Delchi Carrier,SpA v. Rotorex Corp 1994WL 495787 (1994) United States District Court(N.D.N.Y)

1. Delchi Carrier,SpA v. Rotorex Corp1994WL 495787 (1994)United States District Court(N.D.N.Y) By:吴青晖 刘建平 张玲芬 周玉珊 梁敏婷 钟桢 by 吴青晖

2. Part 1: Facts Informed Rotorex that the compressors would be used in producing Arieles air conditioners ( Plaintiff ) (Defendant) Rotorex Delchi (Italy) (New York) Agreed to sell air compressors 39 million lire for special tooling 27 million lire for special insulation and tubing In preparation by 吴青晖

3. On March 26,1988 sent a first sea shipment Delchi Rotorex paid $188,000 Spent 18 million lire on shipping and customs duties by 吴青晖

4. On or about May 9,1988 Sent a second shipment Rotorex Delchi paid $130,000 The second shipment was en route Discovered the compressors from the first lot were nonconforming. Rejected the compressors and cancelled the contract. by 吴青晖

5. Delchi Replaced problematic grommets, inspected, repaired and retested the compressors Stored the second shipment Arranged to have a shipment of Sanyo compressors sent by air freight Modified the electrical panels Delchi’s Assembly line shut down Stored the rejected compressors by 吴青晖

6. Delchi was still unable to fill some orders. Delchi brought this action for damages. by 吴青晖

7. Part 2: legal issue & back ground knowledge Legal issue:what damages is Delchi entitled to recover? No controversy about defendant’s breach of Contract (Art.35) by 刘建平

8. Damages Direct damages Consequential damages by 刘建平

9. Direct damages: damages for a loss that is an immediate, natural, and foreseeable result of the wrongful act . Consequential damages: injury or harm that does not ensue directly and immediately from the act of a party, but only from some of the result of such act. by 刘建平

10. Consequential damages: Plaintiff’s attempts to remedy nonconformity hold Expedited shipment of Sanyo compressors hold Handling & storage of rejected compressors hold a total of 546,377,612 lire in lost profits in Italy hold Lost profits additional lost profit from indicated orders in Italy. nonsupport Modification of electrical panel nonsupport by 刘建平

11. Shipping, customs & incidentals relating to two shipments nonsupport The cost of obsolete insulation & tubing nonsupport nonsupport The cost of obsolete tooling Labor costs for four days when Delchi’s production line is idle. nonsupport by 刘建平

12. The applicable rules: • Article 7.2. • Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law. by 刘建平

13. 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. by 刘建平

14. 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 replacement 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. by 刘建平

15. 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, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated. by 刘建平

16. Part 3: Reasoning by 张玲芬

17. ①Plaintiff’s attempts to remedy nonconformity Rotorex shipped with nonconforming compressors Delchi spent several million lire in curing the defects in Rotorex’s compressors (which were not Anticipated cost of production) Pursuant to CISG Art.74, the costs are foreseeable consequential damages Delchi should recover these damages by 张玲芬

18. ②Expedited shipment of Sanyo compressors Delchi failed to repair the nonconforming compressors Under CISG,Delchi should obtain some substitute compressors from other sources to mitigate its damages (Art.77) But actually, Delchi failed to obtain substitute from other sources. Then Delchi expedited Sanyo compressors by air which were previously ordered So some orders could be filled by 张玲芬

19. Delchi is not entitled to recover the difference between the contract price and the price in the Sanyo compressors under CISG Art.75 ( …within a reasonable time after avoidance ,the buyer has bought goods in replacement …in the substitute transaction …) In this case the shipment of previously ordered Sanyo compressors Substitute for the nonconforming Rotorex compressors ≠ by 张玲芬

20. Nonetheless, Delchi is entitled to recover the expense of expediting shipment of Sanyo compressors From the facts part: Rotorex failed to supply conforming compressors Delchi expedited Sanyo compressors by air which previously ordered So that it could fill some orders and mitigate its damages by 张玲芬

21. So, expedited shipment of Sanyo compressors was both commercially reasonable and reasonably foreseeable • therefore Delchi is entitled to recover the net cost of early delivery of Sanyo compressors . • Net cost = cost of air shipment – cost of ocean shipment by 张玲芬

22. ③Handling and Storage of Rejected Compressors • The expense relating to the first shipment. • A reasonable expense for the second shipment, though Delchi failed to establish the precise cost of storage of second shipment. by 周玉珊

23. ④Lost profits • a. Why did Delchi suffer a loss resulting from a diminished volume of sales? • b. How to estimate the amount of damages? • c. The lost profit damages that Delchi is entitled to recover. • d. The lost profit damages that Delchi is not entitled to recover. by 周玉珊

24. Gain profits a. Why did Delchi suffer a loss resulting from a diminished volume of sales? Suppose that… by 周玉珊

25. Defective compressors Insufficient conforming compressors Although expedite shipment of Sanyo compressors Insufficient Arieles air conditioners for sales Be unable to fill all of the orders Lost profits However… by 周玉珊

26. b. How to estimate the amount of damages? • Under CISG Art.7 (2) • In this case, common law & the law of New York • A party must provide the finder of fact with sufficient evidence to estimate the amount of damages with reasonable certainty. by 周玉珊

27. Formula Lost profits = Sales price — Manufacturing cost — Other cost ( royalty, average commission, commercial/financial cost, etc.) by 周玉珊

28. The lost profit damages that Delchi is entitled to recover: a total of 546 million lire in lost profits in Italy, • as it proved with sufficient certainty that it incurred as a foreseeable and direct result of Rotorex’s breach. by 周玉珊

29. The lost profit damages that Delchi is not entitled to recover: its additional lost profits in Italy, • because Delchi did not prove with sufficient certainty any lost sales from indicated (anticipated) orders in Italy. by 周玉珊

30. Only provided… • Speculative testimony Provided no… • Documentation • Evidence by 周玉珊

31. *Modification of electrical panels • Not directly attribute to Rotorex’s breach • Not regular cost by 周玉珊

32. √ √ affirm √ √ × × × reverse × × × remand by 梁敏婷

33. The district court concluded that Delchi was not entitled to recover the cost of: G:, shipping,customs, incidentals H: obsolete insulation and tubing I: obsolete tooling by 梁敏婷

34. Because… G,H,I are reasonable cost for manufacturing the air conditioners G,H,I are accounted for in Delchi’s recovery on his lost profits it would lead to a double recovery by 梁敏婷

35. Court of appeals concluded that Delchi was entitled to recover the cost of: G: shipping ,customs, incidentals H: obsolete insulation and tubing I: obsolete tooling by 梁敏婷

36. Because… Premise: The contract was performed completely. G,H,I could not transform to any profits as the compressors were defective. G,H,I were unreasonable expense Cut into the lost profits by 梁敏婷

37. Customs Rotorex Manufacturing plant,inspect Genoa Discover the nonconformity foreseeabe&recoverable incidental expenses by 梁敏婷

38. Rotorex’s compressors insulation tubing tooling Obsolete, useless by 梁敏婷

39. the district court the court of appeal G,H,I reasonable costs consequential damages should not be be compensated compensated by 梁敏婷

40. Labor expense: remand by 梁敏婷

41. Part4:comments The results of breach of contract are hard to be predicted and made sure in advance . There must be the happening of the damages fact and the compensation can not be beyond the actual damages . Art.74 by 钟桢

42. the practical damages And the lost profits reliance expenditure expectation interest (a) shipping , customs , and incidentals relating to the two shipments of Rotorex compressors (b) the cost of obsolete insulation and tubing that Delchi purchased only for use with Rotorex compressors the profit that Delchi can get from its conditioners orders , which amounting to millions of lire in lost profit . (c) the cost of obsolete insulation and tooling purchased only for production of units with Rotorex compressors . by 钟桢

43. What’s the essential cause leading to the first trial of the court’s mistake ? What’s the essence of the (a) (b) (c) damages ? The cost relates to the expectation ? OR The reliance expenditure Unreasonable/additional by 钟桢

44. (Article 75) If the contract is avoided and within a reasonable time after avoidance , the buyer has bought goods in replacement …the party claiming damages may recover the difference between the contract price … by 钟桢

45. (failed) Sell : 1000 Nokia N70 CHEN XIAO ZHONG ZHEN Attached(附带的) gifts : 1000 special(专用的) batteries(电池) purchase OUYANG TIAN YUAN (failed) (another example) by 钟桢

46. Delchi and Sanyo had concluded a contract before the inspection !!!! by 钟桢

47. (another example) OUYANG TIAN YUAN Purchase order : a shipment of farm machines for total $40,000 Accept the order , but Latter fail to fill the contract CHEN XIAO Bought for replacement 6 months later With expensing $50,000 by 钟桢

48. Air freight Sea Shipment Delchi had to ask for expedited shipment of Sanyo compressors with additional shipment cost by 钟桢

49. (Article 77) a party who relies on a breach of contract must take such measures as a reasonable in the circumstances to mitigate the loss , including loss of profits , resulting from the breach . If he fails to take such measures , the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated . by 钟桢

50. QUESTION: Must the duty of “mitigate(降低）the loss” be limited to just one kind of remedy--- “damages” ? by 钟桢