by 吴青晖

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

Delchi Rotorex

Informed Rotorex that the compressors would be used in producing Arieles air conditioners

Agreed to sell air compressors

( Plaintiff ) (Defendant)

(Italy) (New York)

In preparation

39 million lire for special tooling

27 million lire for special insulation and tubing

Part 1: Facts

by 吴青晖

On March 26,1988

Delchi Rotorexsent a first sea shipment

paid $188,000

Spent 18 million lire on shipping and customs duties

by 吴青晖

On or about May 9,1988

Delchi Rotorex

Sent a second shipment

paid $130,000

Discovered the compressors from the first lot were nonconforming.

Rejected the compressors and cancelled the contract.

The second shipment was en route

by 吴青晖

Delchi

Replaced problematicgrommets,inspected,

repaired and retested the compressors

Storedthesecond 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

Delchi was still unable to fill some orders.

Delchi brought this action for damages.

by 刘建平

Legal issue:what damages is Delchi

entitled to recover?

No controversy about defendant’s breach of Contract (Art.35)

Part 2: legal issue & back ground knowledge

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 Decision

s of D.C.

Plaintiff’s attempts to remedy nonconformity

Expedited shipment of Sanyo compressorsHandling & storage of rejected compressors

Lost profits

a total of 546,377,612 lire in lost profits in Italyadditional lost profit from indicated orders in Italy.Modification of electrical panel

hold

hold

hold

hold

nonsupportnonsupport

by 刘建平

Damages averred by Delchi Decisions of D.C.

Shipping, customs & incidentals relating to two shipmentsThe cost of obsolete insulation & tubing

The cost of obsolete toolingLabor costs for four days when Delchi’s production line is idle.

nonsupport

nonsupportnonsupportnonsupport

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 75If 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 77A 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 张玲芬

Part 3: Reasoning

by 张玲芬

Delchi should recover these damages

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

①Plaintiff’s attempts to remedy nonconformity

by 张玲芬

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

②Expedited shipment of Sanyo compressors

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 ofpreviously ordered Sanyo compressors

Substitute for the nonconforming

Rotorex compressors≠

by 张玲芬

Nonetheless, Delchi is entitled to recover the expense of expediting shipment of Sanyo compressors From the facts part:

So that it could fill some orders and mitigate its damages

Rotorex failed to supply conforming compressors

Delchi expedited Sanyo compressors by airwhich previously ordered

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 周玉珊

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…

Be able to fill the orders

Sufficient Arieles air conditioners

Sufficient conforming compressors

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

Although expedite shipment of Sanyo

compressors

by 周玉珊

b. How to estimate the amount of damages?

Under CISG Art.7 (2)In this case, common law & the law

of New YorkA 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…DocumentationEvidence

by 周玉珊

*Modification of electrical panels

Not directly attribute to Rotorex’s breach

Not regular cost

by 梁敏婷

cost claims District court Court of Appeals

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

remand

by 梁敏婷

The district court concluded that Delchi was not entitled to recover the cost of :G:, shipping,customs, incidentalsH: obsolete insulation and tubingI: 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, incidentalsH: obsolete insulation and tubingI: obsolete tooling

by 梁敏婷

Because…

Premise: The contract was performed completely.

G,H,I could not transform to any profits asthe compressors were defective.

Cut into the lost profits

G,H,I were unreasonable expense

by 梁敏婷

Rotorex Customs Manufacturingplant,inspect

Genoa Discover thenonconformity

by 梁敏婷

insulation tubing tooling

Rotorex’s compressors

Obsolete, useless

by 梁敏婷

the district court the court of appeal

reasonable costs consequential damages

should not be be compensated

compensated

G,H,I

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 Has no detail materialsSufficient evidences

remand

by 钟桢

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

Part4:comments

by 钟桢

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

(c) the cost of obsolete insulation and tooling purchased only for production of units with Rotorex compressors .

the profit that Delchi can get from its conditioners orders , which amounting to millions of lire in lost profit .

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

CHEN XIAO ZHONG ZHENSell : 1000 Nokia N70

OUYANG TIAN YUANpurchase

Attached( 附带的 ) gifts : 1000 special( 专用的 ) batteries( 电池 )

(failed)

(failed)

(another example)

by 钟桢

Delchi and Sanyo had concluded a contract before the inspection !!!!

by 钟桢

OUYANG TIAN YUAN

CHEN XIAO

Purchase order : a shipment of farm machines for total $40,000

Accept the order , butLatter fail to fill the contract

Bought for replacement 6 months laterWith expensing $50,000

(another example)

by 钟桢

Sea Shipment Air freightDelchi 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 ！