Czarnikow-Rionda Co. v. Federal Sugar Refining Co., 255 N.Y. 33 (1930)
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A seller is liable for a buyer’s lost profits on a resale contract if the seller knew or should have known that the buyer intended to resell the goods and the damages were a foreseeable result of the seller’s breach.
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Summary
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Czarnikow-Rionda Co. (Czarnikow), a sugar dealer, sued Federal Sugar Refining Co. (Federal) for breach of contract after Federal supplied defective sugar that Czarnikow had resold to its customers. The New York Court of Appeals reversed the lower courts’ judgments for Czarnikow, holding that Federal was not liable for Czarnikow’s lost profits because the specific terms of Czarnikow’s resale contracts were not within Federal’s contemplation when the original contract was made. The court emphasized that while Federal knew Czarnikow intended to resell the sugar, it did not have specific knowledge of the resale contracts’ terms, making the consequential damages too remote.
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Facts
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Czarnikow contracted with Federal to purchase “fine granulated sugar.” Federal knew that Czarnikow intended to resell the sugar to its customers. Federal delivered defective, discolored sugar directly to Czarnikow’s customers. Czarnikow’s customers complained about the quality of the sugar. Czarnikow sued Federal for breach of contract, seeking damages for lost profits resulting from the defective sugar and the resulting customer claims.
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Procedural History
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The trial court entered judgment for Czarnikow. The appellate division affirmed. The New York Court of Appeals reversed the judgment, finding that the damages sought were not within the contemplation of the parties at the time of contracting.
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Issue(s)
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Whether a seller is liable for a buyer’s lost profits on resale contracts when the seller knows the buyer intends to resell the goods, but does not know the specific terms of the resale contracts?
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Holding
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No, because the seller must have had reason to foresee the specific damages as a probable result of the breach at the time the contract was made.
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Court’s Reasoning
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The court reasoned that Federal’s liability for consequential damages, specifically lost profits from Czarnikow’s resale contracts, depended on whether those damages were foreseeable at the time of the contract. The court applied the rule that “The loss must be one that would naturally and directly result from the breach,” and that the seller