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Bulk Oil Inc. v. Sun Oil Trading Co.

decided: January 4, 1983.

BULK OIL (U.S.A.), INC., A NEW YORK CORPORATION (FORMERLY WESTERN HEMISPHERE BULK OIL (U.S.A.), INC.), PLAINTIFF-APPELLEE,
v.
SUN OIL TRADING COMPANY, A DELAWARE CORPORATION, DEFENDANT-APPELLANT, AND BULK OIL HOLDING A.G. AND BULK OIL (ZUG) A.G., ADDITIONAL DEFENDANTS ON COUNTERCLAIM



Appeal from a summary judgment of the United States District Court for the Southern District of New York, Charles E. Stewart, Jr., J., awarding appellee-seller damages against appellant-buyer for the contract price of fuel oil, post-breach bank interest paid by seller to finance the transaction as incidental damages, and statutory pre-verdict interest on both the contract price and each bank interest payment. Judgment affirmed in part, reversed in part, and remanded with directions to amend.

Oakes and Winter, Circuit Judges, and MacMahon,*fn* District Judge.

Author: Macmahon

MACMAHON, District Judge.

This is an appeal by defendant-appellant Sun Oil Trading Company ("Sun") from a judgment of the United States District Court for the Southern District of New York, Charles E. Stewart, Jr., Judge, in favor of plaintiff-appellee Bulk Oil (U.S.A.), Inc. ("Bulk"). Sun does not question its liability for the contract price of fuel oil which it agreed to buy from Bulk but challenges the amount and other items of damages awarded by the district court. We affirm in part and reverse in part.

The essential facts are that Bulk contracted with Sun to sell Sun approximately $4,000,000 worth of fuel oil. In order to perform, Bulk bought the oil from a third-party supplier and financed the transaction by borrowing almost all of the cost from Chase Manhattan Bank ("Chase"). Sun accepted delivery from Bulk but refused to pay. After the breach, Bulk incurred further interest charges on the Chase loan which it paid on a monthly basis.

Invoking N.Y. UCC § 2-709(1) (a) (McKinney 1964),*fn1 Bulk sued Sun for the contract price. The district court granted summary judgment in favor of Bulk for the contract price, leaving "for further consideration the question of incidental damages." Later, on application of Bulk, the court awarded incidental damages for post-breach interest payments by Bulk on the Chase loan, together with statutory pre-verdict interest under N.Y. CPLR § 5001 (McKinney 1963),*fn2 on Bulk's post-breach interest payments to Chase and on the unpaid purchase price.

Sun argues that the court below erred in awarding (1) Bulk's post-breach interest payment to Chase as incidental damages under UCC § 2-709, (2) both Bulk's post-breach interest payments to Chase and statutory pre-verdict interest on the contract price, and (3) statutory interest on Bulk's post-breach interest payments to Chase.

INCIDENTAL DAMAGES FOR SELLER'S POST-BREACH INTEREST PAYMENTS

Whether an aggrieved seller in this diversity case may recover from a breaching buyer as incidental damages post-breach interest payments by the seller on a loan taken by the seller to finance the transaction depends on New York law. New York has adopted the Uniform Commercial Code, which provides, in pertinent part, that "when the buyer fails to pay the price . . . the seller may recover . . . any incidental damages. . . ." N.Y. UCC § 2-709(1)(a).

As used in the relevant sections, N.Y. UCC §§ 2-706, 2-708, and 2-709, "incidental damages to an aggrieved seller include any commercially reasonable charges . . . resulting from the breach." N.Y. UCC § 2-710.*fn3 The Official Comment to § 2-710 states, in part:

Purposes: To authorize reimbursement of the seller for expenses reasonably incurred by him as a result of the buyer's breach. The section sets forth the principal normal and necessary additional elements of damage flowing from the breach but intends to allow all commercially reasonable expenditures made by the seller. (Emphasis added.)

Counsel have not cited, nor have we found, any New York case under UCC § 2-709 holding that incidental damages include post-breach interest payments by an aggrieved seller on a loan made by the seller to finance the transaction. There is New York authority, however, for awarding an aggrieved seller finance charges as incidental damages in a suit under § 2-708.*fn4 That section, in pertinent part, provides that a seller's damages for non-acceptance or repudiation by the buyer is the difference between the market price and the unpaid contract price, "together with any incidental damages provided in this Article (Section 2-710). . . ."

In Neri v. Retail Marine Corp., 30 N.Y.2d 393, 285 N.E.2d 311, 334 N.Y.S.2d 165 (1972), the seller, a dealer in boats, contracted to sell a specified model to a customer. The customer made a substantial deposit in induce the dealer to arrange with the manufacturer for immediate delivery. The dealer took delivery, but the customer reneged. The Court of Appeals awarded the dealer the profit lost on the sale plus the dealer's expenses "for storage, upkeep, finance charges and insurance for the period between the date performance was due and the time of the resale" to a subsequent customer. Id. at 401, 285 N.E.2d at 315, 334 N.Y.S.2d at 170 (emphasis added).

Similarly, in Intermeat, Inc. v. American Poultry, Inc., 575 F.2d 1017 (2d Cir. 1978), the seller incurred finance charges directly attributable to the shipment of meat wrongfully rejected by the buyer, basing its claim on UCC § 2-706(1)*fn5 which makes the buyer liable to the seller, in the case of wrongful breach, for "the difference between the resale price and the contract price together with any incidental damages allowed under the provisions of . . . (Section 2-710). . . ." We held that incidental damages include finance charges incurred incidental to the breach, as distinguished from consequential damages resulting from relations with third parties. In so doing, we adopted the reasoning of the New York Court of Appeals in Neri, supra, to the effect that "the purpose of the Commercial Code was 'to put the seller in as good a position as performance would have done.' Section 2-708(2)." We noted that the significance of the Neri decision was that the Court of Appeals did not limit the scope of "incidental damages" to include only the activities enumerated in § 2-710, such as expenses incurred by the aggrieved seller ...


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