Delchi Carrier,SpA v. Rotorex
Corp
1994WL 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
Part 1: Facts
Informed Rotorex that the compressors would
be used in producing Arieles air conditioners
( Plaintiff )
(Defendant)
Rotorex
Delchi
(Italy)
Agreed to sell air compressors
(New York)
39 million lire for special tooling
In preparation
27 million lire for special insulation
and tubing
by 吴青晖
On March 26,1988
Delchi
sent a first sea shipment
Rotorex
paid $188,000
Spent 18 million lire on shipping and customs duties
by 吴青晖
On or about May 9,1988
Sent a second shipment
Rotorex
Delchi
The second
shipment
was en route
paid $130,000
Discovered the compressors from the first lot were
nonconforming.
Rejected the compressors and cancelled the contract.
by 吴青晖
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
Stored the rejected compressors
by 吴青晖
Modified the Delchi’s
electrical
Assembly
panels
line shut
down
Delchi was still unable to fill some
orders.
Delchi brought this action for damages.
by 吴青晖
Part 2: legal issue & back ground knowledge
No controversy about defendant’s
breach of Contract (Art.35)
Legal issue:
what damages is Delchi entitled
to recover?
by 刘建平
Damages
Direct damages
Consequential damages
by 刘建平
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
Consequential damages:
Damages averred by Delchi
Decisions
of D.C.
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
Lost
lire in lost profits in Italy
profits additional lost profit from
indicated orders in Italy.
Modification of electrical panel
by 刘建平
hold
nonsupport
nonsupport
Damages averred by Delchi
Decisions
of D.C.
Shipping, customs & incidentals
relating to two shipments
The cost of obsolete insulation
& tubing
nonsupport
The cost of obsolete tooling
nonsupport
nonsupport
Labor costs for four days when nonsupport
Delchi’s production line is idle.
by 刘建平
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
 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
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
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
Part 3: Reasoning
by 张玲芬
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
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
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
≠
by 张玲芬
Substitute for
the nonconforming
Rotorex compressors
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
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
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
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
a. Why did Delchi suffer a loss resulting
from a diminished volume of sales?
Suppose that…
Sufficient conforming compressors
Sufficient Arieles air conditioners
Be able to fill the orders
Gain profits
by 周玉珊
However…
Defective compressors
Insufficient conforming compressors
Insufficient Arieles air conditioners for sales
Be unable to fill all of the orders
Lost profits
by 周玉珊
Although expedite
shipment of Sanyo
compressors
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
Formula
Lost profits = Sales price
— Manufacturing cost
— Other cost ( royalty,
average commission,
commercial/financial cost,
etc.)
by 周玉珊
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
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
Only provided…
Speculative testimony
Provided no…
Documentation
Evidence
by 周玉珊
*Modification of electrical panels
Not directly attribute to Rotorex’s
breach
Not regular cost
by 周玉珊
cost claims
District court
A: remedy the
nonconformity
√
B: expediting shipment
from Sanyo
√
C: storing the rejected
compressors
D: lost profits for
diminished sales volume
√
√
E: modification of
electrical panels
×
F:4000 addition lost
sales in Italy
×
G: shipping ,customs,
incidentals
×
H: obsolete insulation
and tubing
I: obsolete tooling
J: labor costs downtime
form may 16-19
affirm
reverse
×
×
×
Court of Appeals
by 梁敏婷
remand
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
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
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
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
Rotorex
Customs
Genoa
Manufacturing
plant,inspect
Discover the
nonconformity
by 梁敏婷
Rotorex’s compressors
insulation
tubing
tooling
Obsolete, useless
by 梁敏婷
the district court
reasonable costs
the court of appeal
G,H,I
consequential damages
should not be
compensated
be compensated
by 梁敏婷
Labor expense:
Fixed costs-
variable costs-
feature
have no relation
to the output
fluctuate with a
firm’s output
when a breach
occured
should not be
awarded
Should be
awarded
District court
Court of appeals
decision
Fixed costs
reasons
by 梁敏婷
remand
Has no detail
materials
Sufficient
evidences
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
the practical damages
And
reliance expenditure
the lost profits
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
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
(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
(failed)
CHEN XIAO
Sell : 1000 Nokia N70
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
Delchi and
Sanyo had
concluded a
contract before
the inspection !!!!
by 钟桢
(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
Air freight
Sea Shipment
Delchi had to ask for expedited shipment of
Sanyo compressors with additional shipment
cost
by 钟桢
(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
QUESTION:
Must the duty of “mitigate(降低）the
loss” be limited to just
one kind of remedy--- “damages” ?
by 钟桢
justice
reasonable
by 钟桢
Legal terms
 Customs duty海关税
 Additional expense额外
花费
 Expectation interest期
待利益
 Reliance expenditure可
信赖支出
 Consequential damages
简接损失
 Anticipated cost预期支
出
 Unreimbursed expense
未偿还支出
 Labor cost工资
 Sales volume销售量
 Compensatory damages
补偿性赔偿
by 钟桢
Thank you for
your attention！
by 钟桢