## Facts

- Delchi Carrier S.p.A., an Italian manufacturer of portable room air conditioners, contracted in January 1988 to buy 10,800 Rotorex model K39A compressors for its “Ariele” line for the 1988 spring–summer season.
- Rotorex, a U.S. compressor manufacturer, provided a sample compressor and written performance specifications before contracting.
- The contract contemplated delivery in three installments by May 15, 1988; the first shipment arrived in Italy in April 1988 and was paid by letter of credit.
- Delchi’s quality-control testing showed the compressors were materially nonconforming: most units had lower cooling capacity and higher power consumption than the sample and specifications.
- Delchi attempted to cure the defects, then demanded conforming replacements; Rotorex refused and asserted the specifications had been inadvertently communicated.
- Delchi cancelled the contract on May 23, 1988, expedited substitute compressors from another supplier, and claimed it could not source sufficient substitutes in time to avoid reduced seasonal sales.
- Delchi sought damages including lost profits and various out-of-pocket costs associated with attempted cure, substitution, logistics, and idle production capacity.

## Issues

1. Whether delivery of compressors that materially failed to meet sample and performance specifications constituted a fundamental breach under the CISG permitting contract avoidance.
2. Whether, and to what extent, the CISG permits recovery of lost profits and other consequential or incidental damages, including limits based on foreseeability, reasonable certainty, mitigation, and avoidance of double recovery.

## Decision

- The court affirmed liability, holding Rotorex’s delivery of nonconforming compressors constituted a fundamental breach under the CISG.
- The court affirmed the award of lost profits and most consequential damages, concluding they were foreseeable, causally linked to the breach, and proven with sufficient certainty, and that Delchi took reasonable mitigation measures.
- The court reversed in part on Delchi’s cross-appeal, holding some denied expense items were not necessarily duplicative of the lost-profits award and required further consideration on remand.

## Legal Principles

- Under the CISG, goods must conform to the contract, including qualities represented by a sample or model and agreed specifications.
- A breach is fundamental when it substantially deprives the aggrieved party of what it was entitled to expect under the contract, and the resulting detriment was foreseeable (or should have been foreseeable) to the breaching party.
- CISG Article 74 permits damages equal to the loss caused by the breach, including lost profits, subject to foreseeability at the time of contracting and proof with reasonable certainty.
- The aggrieved party must take reasonable steps to mitigate loss (CISG Article 77); inability to fully mitigate due to time constraints may still permit recovery for remaining losses attributable to the breach.
- Courts must prevent double recovery by ensuring out-of-pocket expense awards do not duplicate amounts already embedded in a lost-profits calculation.

## Conclusion

Applying the CISG, the court held that materially nonconforming compressors constituted a fundamental breach allowing contract avoidance and supported recovery of foreseeable, reasonably certain lost profits and related damages, while requiring careful review of additional expense claims to avoid improper duplication.


Delchi Carrier S.p.A. v. Rotorex Corp., 71 F.3d 1024 (2d Cir. 1995)