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Bulk Oil Inc. v. Sun Oil Trading Co.

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT


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 for transportation, care, and custody of the goods. Harmonizing our interpretation of New York law with that of the Court of Appeals, we gave a broad meaning to reasonable charges, expenses, or commissions incurred, reimbursement of which was necessary to make the plaintiff whole.*fn6

In light of these precedents, we have no difficulty holding that Bulk's post-breach interest payments on its Chase loan are incidental damages within the meaning of § 2-709. The interest payments were commercially reasonable and foreseeable in this $4,000,000 transaction and were no less directly attributable to Sun's breach than were the finance charges in Neri and Intermeat. We see no reason why the treatment of a seller's finance charges as incidental damages should depend on whether suit is brought under § 2-708 as in Neri, § 2-706 as in Intermeat, or § 2-709 as in the instant case. Quite the contrary. The statutory definition of "incidental damages" contained in § 2-710 makes no such distinction. Nor would such a distinction serve the purpose of the Uniform Commercial Code to put the aggrieved party "in as good a position as if the other party had fully performed." UCC § 1-106(1).*fn7

Sun argues that incidental damages include only those expenses contracted by the seller after the buyer's breach and occasioned by such things as the seller's need to care for and, if necessary, dispose of the goods in a commercially reasonable manner. The argument is apparently based on Nobs Chemical, U.S.A., Inc. v. Koppers Co., 616 F.2d 212, 216 (5th Cir. 1980), a case applying Texas law and not involving finance or interest charges. The short answer to this argument is that it flies in the face not only of Neri and Intermeat, but also of the facts. Had Sun paid the purchase price on the due date, Bulk would have paid off its indebtedness to Chase and no further interest charges would have been incurred. The interest payments recoverable here were all made after Sun's breach. Accordingly, we find Sun's argument untenable and hold that the finance charges incurred here were properly awarded as incidental damages under UCC § 2-709.

STATUTORY INTEREST

We will next consider the district court's award of statutory interest on Bulk's post-breach interest payments to Chase.

The award of statutory pre-verdict interest under N.Y. CPLR § 5001 (McKinney 1963) is founded on the fact that the aggrieved party has been damages by a loss of the use of money or its equivalent and that unless interest is added the party aggrieved is not made whole. Statutory interest is compensation for the use of money.*fn8

The post-breach interest charges incurred here were deducted by Chase from Bulk's account on a monthly basis and were thus out-of-pocket payments. Bulk lost use of its money from the date of each payment and can only be made whole for such damage by recovery of statutory pre-verdict interest from the date of each such payment. Bulk is no less entitled to recover statutory interest on such expenditures than it would be on any other expense cognizable as incidental damages under UCC § 2-710. Indeed, Sun concedes that if Bulk is entitled to recover its actual interest payments as incidental damages, it is entitled to statutory pre-verdict interest on these payments.*fn9

Turning to the district court's award of statutory interest on the contract price, we reverse as to that portion of the contract price which Bulk would have used to pay off its Chase loan and affirm as to the remainder. We consider first that portion of the contract price which Bulk would have used to pay off the loan.

It is clear from our discussion of N.Y. UCC § 2-709 and N.Y. CPLR § 5001 that the legislative purpose of each statute is to put the aggrieved party in as good a position as performance would have done. Having recovered its actual interest charges as incidental damages under UCC § 2-709, Bulk is in as good a position as it would have been in had Sun performed. An award of statutory interest would amount to a double recovery. As the Appellate Division has noted,*fn10 the rate used in computing statutory interest is an assumption about the value of the use of money. When the aggrieved party has been awarded its actual interest charges, this assumption is not necessary because the actual value of the use is known.

It is for these reasons that we awarded the aggrieved seller its actual finance charges, instead of interest at the statutory rate, in Intermeat, supra. There, the buyer wrongfully rejected goods, sold them for less than the contract price, and remitted the proceeds to the seller. The district court denied recovery of the actual interest charges incurred by the seller on a loan to finance the transaction but awarded the seller statutory interest on the contract price for the period before the seller resold the goods and on the difference between the contract price and the resale price for the period after the resale. The seller argued on appeal that "it [was] entitled to recover its actual financing charges attributable to the breach in lieu of the statutory interest awarded by the court." 575 F.2d at 1024. Following Neri, supra, we accepted this argument and directed the district court to amend the judgment by withdrawing the award of statutory interest "for those periods during which the seller incurred finance charges directly attributable to the shipment rejected by [the buyer], and awarding in lieu thereof the finance charges actually incurred." 575 F.2d at 1024.

Similarly, in the instant case, the contract called for Sun to pay Bulk $3,892,807.52 by June 4, 1981. On that date, Bulk owed Chase $3,860,000.00 on the loan. Because Sun did not pay when it should have under the contract, Bulk was forced to make monthly interest payments to Chase. Now that Sun has paid Bulk the contract price and we have ruled that Sun must reimburse Bulk for Bulk's monthly payments (and also pay Bulk statutory interest on the monthly payments), Bulk is in the position it would have been in had Sun paid Bulk in performance of the contract.*fn11 An award of statutory interest to Bulk on the part ($3,860,000.00) of the contract price which Bulk would have used to pay off the loan would be a windfall.*fn12

This analysis, however, does not apply to the excess of the contract price over the amount of the loan, $32,807.52. Had Sun performed the contract by paying Bulk the $32,807.52 due June 4, 1981, Bulk would have paid off the loan and had $32,807.52 left over. Bulk has lost the use of that sum since June 4, 1981 and to be made whole is entitled to be compensated by an award of statutory interest on this amount from June 4, 1981 to the date Sun paid Bulk the full contract price.

Accordingly, we reverse so much of the judgment as awards statutory interest on all of the contract price and direct the district court to amend the judgment by withdrawing all of such award except for such interest upon the sum of $32,807.52. The judgment is affirmed in all other respects.


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