller contract Sale of air compressors (For use in producing Ariele air conditioners) Delchi paid$188,000 First shipment reached

Delchi reject the first shipment and canceled the contract In preparation: Delchi had spent: 39 million lire for special tooling; 27 million lire for special insulation and tubing (for use in making Arieles); 18 million lire in shipping and customs duties; The Second shipment was en route Delchi paid$130,000 for the second shipment Delchi Discovered the First lot was nonconforming Delchi reject the first shipment and canceled the contract

Delchi spent several million to replace problem grommets, inspect, repair, and retest the compressors in an effort to make them usable. Delchi assembly line shut down unproductive assembly worker wages. Obtain some substitute compressors additional expense. Shipment of Sanyo compressors(previously ordered) changes from by ship to by air freight. Unable to fill some orders( amounting to millions of lire ) in lost profit. Delchi brought this action for damages.

Kinds of damages: 1.Plaintiff’s attempts to remedy nonconformity. 2.Expedited shipment of Sanyo compressors. 3.Handling and storage of the rejected compressors. 4.Lost profits. 5.shipping,customs and incidentals relating to the two shipments. 6.The costs of obsolete insulation and tubing. 7. The costs of obsolete tooling. 8.Labor costs for four days’ assembly line shut down. Next

General legal issue: What kind of consequential damages were incurred in this case? Specific legal issue: What kind of damages should be recovered?

Reasoning

Governed by CISG Applicable law The seller (Rotorex) is a U.S. corporation The buyer (Delchi) is an Italian company Both the United States and Italy are contracting states of the convention. Governed by CISG

Liability The agreement between Delchi and Rotorex was based upon a sample compressor supplied by Rotorex and upon written specifications regarding cooling capacity and power consumption. After the problems were discovered, Rotorex's engineering representative, admitted in a May 13, 1988 letter that the specification sheet was "in error" and that the compressors would actually generate less cooling power and consume more energy than the specifications indicated. He also testified that at least some of the compressors were nonconforming.

Rotorex breached the contract. (Article 35) The goods sent by Rotorex were nonconforming. Rotorex breached the contract.

Consequential damages Definition: damages claimed and / or awarded in a lawsuit which were caused as a direct foreseeable result of wrongdoing.

Plaintiff’s attempts to remedy nonconformity

Delchi’s attempts to remedy nonconformity Consequential damages Rotorex’s breach Delchi’s attempts to remedy nonconformity Extraordinary costs Consequential damages

Such damages were a foreseeable result of Rotorex’s breach. Article 74: Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known as a possible consequence of the breach of contract.

Conclusion Delchi is entitled to recover damages incurred as a result of its attempts to remedy the nonconformity of Rotorex’s compressors.

Expedited shipment of Sanyo compressors Article 77: A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss. According this article, it was Delchi’s obligation to take some measures to mitigate its damages.

Whether the shipment of Sanyo compressors was substitute goods? Delchi was entitled to collect damages (article 74) Price difference between Sanyo & Rotorex Expenditure of Expediting shipment Or Depends on Whether the shipment of Sanyo compressors was substitute goods?

Article 75: If the contract is avoided and if, in a reasonable manner and within a reasonable time after avoidance, the buyer has bought goods in replacing or the seller has resold the goods, the party claiming damages may recover the difference between the contract price and the price in the substitute transaction as well as any further damages recoverable under article 74. Not substitute

Delchi is entitled to recover the net cost of early delivery. Delchi’s action in expediting shipment of Sanyo compressors was commercially reasonable and reasonably foreseeable. Delchi is entitled to recover the net cost of early delivery.

Reject the first shipment and canceled the contract Reasoning part two: Handling and Storage of Rejected Compressors. When Delchi discovered Rotorex’s goods were nonconforming it rejected the compressors and canceled the contract. Reject the first shipment and canceled the contract Delchi Rotorex The Second shipment was en route and the first shipment was under Delchi’s control In such circumstance Delchi was obligated to store Rotorex’s compressor

Is it reasonable for Delchi to collect damages incurred for handling and storage of nonconforming compressors? Conclusion: According to Article 86, Delchi should temporarily protect and preserve the compressors in order that the seller would return it a full refund of monies already paid. Delchi was obligated to temporarily protect those compressors, such temporary protection was out of the interests of Delchi. So what Delchi paid for the storage should be repay. After that Delchi was entitled to collect costs incurred for handling and storage of nonconforming compressors

Claim for lost profit; define and certificate. How to define the lost profit? As the Rotorex’s compressors were nonconforming, under CISG, Delchi is entitled to collect monetary damages for Rotorex’s breach in “a sum equal to the loss, including loss. including loss of profit. Although not in excess of the amount reasonably envisioned by the parties. Provision from the CISG Further provision can be found under CISG Article 74: Damage for breach of contract by one party consist of a sum equal to the loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract. Such provision seeks to provide in injured party with the benefit of the bargain ,including both its expectation interest and its reliance expenditure.

What kind of lost profit should be paid? Delchi rejected the second shipment, stored it at the port of delivery and, after having tried unsuccessfully to cure the defects, sued demanding damages for breach of contract pursuant to article 74 CISG. What kind of lost profit should be paid? the lost profits resulting from a diminished volume of sales, in respect of which Delchi was able to provide, in conformity with common law and the law of New York, "sufficient evidence [for the court] to estimate the amount of damages with reasonable certainty". Only the lost profit with reasonable certainty can be admitted by this court.

In our cases, the amount of lost profit was in dispute. (a)Part of lost profit with clear certificate. CISG permits Delchi’s recovery of lost profit resulting form a diminished volume of sales. But recover a claim fir lost profit under CISG, a party must provide the finder of fact with sufficient evidence to estimate the amount of damages with reasonable certainty. A total of 546377612 lire in lost profit with sufficient certainty that it incurred, as a foreseeable and direct result of Rotorex’s breach was proved by Delchi. (b)Part of lost profit without clear certificate But lost sales form “indicated orders” in Italy Delchi could not prove with sufficient certainty. Such 4000 additional lost sales in Italy can only be proved by the speculative testimony of Delchi’s Italian sales agent. In such testimony the agent only avert “they would have ordered more Arieles had they been available. But Delchi fail to provide documentation of additional lost sales did exist furthermore it can’t directly attribute Rotroex for its inability to fill those order. Delchi can not recover on its claim for additional lost profit in Itlay because the amount of damage, If any, cannot be estabilished with reasonable certainty.

Whether the Cost spend by Delchi for modification be recovered?

Decision After the reasoning above, the court came into the decision: (1)Delchi was awarded compensatory damage for those expenses incurred in repairing the nonconforming goods, obtaining substitution goods, and for lost profit. (2)Lost profit does not include profit that may arise form anticipated sales that cannot be established by reasonable certainty. Back

District court sale price – manufacture cost= lost profit insulation materials tubing tooling

Incidental damages : extra cost （额外成本） (附随损失) (i) shipping, customs, and incidentals relating to the first and second shipments -- rejected and returned -- of Rotorex compressors; Consequential damages : the loss resulting from general or particular requirements (ii) obsolete insulation materials and tubing purchased for use only with Rotorex compressors; (iii) obsolete tooling purchased exclusively for production of units with Rotorex compressors;

According to CISG article 74 Damages : 1.lost profit 2.incidental damages 3.consequential damages

District court They should recover from lost profit award . deny Appeal court They are different from lost profit , should be awarded separately affirm

4.the labor cost of Delchi: 1.From May 16-19,1988, Delchi’s assembly line shut down because of Rotorex’s nonconforming delivery. 2.This caused unproductive assembly worker wages, which was a reasonably foreseeable result of Rotorex’s behavior.

Delchi asked for recovery of these costs. The district court labeled these costs as “fixed costs” Delchi asked for recovery of these costs. Rotorex argued these were fixed costs in production.

The difference between fixed costs and variable costs: Fixed costs are the costs that would not fluctuate with a firm’s output. Variable costs are the costs that fluctuate with a firm’s amount of production. 1.That means,the more you produced,the more wages you can gain. 2.Variable costs generally include the labor costs but exclude management costs.

The difference between fixed costs and variable costs The total cost of producion Variable cost Fixed cost Stays the same changes with increased production

The district court didn’t take into consideration whether plaintiff would have paid these wages regardless how much it produced. The appellant court lack factual findings by the district court so it remanded the case to district court on this issue.

Comment:

A contrast between the two trials: The district court The appellant court 1.Plaintiff’s attempts to remedy nonconformity. Recover 2.Expedited shipment of Sanyo compressors 3.Handling and storage of the rejected compressors 4.Lost profits The lost profit proved with sufficient certainty can be recovered. The lost from anticipated orders can not be recovered for lack of evidence.

A contrast between the two trials The district court The appellant court 5.shipping,customs and incidentals relating to the two shipments. Denied Recover 6.The costs of obsolete insulation and tubing. 7. The costs of obsolete tooling. recover 8.Labor costs for four days’ assembly line shut down. Labeled as fixed costs Remand the case to the district court on this issue.

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