Delchi Carrier, SpA v. Rotorex Corp - Case Study Example

Delchi Carrier, SpA v. Rotorex Corp FACTS OF THE CASE: On January 1988, Rotorex Corp. (Rotorex) of New York agreed to sell compressors to Delchi Carrier, SpA (Delchi) of Italy for use in Delchi's portable air conditioners that will go on sale in the spring and summer of 1988. However, the delivered compressors by Rotorex were not according to the original sample and agreed performance specifications. As a result, Delchi suffered loss on its sales volume of the portable air conditioners during the 1998 selling season.

Delchi filed an instant action for breach of contract and failure to deliver goods in the US District Court for the Northern District of New York based on the United Nations Convention on Contracts for the International Sale of Goods (CISG).THE LOWER COURT'S DECISION: The lower court, through Judge Munson who replaced Judge Cholakis, granted Delchi's motion for partial summary judgment, holding Rotorex liable to Delchi for $1,248.331.81 as consequential damages mainly for the lost of profits.

The lower court denied Delchi's claim for damages for incidental and inconsequential damages or out-of-pocket expenses. On appeal to the United States Court of Appeals (USCA), Rotorex argued that it did not breach the agreement, Delchi is not entitled to payment of lost profits, and the calculation of the number of lost sale is improper. Delchi, on the other hand, filed a cross-appeal to the USCA claiming that it is entitled to payment of the additional expenses it incurred because of the breach.

THE ISSUE: Is Rotorex liable for breach of contract under the CISG, and if so, should pay consequential and other damages suffered by DelchiTHE HOLDING ON APPEAL:Article 35 of the CISG, which is the applicable law in this case, provides that "the seller must deliver goods which are of quantity, quality and description required by the contract; the goods do not conform with the contract unless they possess the qualities of goods which the seller has held out to the buyer". Also in Article 36 of the CISG, it is stated that "the seller is liable in accordance with the contract and this Convention for any lack of conformity".

THE LEGAL RATIONALE FOR THE HOLDING: The United States Court of Appeals affirmed the decision of the lower court holding Rotorex liable for breach of contract. The Court based its decision based on the admissions made by Rotorex that indeed the specifications of the compressors were not conforming to the agreement. The admissions were made by Ernest Gamache and John McFee, the president of Rotorex, in a letter sent to Delchi on May 13, 1988 and May 17, 1988, respectively. They both admitted that the compressors would actually generate less cooling power and consume more energy than the specifications in the contract.

Since the compressors did not conform to the specifications in the agreement, Rotorex is liable for breach of contract in light of Articles 35 and 36 of the CISG. Rototex is also liable to pay for the consequential damages for loss of profits to include other expenses incurred by Delchi based from the provision of the CISG which states that "damages for breach of contract by one party consist of a sum equal to the loss, including loss of profits, suffered by the other party as a consequence of the breach".

Reference"Delchi Carrier, SpA v. Rotorex Corp." Alt Law Beta. Retrieved on 28 April 2009 at