Fertico Belgium S. A. v. Phosphate Chemicals Export Ass'n

New York Court of Appeals
70 N.Y.2d 76 (1987)

ELI5:

Rule of Law:

A buyer-trader who covers due to a seller's breach is entitled to cover damages under UCC § 2-712, and any profits from a subsequent, independent resale of the nonconforming goods are not to be credited to the breaching seller if the buyer could have and would have made the second sale regardless of the breach.

Facts:

In October 1978, Fertico, an international fertilizer trader, contracted to buy two shipments of fertilizer from Phoschem.
Phoschem knew Fertico needed the fertilizer delivered by specific dates to satisfy a secondary sales contract Fertico had with Altawreed, Iraq's agricultural ministry.
Phoschem notified Fertico that the first shipment would be delivered late, after the contract deadline of November 20, 1978.
To avoid breaching its contract with Altawreed, Fertico covered by purchasing substitute fertilizer from another supplier, Unifert, at a cost of $700,000 more than the Phoschem contract price.
Despite the breach, Phoschem presented and received payment on Fertico's $1.7 million letter of credit, compelling Fertico to take possession of the late-delivered shipment when it arrived in December.
Fertico used the Unifert fertilizer to fulfill its renegotiated contract with Altawreed.
Several months later, Fertico sold the late-delivered Phoschem fertilizer to a different buyer, Janssens, and earned a profit of $454,000 on that sale.

Procedural Posture:

Fertico sued Phoschem in a trial court for breach of contract.
A jury returned a verdict for Fertico, awarding $1.07 million in damages.
The trial court denied Phoschem's post-trial motion to overturn the verdict.
Phoschem, as appellant, appealed to the Appellate Division, an intermediate appellate court.
The Appellate Division vacated the damage award, ordering a new trial on damages, and ruled as a matter of law that Fertico's damages must be reduced by the profit from the Janssens sale.
Fertico, as appellant, appealed the Appellate Division's ruling to the Court of Appeals, the state's highest court.

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Issue:

Does a breaching seller receive credit for the profits a buyer-trader earns from reselling the late-delivered goods, when that buyer was forced to accept the goods and had already covered to fulfill a separate contract with a third party?

Opinions:

Majority - Bellacosa, J.

No. A breaching seller does not receive credit for these profits. A buyer-trader who covers is entitled to damages equal to the increased cost of cover. The court reasoned that Fertico, as a trader, would have pursued other commercial transactions, like the sale to Janssens, even if Phoschem had not breached. Citing Corbin on Contracts, the court stated that gains made by an injured party on other transactions are not deducted from damages unless those gains could not have been made without the breach. To credit Phoschem with Fertico's profit from an independent transaction would perversely enrich the wrongdoer and penalize the aggrieved party for its commercial resourcefulness, contrary to the remedial purpose of the UCC.

Dissenting - Titone, J.

Yes. The profit from the resale should be credited to the breaching seller. The purpose of UCC remedies is to put the aggrieved party in as good a position as if performance had occurred, not a better one. By allowing Fertico to retain both cover damages and the profit from reselling the goods, the majority provides a windfall and allows Fertico to benefit twice from a single bargain. The dissent argued that the UCC remedies of cover and acceptance are mutually exclusive; by covering, Fertico effectively rejected the goods. Therefore, while Fertico was entitled to resell the goods to recover its payment, it was required under UCC § 2-706(6) to account to Phoschem for any profit made on the resale.

Analysis:

This case significantly clarifies the calculation of damages for buyer-traders under the UCC. It effectively applies the logic of the 'lost volume seller' doctrine to a buyer, establishing that a buyer who regularly deals in goods may not have their damages offset by profits from subsequent transactions that they likely would have made anyway. The decision protects commercially savvy buyers, ensuring that a breaching party cannot benefit from the injured party's ability to mitigate damages through separate, independent business deals. This precedent makes it more difficult for breaching sellers to reduce their liability by pointing to the buyer's subsequent successes in the marketplace.

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