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
Facts:
Plaintiff:
contract
Delchi
Italian buyer
Sale of air compressors
Defendant:
Rotorex
New York’s seller
(For use in producing Ariele air conditioners)
First shipment reached
Delchi
paid$188,000
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;
Delchi
paid$130,000
for the second
shipment
The Second shipment
was en route
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
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.
(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
unreimbursed
expenses
relating to
the shipment
of connectors
Unreimbursed
expenses Relating
to the shipment
Of substitute
Rotorex grommets
Attempts
To remedy
nonconformity
Labor costs
Relating to replacing
Problematic
grommets
Extraordinary
Reinspection and
Testing
after repair
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.
Delchi was entitled to collect
damages (article 74)
Expenditure of
Expediting
shipment
Or
Price
difference
between
Sanyo &
Rotorex
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’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.
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.
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?
cost of production of units
with Sanyo compressors.
I
Sanyo Compressor was preciously
Order by Delchi, even such breach of
Contract did not occurred, in other to
install two kinds of compressors, production
line must be modified .
Such cost can not directly attribute to Rotorex’s
Breach, Such cost should be treated as the regular cost
Of production of units with Sanyo compressors.
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
Appeal court
They should
recover from
lost profit
award .
They are
different from
lost profit ,
should be
awarded
separately
deny
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.
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
Variable cost
Fixed cost
The total cost of producion
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
Recover
2.Expedited shipment of Sanyo compressors
Recover
Recover
3.Handling and storage of the rejected compressors
Recover
Recover
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.
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.
Denied
Recover
7. The costs of obsolete tooling.
recover
recover
8.Labor costs for four days’ assembly line shut down.
Labeled as fixed costs
Denied
Remand the case to the district court on
this issue.
The end :
Thank you for your presenting!