Contracts I - Remedies - Cases Flashcards
In Spang Industries, Fort Pitt Bridge Division v. Aetna Casualty & Surety Co. (1975), the key issue in the case was whether Torrington could recover damages resulting from Fort Pitt’s delayed delivery of steel. The main issue revolved around general or special damages (Hadley definition). What was the reason that led the court to decide that Torrington could recover?
Two points.
First, the counterparty argued that Torrington’s damages were “special” or “consequential,” meaning they were not reasonably foreseeable to them at the time of contract formation. The court disagreed. The court found that they were general damages and they should have reasonably anticipated the sequence of work in the construction project.
Second, Torrington acted in good faith to mitigate the damages by organizing a subcontractor that would offload the material when the counterparty failed to organize a subcontractor.
When considering the avoidability (mitigation), is it sufficient that the plaintiff has taken steps to mitigate the damages?
One cannot recover damages that one could have avoided without
undue expense, undue hardship or risk, or undue humiliation.
I would argue that they also need to be in good faith (Spang Industries v. Aetna).
For damages, if the damages suffered do not flow from the breach, what must be done?
If the damages suffered do not flow from the breach, then it must be established that special circumstances giving rise to them should reasonably have been anticipated at the time the contract was made.
How would you define general damages?
General damages, also known as direct damages, are damages that flow directly from a breach of contract, and they are presumed to arise naturally from the breach. General damages are recoverable if they are a direct and foreseeable result of the breach.
Which case established the foundational principles governing the recovery of both special and general damages in contract law?
Hadley v. Baxendale
To recover special damages, the injured party must demonstrate what?
That these damages were in the contemplation of both parties at the time the contract was formed or that the breaching party had knowledge of the special circumstances.
In construction projects, is it foreseeable that when I don’t do the work, that someone else would have to do it? For what kind of damages would that speak?
Yes. General damages.
In Spang Industries, Fort Pitt Bridge Division v. Aetna Casualty & Surety Co. (1975), the key issue in the case was whether Torrington could recover damages resulting from Fort Pitt’s delayed delivery of steel. One of the key questions was at what time the breaching party must have had foreseeability. Original contract stated “delivery mutually agreed upon”. There were subsequent delivery dates afterwards. When does it have to be foreseeable?
Court says when you reached an agreement on the date. The relevant point in time is not the signing of original contract. It was the agreement on time.
If there is no agreed price in a contract, what would a court likely find?
A reasonable price. Fair market price at time and place of delivery. That is a reasonable price.
In Hadley v. Baxendale (1854), the plaintiffs, who ran a milling business, needed a new crankshaft for their mill and hired the defendants, Pickford & Co., to transport the broken crankshaft to a manufacturer for a replacement. The plaintiffs explicitly informed the defendants about the urgency of the delivery and were promised a swift delivery if the crankshaft was handed over by noon. However, despite collecting the crankshaft on time, the defendants failed to deliver it promptly, resulting in the plaintiffs incurring financial losses due to extended downtime of their mill. Why were no damages awarded to Hadley for the loss of profits?
The court concluded that the loss of profits in this case could not reasonably be considered a consequence of the breach that both parties could have contemplated when making the contract because the special circumstances (causing the delay) were never communicated to the defendants.
In Simard v. Burson (2011), Simard made the highest bid of $192,000 at a foreclosure sale, but he did not proceed to settlement. The property was then resold to Zimmerman for $163,000, who also failed to go to settlement. A second resale occurred, which was completed at $130,000. What damages could Burson (seller) claim? What did he receive? What measure of damages is this?
Only the difference between 192 k and 163 k.
The court held that Burson could not recover the difference between 192 k and 130 k because there lacked causation. Simard did not cause the fault of Zimmerman.
Expectancy (as if the contract had been performed).
In Simard v. Burson (2011), Professor Corbin mentioned the “Uniformity of Sequence” in his reference to the Restatements. In what context?
Professor Corbin is emphasizing that causation in the context of legal disputes is based on the concept of foreseeability, which, in turn, relies on the degree of uniformity of sequence between events. He suggests that causation is established when there is a consistent and predictable relationship between two events, allowing for a reasonable prediction of one event following another based on past experiences and observations. This uniformity of sequence is a key factor in determining whether an event can be considered the cause of another event in legal proceedings.
According to Professor Corbin’s reference to the Restatements, how are foreseeability and causality connected to the Uniformity of Sequence?
Corbin’s statement that causation is determined by foreseeability, based on uniformity of sequence in experience, aligns with the principles outlined in the Second Restatement. This indicates that the Second Restatement is a valuable resource for understanding how causation is established in contract law. However, the Professor believes that causation has more to do with avoidability (mitigation).
§ 351(3) RESTATEMENTS highlights that courts have the authority to limit damages for foreseeable loss in order to ensure justice in certain circumstances. Such circumstances are disproportionality and informality of dealing. What is disproportionality and informality of dealing?
In the context of the Second Restatement of Contracts, “disproportionality” refers to a situation where the amount of damages awarded to a party might be considered excessive or unfair when compared to the actual harm or loss suffered. This means that if the damages awarded by a court appear to greatly outweigh the actual damage incurred, the court can limit or adjust the damages to ensure a fair and just outcome.
“Informality of dealing” refers to contractual situations where the parties involved have not established their rights and obligations through a formal, written contract. In such informal dealings, the terms and conditions of the agreement may not be clearly spelled out in a detailed contract. This informality can affect how damages are determined in case of a breach of contract, and courts may have more flexibility in assessing damages when a formal written contract is absent. This include the absence of a written contract allocating the risk to parties.
In measuring damages, what is the “usual rule”?
The “usual rule” in contract law, as mentioned in “Foster v. Bartolomeo,” is a principle that governs the calculation of damages when a contract is breached. According to this rule, when a breach of contract occurs, the injured party (the plaintiff) is typically entitled to recover the difference between the contract price and the market price of the subject matter of the contract at the time of the breach.
In simpler terms, if one party breaches a contract, and the item or service covered by the contract is now more expensive or less valuable in the open market, the injured party can claim damages equal to the financial loss they suffered due to the breach (hence, expectancy). This measure of damages aims to put the injured party in the position they would have been in if the contract had been fully performed.
In Cricket Alley Corp. v. Data Terminal Systems, Inc. (1987), the courts awarded consequential (special) damages to the plaintiff (Hadley definition). Why would it be beneficial to plaintiffs to recover special damages instead of general damages?
Higher Compensation: Special damages are typically more extensive and can cover losses beyond the immediate and direct consequences of the breach. They can include specific economic losses, lost profits, additional expenses, or other consequential harm directly resulting from the breach. Recovering special damages allows plaintiffs to seek compensation for a broader range of losses, potentially resulting in a higher overall award.
In Cricket Alley Corp. v. Data Terminal Systems, Inc. (1987), the court also discussed the requirement of certainty of damages. What did the court say and why was the certainty of damages requirement fulfilled?
The court emphasized that under the UCC, damages need not be proven with mathematical precision. Instead, they must be reasonable under the circumstances. In this case, evidence including employee payroll records and testimony about additional labor costs incurred due to the failure of the DTS equipment to perform satisfactorily supported Plaintiff’s claim for damages.
Under the UCC, what can buyers do when they receive the goods but they have non-conformities?
Notify the seller of any non-conformity within a reasonable time after discovering it. If the buyer has accepted the goods and provided the required notice of non-conformity, they are entitled to recover damages for the non-conformity. Damages are essentially compensation for the harm or losses suffered due to the seller’s breach of contract (expectation damages).
Contract price vs. market price idea
Buyer: Cover price – contract price (basic remedy) [cover price = market price]
Seller: Contract price – resale price (basic remedy) [resale price = market price]
For buyer, no injury unless the price goes up.
Seller is the opposite, price goes up, the seller is happy. If the price goes down, there is an injury. Look at it from opposite directions. There is no injury if the price moves up.
The basic premise in opposite directions. Market price differential formula. Different formula depending on if the injured party is buyer or seller.
The Drews Co. v. Ledwith-Wolfe Associates, Inc. (1988) discussed a case where a contractor, after disputes and delays, withdrew from a construction project. The owner wanted to establish a restaurant. What damages did both parties claim?
Constructor: Restitution (backwards) as if no contract. For the work done.
Owner: Expectancy (forwards). Wanted to claim the lost profits.
The Drews Co. v. Ledwith-Wolfe Associates, Inc. (1988): Lost profits and “new business rule”. What does the Restatements say about claiming lost profits from new businesses? What are the requirements?
RESTATEMENT (SECOND) OF CONTRACTS § 352, at 146 (1981) (proof of lost profits “may be established with reasonable certainty with the aid of expert testimony, economic and financial data, market surveys and analyses, business records of similar enterprises, and the like”).
What is the difference between fact of loss and amount of loss?
Breaching party should not take advantage of breach. Courts make a distinction between fact of loss and amount of loss. More proof is required for fact of loss than amount of loss. In cases of breach of contract, the burden of proof is typically on the non-breaching party.
The Drews Co. v. Ledwith-Wolfe Associates, Inc. (1988): Before this case, what was the “hard rule” on new businesses?
Hard rule: New businesses could not recover. Was treated as an absolute rule. If you can prove, with reasonable certainty, you can recover but it’s going to be difficult to prove. Wolfe was not able to prove what their loss was.
The Drews Co. v. Ledwith-Wolfe Associates, Inc. (1988): The injured party (owner) who wanted to establish a restaurant claimed lost profits. Lost profits were deemed recoverable consequential damages, but the challenge was determining the certainty of such profits. What are consequential damages? (Hadley definition). Can lost profits only be claimed under consequential damages?
They are special damages.
The UCC “Hadley” rule is mentioned in the context of distinguishing between general and special damages in contract law:
1. General Damages: General damages are those that a reasonable person would foresee as a natural consequence of a contract breach at the time the contract was made. These damages are considered typical and do not require special notice. The UCC recognizes general damages as recoverable.
2. Special Damages: Special damages, on the other hand, are damages that a party would not have reason to foresee as a natural consequence of the breach unless they were notified of specific circumstances at the time of contract formation. To recover special damages, the party seeking them must show that the other party had knowledge of the unique circumstances that would lead to these damages.
No. “Consequential” damages are often equated with lost profits which are assumed to be “special” damages. It is, however, clear that lost profits are recoverable as general damages (which a reasonable person is presumed to know without any special notice) where they flow directly and immediately from the breach of contract. (p. 642).
Where do we find the expression “consequential damages” in UCC?
UCC § 2-715(2)(a): This section allows the buyer to recover consequential damages resulting from the seller’s breach of contract. Consequential damages are recoverable only if the seller had reason to know about them at the time of contracting (either general or special). These damages must be foreseeable, and the seller’s breach must have caused them.
Under the UCC, consequential damages are damages resulting from the seller’s breach including (a) any loss resulting from requirements and needs of the buyer of which the seller had reason to know at the time of contracting and which could not reasonably be prevented by cover or otherwise; and (b) injury to persons or property proximately resulting from any breach of warranty.
