## Facts

- Phosphate Chemicals Export Association, Inc. agreed to sell Fertico Belgium S.A. 35,000 metric tons of phosphate fertilizer in two November 1978 installments, with deadlines of November 20 and November 30.
- Phosphate Chemicals knew Fertico needed timely delivery to satisfy a resale contract with a downstream purchaser.
- Fertico opened a letter of credit for approximately \$1.7 million for the first shipment; the credit was governed by the Uniform Customs and Practice for Documentary Credits and required compliant shipping documents.
- Phosphate Chemicals presented conforming documents and drew payment, but the first cargo was delivered late; Fertico received it on December 17, 1978.
- Upon learning delivery would be late, Fertico canceled the second installment and purchased substitute fertilizer from another supplier at a higher price to meet its downstream obligations.
- The difference between the substitute purchase and the original contract price was approximately \$700,000.
- Because Fertico ultimately received the late first cargo it had already paid for, it was left with about 15,000 tons it did not need and later resold that fertilizer at a profit of about \$454,000.

## Issues

1. Whether profits earned in the buyer’s post-breach cover and renegotiation with its downstream customer must be offset against the buyer’s U.C.C. § 2-712 cover damages.
2. Whether profits from the buyer’s later resale of late-delivered goods must be offset against the buyer’s damages for the seller’s breach.
3. How a buyer-trader’s damages should be measured under U.C.C. § 2-712 when the buyer covers and also earns gains in separate transactions after the breach.

## Decision

- The New York Court of Appeals held that Fertico could recover U.C.C. § 2-712 cover damages without deducting profits from separate transactions arising after the breach.
- The court rejected an automatic setoff based solely on the idea that the buyer’s gains “would not have occurred but for” the seller’s breach.
- The court reinstated, in substantial part, the jury’s contract-damages award that the intermediate appellate court had reduced by offsetting Fertico’s claimed “benefits.”

## Legal Principles

- Under U.C.C. § 2-712, a buyer who makes a reasonable cover purchase may recover the difference between the cost of cover and the contract price, plus incidental and consequential damages as appropriate.
- A breaching seller is not entitled to reduce the buyer’s U.C.C. damages by treating the buyer’s collateral, post-breach profits as a credit merely because those profits are factually traceable to the breach.
- The proper inquiry is whether the claimed “benefit” is functionally a substitute for the promised performance (and thus reduces loss) or instead a collateral gain from the buyer’s separate market activity and bargaining.
- Contract remedies under the U.C.C. are administered to place the aggrieved party in as good a position as if the contract had been performed, while preventing duplicate recovery for the same loss.
- Profits from a buyer-trader’s post-breach resale of goods and from renegotiated downstream arrangements may be collateral to the seller’s breach and therefore not deductible from cover damages when they do not duplicate the expectation measure.

## Conclusion

The court held that a buyer-trader’s cover damages under U.C.C. § 2-712 are not automatically reduced by collateral profits earned in separate post-breach transactions, rejecting a mechanical “but-for” setoff that would shift the buyer’s market gains to the breaching seller.


Fertico Belg. S.A. v. Phosphate Chems. Export Ass'n, 70 N.Y.2d 76, 510 N.E.2d 334 (1987)