## Facts

- Jewell-Rung Agency, Inc. was a Canadian importer and wholesaler of men’s clothing.
- The Haddad Organization, Ltd. manufactured and distributed Lakeland-brand outerwear in the United States.
- In 1990, Jewell obtained Lakeland outerwear samples from Haddad and used them to solicit orders from Canadian retailers.
- Jewell submitted a purchase order to Haddad for Lakeland outerwear for the fall 1991 season (retail value about $250,000), which Haddad accepted with an understanding that Jewell would be the exclusive Canadian distributor.
- By February 1991, Jewell had secured retailer orders for more than 15% of the goods covered by the purchase order.
- Haddad later granted exclusive manufacturing and distribution rights for Lakeland outerwear to a third party, Olympic, and did not fill Jewell’s purchase order.
- Jewell learned of Haddad’s nonperformance when it was too late to obtain substitute outerwear for the fall season.
- Olympic offered to supply Lakeland outerwear, but Jewell refused, asserting Olympic’s products were lower quality, Olympic was a competitor, and purchasing from Olympic would expose Jewell’s customers to a competing wholesaler.
- Jewell sued for breach of contract seeking consequential damages, including lost profits exceeding $350,000.

## Issues

1. Whether a buyer’s refusal to purchase substitute goods from a third party bars consequential damages as a failure to mitigate under U.C.C. cover principles.
2. Whether recoverable lost profits are limited to profits on retailer orders already obtained at the time of breach, or may include additional anticipated sales tied to an exclusivity arrangement.

## Decision

- The court treated breach as conceded for purposes of the motion and addressed only the scope of damages.
- The court denied summary judgment seeking to bar consequential damages based on Jewell’s refusal to buy from Olympic, holding that cover is not mandatory where the proposed substitute may be commercially unreasonable.
- The court denied summary judgment seeking to cap lost profits at existing retailer orders, holding that additional anticipated profits could be recoverable if foreseeable and provable with reasonable certainty.
- The court left the extent of damages and the reasonableness of Jewell’s refusal to cover for resolution on a fuller factual record.

## Legal Principles

- Under U.C.C. § 2-715, consequential damages (including lost profits) are recoverable when they were foreseeable at contracting and can be proven with reasonable certainty.
- Under U.C.C. § 2-712, a buyer’s duty to mitigate through cover is contextual; the buyer is not required to accept substitute performance that is not commercially reasonable.
- Refusal to cover may be reasonable where substitute goods present material business risks, such as dealing with a direct competitor or accepting allegedly inferior quality affecting customer relationships.
- Lost profits are not limited to profits on existing customer orders; they may include profits on prospective sales when grounded in evidence (e.g., exclusivity expectations, demonstrated demand) rather than speculation.

## Conclusion

The court denied the seller’s summary-judgment effort to narrow U.C.C. damages, allowing the buyer to pursue consequential damages and lost profits at trial because cover is required only when commercially reasonable and anticipated profits tied to an exclusivity arrangement may be recoverable if foreseeable and provable with reasonable certainty.


Jewell-Rung Agency, Inc. v. The Haddad Org., Ltd., 814 F. Supp. 337 (S.D.N.Y. 1993)