Fertico Belgium S.A. v. Phosphate Chemicals Export Association, Inc., 70 N.Y.2d 76 (1987)

Under UCC 2-712, a buyer-trader who covers after a seller’s breach is entitled to damages equal to the increased cost of cover, plus incidental and consequential damages, minus expenses saved, but profits from a separate, independent resale of the non-conforming goods are not deducted from the damage award.

Summary

Fertico, a fertilizer trader, contracted with Phoschem for timely delivery of fertilizer, knowing Fertico needed it to fulfill a contract with Altawreed. Phoschem breached by late delivery. To avoid breaching its contract with Altawreed, Fertico covered by purchasing substitute fertilizer from Unifert at a higher price. Fertico then sold the late-delivered Phoschem fertilizer to Janssens, making a profit. The court addressed whether Fertico’s damages should be reduced by (1) compensation received from Altawreed for increased delivery costs and (2) profits earned from the Janssens sale. The court held that the Altawreed compensation offset Fertico’s consequential damages, but the Janssens profit was independent and should not reduce the damage award, as Fertico would have pursued such transactions regardless of Phoschem’s breach.

Facts

Fertico, a fertilizer trader, contracted with Phoschem to purchase fertilizer for delivery by specific dates to fulfill a contract with Altawreed. Phoschem breached by delaying the first shipment and Fertico canceled the second. Fertico secured a letter of credit for the first shipment, which Phoschem presented and was honored, despite the late delivery. To meet its obligation to Altawreed, Fertico purchased substitute fertilizer from Unifert at a higher cost than the Phoschem contract. Fertico renegotiated its contract with Altawreed, agreeing to inland delivery for additional compensation. Fertico later sold the late-delivered Phoschem fertilizer to Janssens for a profit.

Procedural History

Fertico sued Phoschem for breach of contract, seeking $1.25 million in damages. A jury awarded Fertico $1.07 million. The trial court denied Phoschem’s motion for judgment notwithstanding the verdict. The Appellate Division vacated the damage award and ordered a new trial, ruling that increased transportation costs were not consequential damages, the higher purchase price from Altawreed was an expense saved, and Fertico’s damages had to be reduced by profits from the Janssens sale. Fertico appealed to the New York Court of Appeals.

Issue(s)

1. Whether the additional compensation Fertico received from Altawreed for inland delivery should be considered an expense saved as a consequence of Phoschem’s breach, thus reducing Fertico’s damages.
2. Whether the profit Fertico made from the independent sale of the Phoschem fertilizer to Janssens should be offset against the damages Fertico suffered as a result of Phoschem’s breach.

Holding

1. No, because saved expenses must be costs or expenditures that would have been anticipated had there been no breach, and the increased remuneration from Altawreed was compensation for additional shipment responsibilities, not a cost Fertico would have anticipated absent the breach.
2. No, because the sale to Janssens was an independent transaction that Fertico would have pursued regardless of Phoschem’s breach, and offsetting this profit would unfairly penalize Fertico.

Court’s Reasoning

The court reasoned that UCC 2-712 allows a covering buyer to recover the difference between the cost of cover and the contract price, plus incidental and consequential damages, less expenses saved. While the increased costs for inland delivery to Altawreed would typically be consequential damages, Altawreed’s compensation for those costs insulated Fertico from loss, thus eliminating that category of damages. However, the court emphasized that saved expenses must be costs or expenditures that would have been anticipated had there been no breach. The additional compensation from Altawreed was not such a cost. Regarding the Janssens sale, the court found it to be an independent transaction. The court stated, “Gains made by the injured party on other transactions after the breach are never to be deducted from the damages that are otherwise recoverable, unless such gains could not have been made, had there been no breach.” Because Fertico was a trader who would have engaged in such transactions regardless, the profit from the Janssens sale should not be deducted. The court emphasized that UCC 1-106 directs that remedies should be liberally administered to put the aggrieved party in as good a position as if the other party had fully performed. Depriving Fertico of its rightful damages and crediting the profit to Phoschem would enrich the wrongdoer, a result the UCC does not authorize. The dissent argued that allowing Fertico to retain profits from the resale of the goods would result in a double recovery. The majority rejected this argument, noting that Fertico took reasonable steps to mitigate damages and save its business. The court explicitly stated: “Fertico did what reasonable traders would do…That did not produce a ‘windfall’ or ‘double benefit’ to the aggrieved party as the dissenting opinion asserts. The result we reach today countenances no such thing.”