Wullschleger & Co. v. Jenny Fashions, Inc., 618 F. Supp. 373

United States District Court, SDNY

1985

Chapter

20

Title

Contract Remedies

Page

787

Topic

Limitations on Recovery of Expectation Damages

Quick Notes

Jenny bought bad fabric which was a material breach.  She tried to cover by finding a substitute.  She was not barred thanks the implied warranty of merchantability.

Book Name

Contracts Cases, Discussions, and Problems.  Blum Bushaw, Second Edition.  ISBN:  978-0-7355-7069-6.

Issue

o         Whether the implied warranty of merchantability will preclude a disclaimer if the product is defective?  Yes.

Procedure

District

o         Buyer can recover.  See math below.

Facts

Rules

Reason

Pl Wullschleger (Seller)

Df Jenny Fashions (Buyer)

What happened?

Sellers Claim

o         This is an action by a seller, Wullschleger & Co., Inc., against a buyer, Jenny Fashions, Inc. (Jenny), for nonpayment of $28,965.64, plus interest, for fabric sold and partially delivered to Jenny.

Buyers Counterclaim

o         The Buyer, Claiming a latent defect in the fabric, counterclaims for lost profits in the amount of $67,361.94, plus interest, alleging breach of both an express and an implied warranty of merchantability.

o         Buyer bought sample fabric and made circle skirts with no apparent problem.

o         Buyer order 37,500 yards.

o         Buyer only received 23,577 yards at a price of $27,107.

o         Buyer only paid 11,402, leaving a balance of $14,704.

No Apparent defects

o         Fabric came with disclaimer.

o         "No claims allowed after 10 days," and "no allowance will be made after the goods have been cut."

Distortion Problem with Hem

o         The hem of the circle skirts were distorted.

o         Unable to ascertain cause.

o         Customers became dissatisfied and cancelled orders.

o         Buyer also cancelled her remaining order and notified the Seller.

Textile Expert Discovery

o         Large portions of the fabric were screwed and not at right angles.

Sellers Argument distortion cause by Buyers misuse

o         Sellers admits the fabric is not first quality.

o         The distortion was caused not by the skew, but by Jenny's misuse of the fabric.

Courts Response

o         The skewed fabric constituted a breach of the implied warranty of merchantability as well as the express warranty that the fabric was first quality.

o         Skew was the proximate cause of the distorted hemline.

o         Buyer used common industry standards.

o         Invoice language does not bar the Buyers claim.

Section 2-715(2)(a), N.Y. UCC (McKinney 1964)

o         Provides that a buyer may collect consequential damages resulting from a seller's breach of warranty for "any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise. . . ."

Sellers Argument did not have reason to know.

o         That it did not have "reason to know" that Jenny would use its fabric for circle skirts, and therefore that it is not liable for Jenny's lost profits.

o         This hinges the allegation that Jenny should have know the Pl - fabric was not suitable for circle skirts.

Courts Response

o         Circle skirts are neither unusual in the industry nor unique in any way.

o         The making of such a skirt by a dress manufacturer is an ordinary use of fabric well within the inferred knowledge of the seller.

Sellers Argument Buyer should have prevented loss

Courts Response

o         Jenny's loss could not "reasonably be prevented by cover or otherwise."

o         Its attempts to cover by purchasing substitute fabric, although unsuccessful, were reasonable and made in good faith.

Courts Response - Recovery

o         Jenny is entitled to recover its lost profits resulting from the distortion of the skirts, because Seller/Plaintiff had reason to know of Jenny's intended use and Jenny made reasonable efforts to prevent its loss

Sellers Argument computing loss it too uncertain

o         Plaintiff contends that Jenny's basis for computing lost profits is too uncertain to warrant relief.

Rule Rewarding Based On Uncertainty

o         Pursuant to New York law, however, "when it is certain that damages have been caused by a breach of contract, and the only uncertainty is as to their amount, there can rarely be any good reason for refusing on account of such uncertainty, any damages whatever for the breach."

o         Where a wrong has been done, the court will make a reasonable attempt to estimate damages.

Courts Response - Uncertainty

o         Purchase order cancellation will be used to determine reward.

o         There are both written and phone cancellations.

o         There are some other cancellations that cannot be rewarded due to bad bookkeeping.

Courts Math

1.       The two cancellations received from Jenny's customers, and

2.       the six purchase orders cancelled by Jenny on the telephone, that Jenny would have received $82,155.50 in gross profits if plaintiff's fabric had not been defective. (See Appendix attached.)

We deduct from this amount

1.       the $20,346.05 which Jenny recouped at close-out sales for defective dresses,

2.       the $9,039.25 estimated labor rebate for unsewn dresses, and

3.       the $15,704.87 balance due on fabric plaintiff delivered to Jenny, which leaves net lost profits in the amount of $37,065.33.

Class Notes

A warranty of merchantability of goods is implied in every sale where the seller is a merchant of goods of that kind

To prevail in an action for breach of warranty, the buyer must establish not only that a warranty has been breached, but also that the breach was the proximate cause of the loss sustained.