Hawkins v. McGee

Supreme Court of New Hampshire

84 N.H. 114 (1929)

BRANCH, J.

The operation in question consisted in the removal of a considerable quantity of scar tissue from the palm of the plaintiff’s right hand and the grafting of skin taken from the plaintiff’s chest in place thereof. The scar tissue was the result of a severe burn caused by contact with an electric wire, which the plaintiff received about nine years before the time of the transactions here involved. There was evidence to the effect that before the operation was performed the plaintiff and his father went to the defendant’s office, and that the defendant, in answer to the question, “How long will the boy be in the hospital?” replied, “Three or four days, not over four; then the boy can go home and it will be just a few days when he will go back to work with a good hand.” Clearly this and other testimony to the same effect would not justify a finding that the doctor contracted to complete the hospital treatment in three or four days or that the plaintiff would be able to go back to work within a few days thereafter. The above statements could only be construed as expressions of opinion or predictions as to the probable duration of the treatment and plaintiff’s resulting disability, and the fact that these estimates were exceeded would impose no contractual liability upon the defendant. The only substantial basis for the plaintiff’s claim is the testimony that the defendant also said before the operation was decided upon, “I will guarantee to make the hand a hundred per cent perfect hand or a hundred per cent good hand.” The plaintiff was present when these words were alleged to have been spoken, and, if they are to be taken at their face value, it seems obvious that proof of their utterance would establish the giving of a warranty in accordance with his contention.

… It is unnecessary to determine at this time whether the argument of the defendant, based upon “common knowledge of the uncertainty which attends all surgical operations,” and the improbability that a surgeon would ever contract to make a damaged part of the human body “one hundred per cent perfect,” would, in the absence of countervailing considerations, be regarded as conclusive, for there were other factors in the present case which tended to support the contention of the plaintiff. There was evidence that the defendant repeatedly solicited from the plaintiff’s father the opportunity to perform this operation, and the theory was advanced by plaintiff’s counsel in cross–examination of defendant that he sought an opportunity to “experiment on skin grafting,” in which he had had little previous experience. If the jury accepted this part of plaintiff’s contention, there would be a reasonable basis for the further conclusion that, if defendant spoke the words attributed to him, he did so with the intention that they should be accepted at their face value, as an inducement for the granting of consent to the operation by the plaintiff and his father, and there was ample evidence that they were so accepted by them. The question of the making of the alleged contract was properly submitted to the jury.

The substance of the charge to the jury on the question of damages appears in the following quotation: “If you find the plaintiff entitled to anything, he is entitled to recover for what pain and suffering he has been made to endure and for what injury he has sustained over and above what injury he had before.” To this instruction the defendant seasonably excepted. By it, the jury was permitted to consider two elements of damage: (1) Pain and suffering due to the operation; and (2) positive ill effects of the operation upon the plaintiff’s hand. Authority for any specific rule of damages in cases of this kind seems to be lacking, but, when tested by general principle and by analogy, it appears that the foregoing instruction was erroneous.

“By ‘damages,’ as that term is used in the law of contracts, is intended compensation for a breach, measured in the terms of the contract.” Davis v. New England Cotton Yarn Co., 77 N.H. 403, 404. The purpose of the law is “to put the plaintiff in as good a position as he would have been in had the defendant kept his contract.” 3 Williston Cont. § 1338. The measure of recovery “is based upon what the defendant should have given the plaintiff, not what the plaintiff has given the defendant or otherwise expended.” 3 Williston Cont. § 1341. “The only losses that can be said fairly to come within the terms of a contract are such as the parties must have had in mind when the contract was made, or such as they either knew or ought to have known would probably result from a failure to comply with its terms.” Davis, supra, at 404.

The present case is closely analogous to one in which a machine is built for a certain purpose and warranted to do certain work. In such cases, the usual rule of damages for breach of warranty in the sale of chattels is applied, and it is held that the measure of damages is the difference between the value of the machine, if it had corresponded with the warranty and its actual value, together with such incidental losses as the parties knew, or ought to have known, would probably result from a failure to comply with its terms.

The rule thus applied is well settled in this state. “As a general rule, the measure of the vendee’s damages is the difference between the value of the goods as they would have been if the warranty as to quality had been true, and the actual value at the time of the sale, including gains prevented and losses sustained, and such other damages as could be reasonably anticipated by the parties as likely to be caused by the vendor’s failure to keep his agreement, and could not by reasonable care on the part of the vendee have been avoided.” Union Bank v. Blanchard, 65 N.H. 21, 23. We therefore conclude that the true measure of the plaintiff’s damage in the present case is the difference between the value to him of a perfect hand or a good hand, such as the jury found the defendant promised him, and the value of his hand in its present condition, including any incidental consequences fairly within the contemplation of the parties when they made their contract. Damages not thus limited, although naturally resulting, are not to be given.

The extent of the plaintiff’s suffering does not measure this difference in value. The pain necessarily incident to a serious surgical operation was a part of the contribution which the plaintiff was willing to make to his joint undertaking with the defendant to produce a good hand. It was a legal detriment suffered by him which constituted a part of the consideration given by him for the contract. It represented a part of the price which he was willing to pay for a good hand, but it furnished no test of the value of a good hand or the difference between the value of the hand which the defendant promised and the one which resulted from the operation.

It was also erroneous and misleading to submit to the jury as a separate element of damage any change for the worse in the condition of the plaintiff’s hand resulting from the operation, although this error was probably more prejudicial to the plaintiff than to the defendant. Any such ill effect of the operation would be included under the true rule of damages set forth above, but damages might properly be assessed for the defendant’s failure to improve the condition of the hand, even if there were no evidence that its condition was made worse as a result of the operation.

* * *

Lewin v. Levine

Supreme Court, Appellate Division, New York

146 A.D.3d 768 (2017)

OPINION

…The plaintiffs entered into a contract with the defendant Harmon Development Corp. (hereinafter Harmon Development) to renovate their home located in Chappaqua. The defendant Harmon Levine, as president of Harmon Development, executed the contract. The defendant Randy Levine is Harmon Levine’s wife.

The plaintiffs alleged that after they made payments of hundreds of thousands of dollars to the defendants under the contract, they became dissatisfied with the work, terminated Harmon Development’s employment, and hired others to complete the project and remediate what they alleged to be improper and poor work. …

…[T]he plaintiffs moved for summary judgment on the complaint. … [T]he Supreme Court granted the motion to the extent of awarding the plaintiffs summary judgment on the issue of liability on their causes of action. The court noted that the plaintiffs sought the sum of $216,399.05 in damages in their complaint, yet in their motion sought the sum of $468,768.78. Thus, the court directed that a trial be conducted on the issue of damages.

A nonjury trial on the issue of damages was held [and the court] determined that the plaintiffs were entitled to damages in the principal sum of $300,500, which represented the amount of money paid by the plaintiffs to the defendants pursuant to the contract. The court found that the plaintiffs failed to establish that they made payments to other contractors to remediate the work or to complete the project.

…

It is fundamental to the law of damages that one complaining of injury has the burden of proving the extent of the harm suffered, must demonstrate actual damages, and must lay a basis for a reasonable estimate of the extent of the harm.

Here, the Supreme Court erred in awarding damages equal to the monies paid by the plaintiffs to the defendants on the contract. The proper measure of the plaintiffs’ damages was the cost of completion of the construction work and the correction of defects in the defendants’ work. Indeed, in their complaint, the plaintiffs stated that their damages on the breach of contract, negligence, and conversion causes of action were the “total sum” of $201,399.05, which was the cost “to repair the premises to the condition that was agreed upon” in the contract, and to “replace the damaged property and stolen property.”

At trial, the plaintiffs failed to demonstrate what portion of the $300,500 they paid to the defendants was attributed to (1) work that was never done, and/or (2) defective work. The only testimony regarding these payments was simply the amount of the payments made under the contract. Such proof of payment to the defendants was inadequate to establish the plaintiffs’ damages. Accordingly, the trial court’s damages award was not warranted by the facts. Since the plaintiffs failed to demonstrate that they sustained actual damages, the complaint must be dismissed.

To the extent that the plaintiffs contend on appeal that the damages award was inadequate, such contention is not properly before this Court, as the plaintiffs did not appeal from the order.

Groves v. John Wunder Co.

Supreme Court of Minnesota

205 Minn. 163 (1939)

STONE, Justice.

Action for breach of contract. Plaintiff got judgment for a little over $15,000. Sorely disappointed by that sum, he appeals.

In August, 1927, S. J. Groves & Sons Company, a corporation (hereinafter mentioned simply as Groves), owned a tract of 24 acres of Minneapolis suburban real estate. It was served or easily could be reached by railroad trackage. It is zoned as heavy industrial property. But for lack of development of the neighborhood its principal value thus far may have been in the deposit of sand and gravel which it carried. The Groves company had a plant on the premises for excavating and screening the gravel. Nearby defendant owned and was operating a similar plant.

In August, 1927, Groves and defendant made the involved contract. For the most part it was a lease from Groves, as lessor, to defendant, as lessee; its term seven years. Defendant agreed to remove the sand and gravel and to leave the property “at a uniform grade, substantially the same as the grade now existing at the roadway * * * on said premises, and that in stripping the overburden * * * it will use said overburden for the purpose of maintaining and establishing said grade.”

Under the contract defendant got the Groves screening plant. The transfer thereof and the right to remove the sand and gravel made the consideration moving from Groves to defendant, except that defendant incidentally got rid of Groves as a competitor. On defendant’s part it paid Groves $105,000. So that from the outset, on Groves’ part the contract was executed except for defendant’s right to continue using the property for the stated term. (Defendant had a right to renewal which it did not exercise.)

Defendant breached the contract deliberately. It removed from the premises only “the richest and best of the gravel” and wholly failed, according to the findings, “to perform and comply with the terms, conditions, and provisions of said lease * * * with respect to the condition in which the surface of the demised premises was required to be left.” Defendant surrendered the premises, not substantially at the grade required by the contract “nor at any uniform grade.” Instead, the ground was “broken, rugged, and uneven.” Plaintiff sues as assignee and successor in right of Groves.

As the contract was construed below, the finding is that to complete its performance 288,495 cubic yards of overburden would need to be excavated, taken from the premises, and deposited elsewhere. The reasonable cost of doing that was found to be upwards of $60,000. But, if defendant had left the premises at the uniform grade required by the lease, the reasonable value of the property on the determinative date would have been only $12,160. The judgment was for that sum … . The gauge of damage adopted by the decision was the difference between the market value of plaintiff’s land in the condition it was when the contract was made and what it would have been if defendant had performed. The one question for us arises upon plaintiff’s assertion that he was entitled, not to that difference in value, but to the reasonable cost to him of doing the work called for by the contract which defendant left undone.

1. Defendant’s breach of contract was wilful. There was nothing of good faith about it. Hence, that the decision below handsomely rewards bad faith and deliberate breach of contract is obvious. That is not allowable. Here the rule is well settled … that, where the contractor wilfully and fraudulently varies from the terms of a construction contract, he cannot sue thereon and have the benefit of the equitable doctrine of substantial performance. That is the rule generally.

Jacob & Youngs v. Kent, 230 N.Y 239, is typical. It was a case of substantial performance of a building contract. (This case is distinctly the opposite.) Mr. Justice Cardozo, in the course of his opinion, stressed the distinguishing features. “Nowhere,” he said, “will change be tolerated, however, if it is so dominant or pervasive as in any real or substantial measure to frustrate the purpose of the contract.” Again, “the willful transgressor must accept the penalty of his transgression.”

2. In reckoning damages for breach of a building or construction contract, the law aims to give the disappointed promisee, so far as money will do it, what he was promised. …

Never before, so far as our decisions show, has it even been suggested that lack of value in the land furnished to the contractor who had bound himself to improve it any escape from the ordinary consequences of a breach of the contract.

…

Even in case of substantial performance in good faith, the resulting defects being remediable, it is error to instruct that the measure of damage is “the difference in value between the house as it was and as it would have been if constructed according to contract.” The “correct doctrine” is that the cost of remedying the defect is the “proper” measure of damages.

Value of the land (as distinguished from the value of the intended product of the contract, which ordinarily will be equivalent to its reasonable cost) is no proper part of any measure of damages for wilful breach of a building contract. The reason is plain.

The summit from which to reckon damages from trespass to real estate is its actual value at the moment. The owner’s only right is to be compensated for the deterioration in value caused by the tort. That is all he has lost. But not so if a contract to improve the same land has been breached by the contractor who refuses to do the work, especially where, as here, he has been paid in advance. The summit from which to reckon damages for that wrong is the hypothetical peak of accomplishment (not value) which would  have been reached had the work been done as demanded by the contract.

The owner’s right to improve his property is not trammeled by its small value. It is his right to erect thereon structures which will reduce its value. If that be the result, it can be of no aid to any contractor who declines performance. As said long ago in Chamberlain v. Parker, 45 N.Y. 569, 572, “A man may do what he will with his own, * * * and if he chooses to erect a monument to his caprice or folly on his premises, and employs and pays another to do it, it does not lie with a defendant who has been so employed and paid for building it, to say that his own performance would not be beneficial to the plaintiff.” …

Suppose a contractor were suing the owner for breach of a grading contract such as this. Would any element of value, or lack of it, in the land have any relevance in reckoning damages? Of course not. The contractor would be compensated for what he had lost, i.e., his profit. Conversely, in such a case as this, the owner is entitled to compensation for what he has lost, that is, the work or structure which he has been promised, for which he has paid, and of which he has been deprived by the contractor’s breach.

To diminish damages recoverable against him in proportion as there is presently small value in the land would favor the faithless contractor. It would also ignore and so defeat plaintiff’s right to contract and build for the future. To justify such a course would require more of the prophetic vision than judges possess.

…

3. It is said by the Restatement, Contracts § 346, comment b: “Sometimes defects in a completed structure cannot be physically remedied without tearing down and rebuilding, at a cost that would be imprudent and unreasonable. The law does not require damages to be measured by a method requiring such economic waste. If no such waste is involved, the cost of remedying the defect is the amount awarded as compensation for failure to render the promised performance.”

The “economic waste” declaimed against by the decisions applying that rule has nothing to do with the value in money of the real estate, or even with the product of the contract. The waste avoided is only that which would come from wrecking a physical structure, completed, or nearly so, under the contract. … Absent such waste, as it is in this case, the rule of the Restatement, Contracts § 346 is that “the cost of remedying the defect is the amount awarded as compensation for failure to render the promised performance.” That means that defendants here are liable to plaintiff for the reasonable cost of doing what defendants promised to do and have wilfully declined to do.

…

Peevyhouse v. Garland Coal & Mining Co.

Supreme Court of Oklahoma

382 P.2d 109 (1962)

JACKSON, Justice.

In the trial court, plaintiffs Willie and Lucille Peevyhouse sued the defendant, Garland Coal and Mining Company, for damages for breach of contract. Judgment was for plaintiffs in an amount considerably less than was sued for. Plaintiffs appeal and defendant cross-appeals.

…

Briefly stated, the facts are as follows: plaintiffs owned a farm containing coal deposits, and in November, 1954, leased the premises to defendant for a period of five years for coal mining purposes. A “stripmining” operation was contemplated in which the coal would be taken from pits on the surface of the ground, instead of from underground mine shafts. In addition to the usual covenants found in a coal mining lease, defendant specifically agreed to perform certain restorative and remedial work at the end of the lease period. It is unnecessary to set out the details of the work to be done, other than to say that it would involve the moving of many thousands of cubic yards of dirt, at a cost estimated by expert witnesses at about $29,000.00. However, plaintiffs sued for only $25,000.00.

During the trial, it was stipulated that all covenants and agreements in the lease contract had been fully carried out by both parties, except the remedial work mentioned above; defendant conceded that this work had not been done.

Plaintiffs introduced expert testimony as to the amount and nature of the work to be done, and its estimated cost. Over plaintiffs’ objections, defendant thereafter introduced expert testimony as to the “diminution in value” of plaintiffs’ farm resulting from the failure of defendant to render performance as agreed in the contract—that is, the difference between the present value of the farm, and what its value would have been if defendant had done what it agreed to do.

…

On appeal, the issue is sharply drawn. Plaintiffs contend that the true measure of damages in this case is what it will cost plaintiffs to obtain performance of the work that was not done because of defendant’s default. Defendant argues that the measure of damages is the cost of performance “limited, however, to the total difference in the market value before and after the work was performed.”

…

Plaintiffs rely on Groves v. John Wunder Co. In that case, the Minnesota court, in a substantially similar situation, adopted the “cost of performance” rule as opposed to the “value” rule. The result was to authorize a jury to give plaintiff damages in the amount of $60,000, where the real estate concerned would have been worth only $12,160, even if the work contracted for had been done.

It may be observed that Groves v. John Wunder Co. is the only case which has come to our attention in which the cost of performance rule has been followed under circumstances where the cost of performance greatly exceeded the diminution in value resulting from the breach of contract. Incidentally, it appears that this case was decided by a plurality rather than a majority of the members of the court.

… It is highly unlikely that the ordinary property owner would agree to pay $29,000 (or its equivalent) for the construction of “improvements” upon his property that would increase its value only about ($300) three hundred dollars. The result is that we are called upon to apply principles of law theoretically based upon reason and reality to a situation which is basically unreasonable and unrealistic.

In Groves v. John Wunder Co., supra, in arriving at its conclusions, the Minnesota court apparently considered the contract involved to be analogous to a building and construction contract, and cited authority for the proposition that the cost of performance or completion of the building as contracted is ordinarily the measure of damages in actions for damages for the breach of such a contract.

…The primary purpose of the lease contract between plaintiffs and defendant was neither “building and construction” nor “grading and excavation.” It was merely to accomplish the economical recovery and marketing of coal from the premises, to the profit of all parties. The special provisions of the lease contract pertaining to remedial work were incidental to the main object involved.

… The American Law Institute’s Restatement of the Law, Contracts, Volume 1, Sections 346(1)(a)(i) and (ii) submits the proposition that the cost of performance is the proper measure of damages “if this is possible and does not involve unreasonable economic waste;” and that the diminution in value caused by the breach is the proper measure “if construction and completion in accordance with the contract would involve unreasonable economic waste.”(Emphasis supplied.) In an explanatory comment immediately following the text, the Restatement makes it clear that the “economic waste” referred to consists of the destruction of a substantially completed building or other structure. Of course no such destruction is involved in the case now before us.

On the other hand, in McCormick, Damages, Section 168, it is said with regard to building and construction contracts that “* * * in cases where the defect is one that can be repaired or cured without undue expense” the cost of performance is the proper measure of damages, but where “* * * the defect in material or construction is one that cannot be remedied without an expenditure for reconstruction disproportionate to the end to be attained”(emphasis supplied) the value rule should be followed. The same idea was expressed in Jacob & Youngs, Inc. v. Kent, 230 N.Y. 239, as follows:

“The owner is entitled to the money which will permit him to complete, unless the cost of completion is grossly and unfairly out of proportion to the good to be attained. When that is true, the measure is the difference in value.”

It thus appears that the prime consideration in the Restatement was “economic waste;” and that the prime consideration in McCormick, Damages, and in Jacob & Youngs, Inc. v. Kent, supra, was the relationship between the expense involved and the “end to be attained”—in other words, the “relative economic benefit.”

In view of the unrealistic fact situation in the instant case, and certain Oklahoma statutes to be hereinafter noted, we are of the opinion that the “relative economic benefit” is a proper consideration here.

…

We therefore hold that where, in a coal mining lease, lessee agrees to perform certain remedial work on the premises concerned at the end of the lease period, and thereafter the contract is fully performed by both parties except that the remedial work is not done, the measure of damages in an action by lessor against lessee for damages for breach of contract is ordinarily the reasonable cost of performance of the work; however, where the contract provision breached was merely incidental to the main purpose in view, and where the economic benefit which would result to lessor by full performance of the work is grossly disproportionate to the cost of performance, the damages which lessor may recover are limited to the diminution in value resulting to the premises because of the non-performance.

…

Under the most liberal view of the evidence herein, the diminution in value resulting to the premises because of non-performance of the remedial work was $300.00. After a careful search of the record, we have found no evidence of a higher figure, and plaintiffs do not argue in their briefs that a greater diminution in value was sustained. It thus appears that the judgment was clearly excessive, and that the amount for which judgment should have been rendered is definitely and satisfactorily shown by the record.

* * *

IRWIN, Justice (dissenting).

By the specific provisions in the coal mining lease under consideration, the defendant agreed as follows:

* * * 7b Lessee agrees to make fills in the pits dug on said premises on the property line in such manner that fences can be placed thereon and access had to opposite sides of the pits.

c Lessee agrees to smooth off the top of the spoil banks on the above premises.

7d Lessee agrees to leave the creek crossing the above premises in such a condition that it will not interfere with the crossings to be made in pits as set out in 7b.

* * *

7f Lessee further agrees to leave no shale or dirt on the high wall of said pits. * * *

Following the expiration of the lease, plaintiffs made demand upon defendant that it carry out the provisions of the contract and to perform those covenants contained therein.

Defendant admits that it failed to perform its obligations that it agreed and contracted to perform under the lease contract and there is nothing in the record which indicates that defendant could not perform its obligations. Therefore, in my opinion defendant’s breach of the contract was wilful and not in good faith.

Although the contract speaks for itself, there were several negotiations between the plaintiffs and defendant before the contract was executed. Defendant admitted in the trial of the action, that plaintiffs insisted that the above provisions be included in the contract and that they would not agree to the coal mining lease unless the above provisions were included.

In consideration for the lease contract, plaintiffs were to receive a certain amount as royalty for the coal produced and marketed and in addition thereto their land was to be restored as provided in the contract.

Defendant received as consideration for the contract, its proportionate share of the coal produced and marketed and in addition thereto, the right to use plaintiffs’ land in the furtherance of its mining operations.

The cost for performing the contract in question could have been reasonably approximated when the contract was negotiated and executed and there are no conditions now existing which could not have been reasonably anticipated by the parties. Therefore, defendant had knowledge, when it prevailed upon the plaintiffs to execute the lease, that the cost of performance might be disproportionate to the value or benefits received by plaintiff for the performance.

Defendant has received its benefits under the contract and now urges, in substance, that plaintiffs’ measure of damages for its failure to perform should be the economic value of performance to the plaintiffs and not the cost of performance.

…

Defendant did not have the right to mine plaintiffs’ coal or to use plaintiffs’ property for its mining operations without the consent of plaintiffs. Defendant had knowledge of the benefits that it would receive under the contract and the approximate cost of performing the contract. With this knowledge, it must be presumed that defendant thought that it would be to its economic advantage to enter into the contract with plaintiffs and that it would reap benefits from the contract, or it would have not entered into the contract.

Therefore, if the value of the performance of a contract should be considered in determining the measure of damages for breach of a contract, the value of the benefits received under the contract by a party who breaches a contract should also be considered. However, in my judgment, to give consideration to either in the instant action, completely rescinds and holds for naught the solemnity of the contract before us and makes an entirely new contract for the parties.

…

In my judgment, we should follow the case of Groves v. John Wunder Company, 205 Minn. 163, which defendant agrees “that the fact situation is apparently similar to the one in the case at bar,” and where the Supreme Court of Minnesota held:

“The owner’s or employer’s damages for such a breach are to be measured, not in respect to the value of the land to be improved, but by the reasonable cost of doing that which the contractor promised to do and which he left undone.”

The hypothesized breach referred to states that where the contractor’s breach of a contract is wilful, that is, in bad faith, he is not entitled to any benefit of the equitable doctrine of substantial performance.

In the instant action defendant has made no attempt to even substantially perform. The contract in question is not immoral, is not tainted with fraud, and was not entered into through mistake or accident and is not contrary to public policy. It is clear and unambiguous and the parties understood the terms thereof, and the approximate cost of fulfilling the obligations could have been approximately ascertained. There are no conditions existing now which could not have been reasonably anticipated when the contract was negotiated and executed. The defendant could have performed the contract if it desired. It has accepted and reaped the benefits of its contract and now urges that plaintiffs’ benefits under the contract be denied. If plaintiffs’ benefits are denied, such benefits would inure to the direct benefit of the defendant.

Therefore, in my opinion, the plaintiffs were entitled to specific performance of the contract and since defendant has failed to perform, the proper measure of damages should be the cost of performance. Any other measure of damage would be holding for naught the express provisions of the contract; would be taking from the plaintiffs the benefits of the contract and placing those benefits in defendant which has failed to perform its obligations; would be granting benefits to defendant without a resulting obligation; and would be completely rescinding the solemn obligation of the contract for the benefit of the defendant to the detriment of the plaintiffs by making an entirely new contract for the parties.

I therefore respectfully dissent to the opinion promulgated by a majority of my associates.

The first two cases in this section -- Hawkins v. McGee and Lewin v. Levine -- are quite straightforward and present both clear rules and unobjectionable holdings. The next two cases that you read -- Groves v. John Wunder and Peevyhouse v. Garland Coal and Mining Co. -- are quite the opposite. Murky rules and diametrically opposed holdings. You probably disagree strongly with one of them.

The basic principle set forth in Hawkins v. McGee is that the prevailing contract plaintiff is entitled to expectations damages: the amount that would put them in the position they would have been in had the contract been fully performed. Another way of saying this is that this is the plaintiff's rightful position in contract; the court in Hawkins v. McGee contrasts this with the measure of damages in tort, which is to restore (with money) the plaintiff to the position he was in before the tort.

Expectation damages are easy to conceptualize and characterize in the Hawkins case. In contrast, characterizing the parties' expectations, and the plaintiffs' rightful positions, in the Groves and Peevyhouse cases is quite difficult. In Groves, the court concludes that the plaintiff's expectation was simply to have the restoration work done and orders the defendant to pay the amount that it would cost to do so. In Peevyhouse, the majority characterizes the plaintiff's expectation interest (the plaintiff's rightful position) much differently, holding that the expectation is tied to the value of the property and arguing that it would be wasteful to compensate the plaintiff for the cost of the restoration work. Notice that the majority and the dissent characterize the facts very differently and thus reach very different conclusions. Which side do you think has the better of it? What do you make of the majority's economic waste argument?

Recall Jacob & Youngs v. Kent from the previous section. Assuming that Jocob & Youngs failure to use Reading Pipe throughout the house was a material breach, what should Kent's remedy be? What arguments would you make if you represented Kent? If you represented Jacob & Youngs? Is that case really a remedies case rather than a case about breach? Would it be "wasteful" to award damages in the amount necessary to replace all of the pipes in the house?

Buyer’s remedies under the U.C.C.

§ 2-711. Buyer’s Remedies in General; Buyer’s Security Interest in Rejected Goods.

Where the seller fails to make delivery or repudiates or the buyer rightfully rejects or justifiably revokes acceptance then with respect to any goods involved, and with respect to the whole if the breach goes to the whole contract (Section 2-612), the buyer may cancel and whether or not he has done so may in addition to recovering so much of the price as has been paid

     (a) “cover” and have damages under the next section as to all the goods affected whether or not they have been identified to the contract; or

     (b) recover damages for non-delivery as provided in this Article (Section 2-713).

     …

§ 2-712. “Cover”; Buyer’s Procurement of Substitute Goods.

(1) After a breach within the preceding section the buyer may “cover” by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller.

(2) The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages as hereinafter defined (Section 2-715), but less expenses saved in consequence of the seller’s breach.

(3) Failure of the buyer to effect cover within this section does not bar him from any other remedy.

§ 2-713. Buyer’s Damages for Non-delivery or Repudiation.

(1) Subject to the provisions of this Article with respect to proof of market price (Section 2-723), the measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages provided in this Article (Section 2-715), but less expenses saved in consequence of the seller’s breach.

(2) Market price is to be determined as of the place for tender or, in cases of rejection after arrival or revocation of acceptance, as of the place of arrival.

 

Seller’s remedies under the U.C.C.

§ 2-706. Seller’s Resale Including Contract for Resale.

(1) Under the conditions stated in Section 2-703 on seller’s remedies, the seller may resell the goods concerned or the undelivered balance thereof. Where the resale is made in good faith and in a commercially reasonable manner the seller may recover the difference between the resale price and the contract price together with any incidental damages allowed under the provisions of this Article (Section 2-710), but less expenses saved in consequence of the buyer’s breach.

…

§ 2-708. Seller’s Damages for Non-acceptance or Repudiation.

(1) Subject to subsection (2) and to the provisions of this Article with respect to proof of market price (Section 2-723), the measure of damages for non-acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages provided in this Article (Section 2-710), but less expenses saved in consequence of the buyer’s breach.

(2) If the measure of damages provided in subsection (1) is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental damages provided in this Article (Section 2-710), due allowance for costs reasonably incurred and due credit for payments or proceeds of resale.

 

§ 2-709. Action for the Price.

(1) When the buyer fails to pay the price as it becomes due the seller may recover, together with any incidental damages under the next section, the price

     (a) of goods accepted or of conforming goods lost or damaged within a commercially reasonable time after risk of their loss has passed to the buyer; and

     (b) of goods identified to the contract if the seller is unable after reasonable effort to resell them at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing.

Gebbia v. Schulder

939 N.Y.S.2d 740 (N.Y.Sup.App.Term) (2011)

ORDERED that the judgment is reversed, without costs, and the action is dismissed.

In this small claims action, plaintiff alleges that defendant, a dog breeder, breached the implied warranty of merchantability when she sold plaintiff a genetically defective dog. Plaintiff seeks to recover the purchase price of the dog and the expenses she incurred for its treatment. Defendant asserts that plaintiff can not recover damages because she never notified defendant that the dog suffered from any condition or that it had died. After a nonjury trial, the Civil Court awarded plaintiff the principal sum of $2,500.

Upon a review of the record, we find that substantial justice was not done between the parties according to the rules and principles of substantive law.

“Dogs have been held to constitute goods within the meaning of section 2-105 of the Uniform Commercial Code, and defendant, a private breeder, is a merchant within the meaning of UCC 2-104(1).” [] A dog purchaser may recover damages pursuant to UCC 2-714 on the theory that a merchant seller breached the implied warranty of merchantability. “This remedy,” however, is available only “where the buyer notifies the seller of its breach within a reasonable time after it discovers or should have discovered the nonconformity of the goods.” M. Slavin & Sons Ltd v. Glatt Gourmet Cuisine, Inc., 23 Misc. 3d 18, 21 (2009).

In this case, plaintiff specifically averred that she had never notified defendant that the dog suffered from any condition or that the dog had died. As a result, plaintiff’s cause of action for breach of the implied warranty of merchantability must fail. Defendants remaining contentions are without merit.

Accordingly, the judgment is reversed and the action is dismissed.

Fuji Photo Film USA, Inc. v. Zalmen Reiss & Assoc., Inc.

Supreme Court, Kings County, New York

31 Misc.3d 1240(A) (2011)

CAROLYN E. DEMAREST, J.

…

Zalmen Reiss & Associates, Inc. (Zalmen) is a wholesale distributor of electronic products which has been purchasing various merchandise from plaintiff Fuji Photo Film USA, Inc. (Fuji) for approximately 20 years. In November, 2007, defendant [Zalmen] placed orders for 10,000 one gigabyte XD Picture Memory Cards for use in digital cameras (cards) at an agreed price of $19.49 each, for a total price of $194,900. Subsequent to the shipment of the merchandise, and after defendant had sold approximately 4000 of the cards, defendant discovered that Fuji’s competitor, Olympus, was selling this product at a wholesale price less than that charged by Fuji under the terms of the orders at issue and defendant was no longer able to sell the remaining 6000 cards at a profit. Relying upon what it contended was a custom and practice in the industry to provide “price protection” for goods purchased, defendant sought a credit from Fuji for the unsold cards. On or about December 2, 2008, defendant returned the remaining 6000 cards to Fuji. It was not disputed at trial that no authorization had been issued by Fuji for the return of this merchandise as required under the applicable General Terms and Conditions of Sale.

Based upon the lack of authorization for return of the goods which had been sold and delivered a year earlier, Fuji declined to accept return of the 6000 cards and directed the carrier, Roadway, to return them to Zalmen. Zalmen also declined to accept the return and the cards were again returned to Fuji. After several back and forth transfers between Zalmen and Fuji, in light of Roadway’s frustration at continuing to incur the expense of repeated shipment without compensation from either party, Fuji agreed to warehouse the shipment at its distribution center on or about January 26, 2009. The shipment was counted and the unauthorized return was “processed” at a discounted price of $4.50 per unit. A credit was issued to Zalmen for $27,994.50. The entire shipment was sold in a single lot to a reseller contacted by Fuji, at what Fuji contends was the market price for such merchandise, although plaintiff’s Director of Marketing at the time of the transaction, James Avato, testified that, at the time of the return in 2009, the price charged by Fuji was still $19.49. Defendant Zalmen was not notified of the intent to sell the returned merchandise at the discounted price.

… The only issue remaining open is whether plaintiff’s failure to notify defendant of its sale of the returned merchandise at the discounted price precludes recovery of the difference between the original invoiced price and the credit of $27,994.50 given to Zalmen.

Defendant relies upon Uniform Commercial Code (UCC) § 2-706(3) requiring that a seller reselling goods which have been wrongfully rejected or for which acceptance has been wrongfully revoked, at a private sale pursuant to UCC § 2-703(d), must give notice to the buyer of the intent to resell in such manner. It is not disputed that plaintiff Fuji solicited a private buyer for the returned goods and failed to notify defendant of the intent to sell at the discounted price. Testimony by plaintiff’s witness Mr. Amato established that, at the time of the return in 2009, Fuji’s price for a card was still $19.49, that, although sales had slowed, there was still a “viable” market for the cards, and that Fuji did not sell below that price except for the resale of the defendant’s returned shipment. There was no evidence of the allegedly lower price charged by Olympus or any other vendor of such merchandise. Mr. Amato further testified that the returned merchandise was evaluated as “A Stock,” that is, not damaged or defective, but of “top quality.” Fuji’s justification for the severely discounted sale price was that, by returning the goods without authorization after a full year, defendant had abandoned the merchandise. This court rejects such conclusory argument. Clearly, defendant had not abandoned the goods as it had transferred the goods back to the plaintiff’s possession in anticipation of receiving a credit, which it did receive.

Fuji contends that defendant purchased what was an unusually large quantity of merchandise that was “in tight supply” at the time in reliance upon a government order that did not perform as expected and sought to return the cards in order to recoup losses that had nothing to do with Fuji’s price. … In any event, there is no doubt that acceptance of the goods purchased in 2007 was wrongfully revoked in 2008.

However, the mandate of UCC § 2-706(3), that notice be provided to a buyer which has wrongfully revoked acceptance prior to effecting a private sale of goods so returned, is unequivocal when seeking to recover damages pursuant to UCC § 2-703(d). Recovery of the difference between the contract price and the amount recovered upon resale is unavailable to the seller upon failure to comply.

The only alternative is to seek recovery pursuant to UCC § 2-708 for “the difference between the market price at the time and place for tender and the unpaid contract price.” UCC § 2-708(1). The burden, however, is upon the seller under that section to establish the applicable market price so as to demonstrate that the unnoticed private sale resulted in a fair price reflective of the actual value. Here, the evidence adduced by plaintiff established that the market value of the cards when returned to it in 2009 remained at $19.49 per unit, exactly the contract price. The merchandise at issue was not custom-made or in any manner unique. Fuji sold a product that it maintained in its inventory and marketed from a catalog. Plaintiff’s witness testified that the returned items were not damaged and were “A Stock”. Presumably, they could have been returned to inventory and sold at Fuji’s market price of $19.49, without a loss.

Having failed to give notice to defendant pursuant to UCC § 2-706(3) so as to afford it the opportunity to participate in the private sale or perhaps determine to pay plaintiff’s invoice so as to avoid the greater loss to be sustained under the terms of plaintiff’s proposed private sale, plaintiff had the burden to prove that its resale to a third party represented a transaction made in good faith and in a commercially reasonable manner (see UCC § 2-706). This plaintiff failed to do. Plaintiff’s evidence actually established that the resale of the returned merchandise, significantly below market value, to a single vendor selected by plaintiff, was not conducted in a commercially reasonable manner. Plaintiff has not, therefore, sustained its burden and its complaint must be dismissed.

Oliver v. Ball

Superior Court of Pennsylvania

136 A.3d 162 (2016)

OPINION BY STABILE, J.:

…

The facts and procedural history underlying this case are undisputed. Appellant entered into a sale of real estate contract with Appellees Larry M. Ball, Danny R. Ball, Larry J. Ball and Mary H. Ball (“Balls”) for the purchase of two tracts of land in Cranberry Township, Butler County, containing approximately 71.5 acres (“the Property”). Balls failed to convey the Property. Appellant filed suit against Balls for breach of contract, seeking specific performance and/or monetary damages. …

Appellant’s claim for specific performance was severed from his claim for damages and proceeded to a non-jury trial. Following testimony on the liability phase, the trial court concluded that a valid and binding contract for the sale of the Property existed between the parties, which Balls breached. The case next proceeded to the damage phase, at which Appellant testified in support of specific performance. In particular, describing the Property, Appellant testified that “[i]t was wood[ed] property with some open fields, some old farm land, with a, like a wet weather stream running through it. It was hilly. Wasn’t terribly hilly but it was sloping like all other property in Butler County.” [] Appellant testified that he planned to purchase the Property for investment purposes. Specifically, he testified that “[m]y plans were to hold it for a long-term investment. At that time I was still in the timber business and there was some timber on [the Property] that I thought could be harvested.” [] He also testified:

“[a]s a real estate investor [the Property] had a lot of things I look for. It was big so it possibly could be subdivided in the future for, you know, further development. Of course, it had all the mineral rights coming with it so that was something that I hoped to put into my business in the future.”

Appellant testified that the location of the Property was important to him because it “is only maybe five miles as the crow flies from my home so that is important, to try to keep my investments within a reasonable distance from my home and where I work.”[] Explaining why the Property was important to him, Appellant testified:

“It’s basically the sum of the parts of this property are much more valuable than the whole. So, again, what I have learned through 26 years of business and what I have been able to do and have learned to do is to take a whole property like this that has valuable parts, subdivide those parts, if you will, and have it become very strong investment.” []

On cross-examination, Appellant acknowledged that he owns investment properties located as far away as Westmoreland and Crawford Counties.

* * *

Courts in this Commonwealth consistently have determined that specific performance is an appropriate remedy to compel the conveyance of real estate where a seller violates a realty contract and specific enforcement of the contract would not be contrary to justice. As explained in the second restatement:

Contracts for the sale of land have traditionally been accorded a special place in the law of specific performance. A specific tract of land has long been regarded as unique and impossible of duplication by the use of any amount of money. Restatement (Second) of Contracts, § 360 cmt. e.

As is obvious, specific performance for the sale of land is available because no two parcels of land are identical. An award of damages will not suffice to allow a plaintiff to acquire the same parcel of land anywhere else. Thus, in the context of realty agreements breached by a seller, “we can assume that [a buyer] has no adequate remedy at law.” []

Instantly, we note that the parties do not dispute that a valid, enforceable contract for the Property existed and that Balls breached the same by failing to convey the Property. The parties also do not argue that hardship or injustice would ensue if Appellant’s request for specific performance were granted. Rather, the issue on appeal concerns only the adequacy of a remedy at law, and as such, involves a question of law.

Appellant points out that the Property is unique because it had a wet weather stream running through it, was hilly, featured timber and other minerals, and provided opportunities to him for further development. It also was important that the Property was only five miles away from his home so that he could keep his investments within a reasonable distance from home and work. Appellant adequately testified to the unique aspects of the Property and to attributes that made the parcel valuable to him. The trial court dismissed this testimony upon the basis that Appellant did not demonstrate that these attributes could not be duplicated elsewhere. Given that all tracts of land long have been regarded as unique, and Appellant further testified to the Property’s unique characteristics vis-á-vis his needs, we agree with Appellant that a remedy at law is inadequate. Accordingly, we reject the trial court’s conclusion that Appellant was not entitled to specific performance because the Property did not have any unique characteristics that could not be found or purchased elsewhere. We conclude that, based on our review of pertinent case law, the trial court erred in denying Appellant’s claim for specific performance and granting Balls’ motion for nonsuit. As stated, courts in this Commonwealth must enforce specifically realty agreements breached by sellers, except in cases where hardship or injustice would result.

We reject Appellees’ and the trial court’s suggestion that [prior caselaw] stands for the proposition that land itself is not unique, and that specific performance is only available if some characteristic of or structure on the land, or the location of the land itself, is of such importance to a buyer that no other property can duplicate its value. … To the contrary, our law makes clear that the remedy of specific performance in realty contracts derives from the proposition that all land is unique.

The Reed Foundation, Inc. v. FDR Four Freedoms Park, LLC

Supreme Court, New York County, New York

37 Misc.3d 1226(A) (2012)

CHARLES EDWARD RAMOS, J.

Petitioner, The Reed Foundation, Inc. (the “Foundation”), seeks an order declaring that Respondent Franklin D. Roosevelt Four Freedoms Park LLC (the “LLC”) breached its contractual obligations to the Foundation based on the LLC’s continuing failure to complete an agreed engraving at the FDR Four Freedoms Park (the “Park”).

Petitioner’s Allegations

The LLC agreed to include an engraving on behalf of the Foundation at a specific location in the Park. The Foundation contends that the LLC’s undertaking was clear. The LLC has now refused to perform. The Foundation thus seeks to enforce its contractually agreed upon right to specific performance by the LLC.

The Foundation is a charitable organization. The LLC is the developer of the Park. In 2010, the Foundation made a $2.5 million grant to the LLC (the “Grant”), which enabled the LLC to fund the Park’s construction. The terms of the Foundation’s grant are governed by various detailed contracts, negotiated at length by the parties (referred to collectively as the “Agreement” or the “Agreements”). Under the Agreements, as part of “Phase One” construction, the LLC was required to complete construction of a structure called the “Threshold” by “no later than December 31, 2011.” The Agreements specifically mandated that construction of the Threshold “will include” on an exterior west-facing wall, engraved text recognizing the Foundation for its contribution to the Park. This recognition is defined under the Agreements as the “Threshold Recognition Text.” The Agreements also identify the artisan who is to oversee the engraving work on the Threshold. Finally, the Agreements recognize the Foundation’s right to specific performance in the event the LLC fails to complete the Threshold, including the Threshold Recognition Text, according to the Agreement.

It is undisputed that the LLC has failed to complete the Threshold Recognition Text in accordance with the Agreement, notwithstanding the fact that since June 2012, the LLC repeatedly assured the Foundation that it intended to complete the Threshold Recognition Text in accordance with the Agreement “as soon as possible.” The LLC never performed and has refused to provide the Foundation any assurance as to when performance would be complete. As of the filing of the Petition, the dedication of the Park was just two weeks away.

Finally, on October 2, 2012, the LLC advised the Foundation that it would not honor its obligation to complete the Threshold Recognition Text on the Threshold in light of “aesthetic concerns” recently voiced by the LLC’s architects and consultants.

The Foundation asserts that the LLC’s refusal to complete the Threshold, including the Threshold Recognition Text, is a breach of the Agreement. The LLC acknowledged in the Agreement that the Foundation’s remedies at law for the LLC’s “failure to perform, breach or threatened breach” of its obligations under the Agreement “would be inadequate and the Foundation would suffer irreparable harm as a result of such failure to perform, breach or threatened breach.”

The LLC further agreed that the Foundation’s remedies for such conduct include “equitable relief in the form of specific performance” as well as a “temporary or permanent injunction.” The Foundation contends that the contractual provisions recognize and uphold the Foundation’s right to receive what is an inherently unique and special benefit that is impossible to value.

Respondent’s Contentions

The LLC does not dispute the Foundation’s factual allegations, but contends that the issue in this case addresses the conscience of the Court.

The LLC, the builder of the Park asserts that its agreement with the Foundation cannot be honored without defacing a work of art. It accuses the Foundation of framing this dispute as one of private contractual concern—wholly detached from any concept of the public good and the architectural integrity of the work—as though this were a crass commercial transaction, failing utterly to address the public’s stake in this “great venture” and the “irreparable injury” it would cause to the public if it defaced the centerpiece of the Park over objections of the artistic and architectural community.

The LLC states that there is no evidentiary showing that the Foundation would be harmed in any real sense at all if it received recognition that did not deface this memorial and argues that the equities here weigh heavily in the LLC’s favor.

BACKGROUND

What follows are the undisputed facts.

The Park was designed in the 1970s by the late architect Louis I. Kahn. The Park consists of a grand staircase, which ascends to a triangular garden of trees and paving stones bordered by a stone promenade, a forecourt area at the point of the triangle that leads to a large bronze bust of Roosevelt housed in a 12 foot-tall granite structure known as the “Threshold,” and, just beyond the Threshold, a square granite “Room,” which sits at the southernmost tip of Roosevelt Island overlooking the East River.

For over 30 years, efforts to develop the Park were unsuccessful. Then, in 2005, Reed and Jane Gregory Rubin, officers of the Foundation, helped resurrect the long dormant Roosevelt Island project by funding an exhibit on the project at the Cooper Union for the Advancement of Science and Art. The project thereafter gained momentum, with public and private donors displaying interest and ultimately contributing the necessary funds to finance the project.

Consistent with the Rubins’ efforts to advance the project, in March 2010, the Foundation contracted to provide the Grant, the express purpose of which was “to support Phase One ... of construction of the [Park]....” The Grant was among the very first grants made in connection with this project, at a time when there was considerable doubt as to whether the project could be completed. The Grant enabled the LLC to secure public funding from New York State and New York City.

The Agreements

The Grant is governed by a series of interrelated agreements, including the Grant Agreement and the Recognition Agreement. The Grant Agreement and the Recognition Agreement are referred to collectively as the “Foundation–FDR Agreements.” These are detailed contracts, drafted by experienced attorneys representing all parties, which carefully documented the parties’ mutual agreement at the time of the Foundation’s grant.

…

The Recognition Agreement sets forth the precise location and wording of the “Threshold Recognition Text,” as well as the process for its inscription. The LLC, as developer of the FDR Four Freedoms Park, agreed that the Recognition would be permanently carved on the West–Facing Side of the Threshold as follows:

IN HONOR OF VERA D. RUBIN AND SAMUEL RUBIN THE REED FOUNDATION

The Recognition Agreement went on to specify the manner of carving, size, font and placement reasonably acceptable to the Foundation. It also specified that the Recognition would be designed by The John Stevens Shop under the supervision of Nick Benson, Creative Director, that no other text, signage or similar wording recognizing a donor or other contributor could be placed on the West–Facing Side of the Threshold or the North–Facing Side of the Threshold, and that no other carving, inscription, or other signage may be displayed on the West–Facing Side of the Threshold without the prior written consent of the Foundation.

The Recognition Agreement also provides that a “Default” occurs if “the Threshold has not been installed in the Sculpture Court by December 31, 2011.” In addition, the LLC agreed that “the Foundation’s remedies at law for a failure to perform, breach or threatened breach of any of Sections 1 and 2 of this Recognition Agreement would be inadequate and the Foundation would suffer irreparable damages as a result of such failure to perform, breach or threatened breach.” In recognition of this fact, the LLC agreed that, in the event of the LLC’s failure to perform, breach or threatened breach, in addition to any remedies at law, the Foundation, without posting any bond, would be entitled to seek equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available.” (Recognition Agreement, § 6).

Discussion

The LLC seeks to admonish the Foundation, and presumably all of the other donors to and benefactors of the Park whose names are set forth on the monument, by quoting from Maimonides in its memo of law:

“Giving is most blessed and most acceptable When the donor remains completely anonymous.”

This litigation would not have occurred if the LLC had articulated such a concern to the Foundation before it accepted and spent the Foundation’s money.

…

On June 21, 2012, the Foundation and the LLC confirmed their agreement regarding placement of the Threshold Recognition Text on the West–Facing Side of the Threshold as reflected in a mock-up of the required engraving. On June 21, 2012, the Foundation also consented to a request by the LLC that the lettering for the Threshold Recognition Text be changed from black to gray. This Court has examined the Text and finds it to be understated, low to the ground, in small font, on the West–Facing Side of the Threshold, not facing the bust of FDR.

By July 2012, the LLC had completed the inscription of FDR’s speech on the south-facing side of the Threshold but the LLC still had not commenced engraving of the Threshold Recognition Text. At that time, the designated artisan who was responsible for overseeing all engraving on the Threshold, Nick Benson, was on site. The LLC did not apprise the Foundation of its decision not to complete engraving of the Threshold Recognition Text while Mr. Benson was on site.

The LLC asked the Foundation to abdicate its right to the Threshold Recognition Text on the West–Facing Side of the Threshold, and, instead, agree to recognition text on the “grand stair” (where other donors’ names would be engraved). The LLC reported complications with other donors and an evolving aesthetic view that the Threshold should not include the Threshold Recognition Text. The Foundation would not consent to relocating the Threshold Recognition Text.

On August 9, 2012, the LLC responded that it was “[o]f course, mindful of and will honor our contractual agreement with the Reed Foundation,” but again the LLC requested that the Foundation consider relocating the Threshold Recognition Text. On August 20, 2012, the LLC again suggested that the Foundation consent to relocate the Threshold Recognition Text. In response, the Foundation, through counsel, reiterated that the Threshold Recognition Text must be engraved “in accordance with ... the Recognition Agreement” attached to its letter a photo of the West–Facing Side of the Threshold with a Mylar strip displaying the agreed Threshold Recognition Text at its designated location.

The Foundation’s letter further requested that the LLC confirm the timing for completing the engraving on the Threshold. The LLC failed to respond to the Foundation’s request, and, on September 8, 2012, the Foundation again requested confirmation that the required engraving on the Threshold would take place on or before October 10, 2012, ten days after Mr. Benson was scheduled to return to the site and one week in advance of the scheduled dedication of the Park.

The LLC responded on September 13, 2012 “confirm[ing] that pursuant to your letter of August 20, 2012 ..., the Park agrees to the placement of the recognition of The Reed Foundation as described in the August Letter.” The LLC assured the Foundation that the Threshold Recognition Text would be carved in accordance with the Recognition Agreement “as soon as possible.”

On September 26, 2012, the LLC wrote to the Foundation, again acknowledging the Foundation’s “ability to enforce the details of the March 2010 contract” and that the LLC has “no doubt that [the Foundation] may prevail in a Courtroom.” However, the LLC refused to confirm that it would cure its breach and complete the Threshold Recognition Text before the Park’s dedication.

On October 2, 2012, just over two weeks before the Park’s dedication, the LLC advised the Foundation that the LLC will not perform because “[o]ur architects and consultants have told us” that including the Threshold Recognition Text on the Threshold was not the “best aesthetic.” The LLC offered to either relocate the engraving or to agree to repay the Foundation’s grant, with interest.

Other than the completion of the Threshold Recognition Text on the Threshold in accordance with the Foundation–FDR Agreements, all other phases of construction of the Park and the Threshold are essentially complete.

Specific Performance

The Foundation sought to invoke its rights to specific performance and injunctive relief under the Recognition Agreement and sought an order requiring the LLC to complete the Threshold Recognition Text on or before the Park’s dedication on October 17, 2012.

Initially, the Foundation sought to require the LLC to postpone and reschedule the dedication until such performance under the Agreements was completed. However, the Foundation has consented to a waiver of its right to postpone the dedication.

The LLC has materially breached the Foundation–FDR Agreements by refusing to engrave the Threshold Recognition Text by December 31, 2011, as it is contractually obligated to do.

The construction of an unambiguous contract-such as the Grant Agreement and the Recognition Agreement here-is a matter of law for the court and “the intention of the parties may be gathered from the four corners of the instrument and should be enforced according to its terms” [] It is also a “familiar and eminently sensible proposition of law [ ] that, when parties set down their agreement in a clear, complete document, their writing should ... be enforced according to its terms.’” [].

Under the Recognition Agreement, the LLC acknowledged the Foundation’s remedy for breach is specific performance. The LLC agreed that remedies at law were inadequate to redress the LLC’s failure to perform and therefore the Foundation “shall be entitled to seek equitable relief in the form of specific performance” The LLC’s offer to agree to return the gift would negate that term of the Agreement and is hereby rejected. New York courts favor granting equitable relief where, as here, sophisticated parties agree to such remedies “in a clear, complete document.” []

Specific performance is a proper remedy for a breach of contract if money damages would be inadequate to uphold the expectations of the injured and when “the subject matter of the particular contract is unique and has no established market value.” [] “[S]pecific performance has been held to be a proper remedy in actions for breach of contract ... when the uniqueness of the [subject matter] in question makes calculation of money damages too difficult or too uncertain.” []

Here, the Foundation’s manifested expectation at the time of the Grant was an engraving of the Threshold Recognition Text on the Threshold in advance of this Park’s dedication. By its very nature, such a unique and precise honorary recognition is not subject to monetary valuation. This Court understands that this lasting recognition of the Foundation’s role in erecting the Park has significance to the Foundation and its principals. New York courts have granted specific performance in analogous situations involving unique projects and momentous events, with clear uncertainty in value.

The understanding, as carefully set forth in the Agreement, is that the Threshold Recognition Text will be engraved on the Threshold according to contract well in advance of the Park’s dedication. The Foundation’s right to the agreed recognition was not illusory. It was not subject to the arbitrary whims of the LLC or its consultants. Contract law-and philanthropic custom-require enforcement of an unambiguous undertaking to provide a donor, like the Foundation, the specific recognition it was promised.

This Court is disturbed by the actions of the LLC. No potential donor in this State should be made to fear that its generosity will be diminished by strategically delayed artistic whims of a charity’s managers. Public policy and the public’s interest in charitable giving require that philanthropy trump fashion.

Perhaps instead of insulting their donors by quoting Maimonides, the members of the LLC should have read Shelley instead:

I met a traveller from an antique land, Who said—“Two vast and trunkless legs of stone Stand in the desert.... Near them, on the sand, Half sunk a shattered visage lies, whose frown, And wrinkled lip, and sneer of cold command, Tell that its sculptor well those passions read Which yet survive, stamped on these lifeless things, The hand that mocked them, and the heart that fed; And on the pedestal, these words appear: My name is Ozymandias, King of Kings; Look on my Works, ye Mighty, and despair! Nothing beside remains. Round the decay Of that colossal Wreck, boundless and bare The lone and level sands stretch far away.

This Court expects that the inspiration of the Four Freedoms will far outlive the memory of King Ozymandias but the only path the courts can take to insure that New York’s generous custom and practice of philanthropy survives is to require the LLC to honor its obligations that were so carefully articulated in the Agreements. The LLC is directed to complete the Threshold Recognition Text on the Threshold in accordance with the Agreements.

…

CMA CGM, S.A. v. Waterfront Container Leasing Co., Inc.

United States District Court, N.D. California

2013 WL 6576792

Jacqueline Scott Corley, United States Magistrate Judge

…

In or around March 2007, the parties entered into Lease 7006, a five-year term lease for 7,271 containers, in addition to other separate leases. Lease 7006 includes a purchase option provision, which provides that

Lessee is granted a Purchase Option provided that Equipment remains continuously under lease for a minimum period of Five (5) years and subject to the limitation that the sale will be for the totality of the units under lease at the time of the conclusion of the agreed lease period. Unit purchase price shall be as follows.

20’ Dry Cargo Container: US$750.00

40’ Dry Cargo Container: US$1,200.00

40’ HC Dry Cargo Container: US$1,300.00

Lessee shall notify Lessor of intent to exercise the Purchase Option by Sixty (60) day written notice. Lessor shall issue an invoice for the amount due and Lessee shall pay such invoice before the conclusion date of the lease period as set forth in the Recitals above. Title shall pass to Lessee following receipt of Purchase Option price and per diem rates up to and including the last day of the agreed lease period.

On January 30, 2012, CMA sent Waterfront a “Purchase Option Notice,” seeking to exercise the purchase option provision. Waterfront refused to honor the notice.

In May 2012, Waterfront demanded that CMA return all of the containers. Beginning in July 2012, approximately three months before the commencement of this action, CMA began returning the containers to Waterfront. At the time the present motions were filed, approximately half of the Lease 7006 containers had been returned to Waterfront.

* * *

B. Whether CMA is Entitled to Specific Performance for Waterfront’s Breach of the Purchase Option

CMA moves for specific performance, its third cause of action in its Amended Complaint. “Specific performance may be decreed where the goods are unique or in other proper circumstances.” [U.C.C. § 2-716(1). CMA asserts that its request for specific performance for Waterfront’s breach of the purchase option should be granted under the “other proper circumstances” provision in Section 2-716. CMA further contends that specific performance—namely, CMA maintaining possession of the containers and this Court ordering Waterfront to abide by the purchase option—is the most practical and logical means by which to deal with the 3,000–plus containers that remain in CMA’s possession.

On the one hand, the circumstances in this case appear “proper” for a grant of specific performance: rather than have CMA needlessly ship 3,000 containers to various points around the globe just so Waterfront can then sell them and then ship them again to various points around the globe, CMA will simply purchase the containers—which are already in its possession—from Waterfront and then CMA will be able to sell the containers. In other words, specific performance eliminates the waste of needlessly shipping 3,000–plus containers. On the other hand, CMA has not cited any case where specific performance has been granted under similar circumstances.

The Court notes that, contrary to Waterfront’s assertion, the ability to cover does not necessarily preclude a grant of specific performance in this case. As an initial matter, the Official Comments to Section 2-716 do not provide that “other proper circumstances” is limited to situations where the buyer cannot cover; rather, the comment provides “uniqueness is not the sole basis of the remedy under this section for the relief may also be granted ‘in other proper circumstances’ and inability to cover is strong evidence of ‘other proper circumstances.’ ” [U.C.C. § 2-716, Comment 2] In addition, the concept of covering under the circumstances of this case highlights the waste Waterfront’s proposal would produce. Waterfront asserts that CMA can cover its damages by obtaining replacement containers and then, presumably, obtain from Waterfront damages in the amount of the difference between the purchase price of the “covered” containers and the purchase option price under the lease. This ability to cover, however, appears to require additional wasteful movements of thousands of shipping containers. Not only would CMA still be required to return the leased containers to Waterfront—who would then presumably sell them as it has with the already returned containers—its covering would require purchasing containers from a third-party, which could include a physical transfer of those newly purchased containers from seller to buyer. The Court further notes that an order of specific performance would significantly hasten the amount of time needed to resolve this litigation. If specific performance is awarded, the matter is resolved with an exchange of the purchase price and title; if it is not awarded, the parties agree that CMA would need at least six months to return the remaining 3,000–plus containers to Waterfront. Because the parties appear to agree that a final determination of damages cannot be made until Waterfront sells all of the containers, the litigation will extend well into next year. This circumstance further weighs in favor of a grant of specific performance here.

Waterfront’s insistence that the Court previously ruled that specific performance is not available is wrong. In holding that CMA had not proved that equitable title to the containers had passed to CMA, the Court’s previous order distinguished CMA’s real property cases on the ground that specific performance is “generally” not available for personal property in contrast to real property where it is a matter of right. The Court was not presented with the question of whether specific performance of the purchase option provision is appropriate pursuant to Section 2-716. The question is now presented. The Court concludes that the particular circumstances of this case make an award of specific performance “proper” within the meaning of Section 2-716, notwithstanding that the goods are not unique.

Parker v. Twentieth Century-Fox Film Corp.

Supreme Court of California, In Bank

3 Cal.3d 176 (1970)

BURKE, Justice.

Defendant Twentieth Century-Fox Film Corporation appeals from a summary judgment granting to plaintiff the recovery of agreed compensation under a written contract for her services as an actress in a motion picture. As will appear, we have concluded that the trial court correctly ruled in plaintiff’s favor and that the judgment should be affirmed.

Plaintiff is well known as an actress, and in the contract between plaintiff and defendant is sometimes referred to as the “Artist.” Under the contract, dated August 6, 1965, plaintiff was to play the female lead in defendant’s contemplated production of a motion picture entitled “Bloomer Girl.” The contract provided that defendant would pay plaintiff a minimum “guaranteed compensation” of … $750,000. Prior to May 1966 defendant decided not to produce the picture and by a letter dated April 4, 1966, it notified plaintiff of that decision and that it would not “comply with our obligations to you under” the written contract.

By the same letter and with the professed purpose “to avoid any damage to you,” defendant instead offered to employ plaintiff as the leading actress in another film tentatively entitled “Big Country, Big Man” (hereinafter, “Big Country”). The compensation offered was identical, as were 31 of the 34 numbered provisions or articles of the original contract. Unlike “Bloomer Girl,” however, which was to have been a musical production, “Big Country” was a dramatic “western type” movie. “Bloomer Girl” was to have been filmed in California; “Big Country” was to be produced in Australia. Also, certain terms in the proffered contract varied from those of the original. Plaintiff was given one week within which to accept; she did not and the offer lapsed. Plaintiff then commenced this action seeking recovery of the agreed guaranteed compensation.

The complaint sets forth two causes of action. The first is for money due under the contract; the second, based upon the same allegations as the first, is for damages resulting from defendant’s breach of contract. Defendant in its answer admits the existence and validity of the contract, that plaintiff complied with all the conditions, covenants and promises and stood ready to complete the performance, and that defendant breached and “anticipatorily repudiated” the contract. It denies, however, that any money is due to plaintiff either under the contract or as a result of its breach, and pleads as an affirmative defense to both causes of action plaintiff’s allegedly deliberate failure to mitigate damages, asserting that she unreasonably refused to accept its offer of the leading role in “Big Country.”

Plaintiff moved for summary judgment under Code of Civil Procedure 437c, the motion was granted, and summary judgment for $750,000 plus interest was entered in plaintiff’s favor. This appeal by defendant followed. …

As stated, defendant’s sole defense to this action which resulted from its deliberate breach of contract is that in rejecting defendant’s substitute offer of employment plaintiff unreasonably refused to mitigate damages.

The general rule is that the measure of recovery by a wrongfully discharged employee is the amount of salary agreed upon for the period of service, less the amount which the employer affirmatively proves the employee has earned or with reasonable effort might have earned from other employment. However, before projected earnings from other employment opportunities not sought or accepted by the discharged employee can be applied in mitigation, the employer must show that the other employment was comparable, or substantially similar, to that of which the employee has been deprived; the employee’s rejection of or failure to seek other available employment of a different or inferior kind may not be resorted to in order to mitigate damages.

In the present case defendant has raised no issue of reasonableness of efforts by plaintiff to obtain other employment; the sole issue is whether plaintiff’s refusal of defendant’s substitute offer of “Big Country” may be used in mitigation. Nor, if the “Big Country” offer was of employment different or inferior when compared with the original “Bloomer Girl” employment, is there an issue as to whether or not plaintiff acted reasonably in refusing the substitute offer. Despite defendant’s arguments to the contrary, no case cited or which our research has discovered holds or suggests that reasonableness is an element of a wrongfully discharged employee’s option to reject, or fail to seek, different or inferior employment lest the possible earnings therefrom be charged against him in mitigation of damages.

Applying the foregoing rules to the record in the present case, with all intendments in favor of the party opposing the summary judgment motion—here, defendant—it is clear that the trial court correctly ruled that plaintiff’s failure to accept defendant’s tendered substitute employment could not be applied in mitigation of damages because the offer of the “Big Country” lead was of employment both different and inferior, and that no factual dispute was presented on that issue. The mere circumstance that “Bloomer Girl” was to be a musical review calling upon plaintiff’s talents as a dancer as well as an actress, and was to be produced in the City of Los Angeles, whereas “Big Country” was a straight dramatic role in a “Western Type” story taking place in an opal mine in Australia, demonstrates the difference in kind between the two employments; the female lead as a dramatic actress in a western style motion picture can by no stretch of imagination be considered the equivalent of or substantially similar to the lead in a song-and-dance production.

Additionally, the substitute “Big Country” offer proposed to eliminate or impair the director and screenplay approvals accorded to plaintiff under the original “Bloomer Girl” contract, and thus constituted an offer of inferior employment. No expertise or judicial notice is required in order to hold that the deprivation or infringement of an employee’s rights held under an original employment contract converts the available “other employment” relied upon by the employer to mitigate damages, into inferior employment which the employee need not seek or accept. …

In view of the determination that defendant failed to present any facts showing the existence of a factual issue with respect to its sole defense—plaintiff’s rejection of its substitute employment offer in mitigation of damages—we need not consider plaintiff’s further contention that for various reasons, including the provisions of the original contract set forth in footnote 1, Ante, plaintiff was excused from attempting to mitigate damages.

SULLIVAN, Acting Chief Justice (dissenting).

The basic question in this case is whether or not plaintiff acted reasonably in rejecting defendant’s offer of alternate employment. The answer depends upon whether that offer (starring in “Big Country, Big Man”) was an offer of work that was substantially similar to her former employment (starring in “Bloomer Girl”) or of work that was of a different or inferior kind. To my mind this is a factual issue which the trial court should not have determined on a motion for summary judgment. The majority have not only repeated this error but have compounded it by applying the rules governing mitigation of damages in the employer-employee context in a misleading fashion. Accordingly, I respectfully dissent.

The familiar rule requiring a plaintiff in a tort or contract action to mitigate damages embodies notions of fairness and socially responsible behavior which are fundamental to our jurisprudence. Most broadly stated, it precludes the recovery of damages which, through the exercise of due diligence, could have been avoided. Thus, in essence, it is a rule requiring reasonable conduct in commercial affairs. This general principle governs the obligations of an employee after his employer has wrongfully repudiated or terminated the employment contract. Rather than permitting the employee simply to remain idle during the balance of the contract period, the law requires him to make a reasonable effort to secure other employment. He is not obliged, however, to seek or accept any and all types of work which may be available. Only work which is in the same field and which is of the same quality need be accepted.

Over the years the courts have employed various phrases to define the type of employment which the employee, upon his wrongful discharge, is under an obligation to accept. Thus in California alone it has been held that he must accept employment which is “substantially similar.”

…

Although the majority appear to hold that there was a difference “in kind” between the employment offered plaintiff in “Bloomer Girl” and that offered in “Big Country,” an examination of the opinion makes crystal clear that the majority merely point out differences between the two Films (an obvious circumstance) and then apodically assert that these constitute a difference in the kind of employment. The entire rationale of the majority boils down to this: that the “mere circumstances” that “Bloomer Girl” was to be a musical review while “Big Country” was a straight drama “demonstrates the difference in kind” since a female lead in a western is not “the equivalent of or substantially similar to” a lead in a musical. This is merely attempting to prove the proposition by repeating it. It shows that the vehicles for the display of the star’s talents are different but it does not prove that her employment as a star in such vehicles is of necessity different in kind and either inferior or superior.

I believe that the approach taken by the majority (a superficial listing of differences with no attempt to assess their significance) may subvert a valuable legal doctrine. The inquiry in cases such as this should not be whether differences between the two jobs exist (there will always be differences) but whether the differences which are present are substantial enough to constitute differences in the kind of employment or, alternatively, whether they render the substitute work employment of an inferior kind.

It seems to me that this inquiry involves, in the instant case at least, factual determinations which are improper on a motion for summary judgment. Resolving whether or not one job is substantially similar to another or whether, on the other hand, it is of a different or inferior kind, will often (as here) require a critical appraisal of the similarities and differences between them in light of the importance of these differences to the employee. This necessitates a weighing of the evidence, and it is precisely this undertaking which is forbidden on summary judgment.

This is not to say that summary judgment would never be available in an action by an employee in which the employer raises the defense of failure to mitigate damages. No case has come to my attention, however, in which summary judgment has been granted on the issue of whether an employee was obliged to accept available alternate employment. Nevertheless, there may well be cases in which the substitute employment is so manifestly of a dissimilar or inferior sort, the declarations of the plaintiff so complete and those of the defendant so conclusionary and inadequate that no factual issues exist for which a trial is required. This, however, is not such a case.

It is not intuitively obvious, to me at least, that the leading female role in a dramatic motion picture is a radically different endeavor from the leading female role in a musical comedy film. Nor is it plain to me that the rather qualified rights of director and screenplay approval contained in the first contract are highly significant matters either in the entertainment industry in general or to this plaintiff in particular. Certainly, none of the declarations introduced by plaintiff in support of her motion shed any light on these issues.

Nor do they attempt to explain why she declined the offer of starring in “Big Country, Big Man.” Nevertheless, the trial court granted the motion, declaring that these approval rights were “critical” and that their elimination altered “the essential nature of the employment.”

R.R. Donnelly & Sons Co. v. Vanguard Transportations Systems, Inc.

United States District Court, N.D. Illinois

641 F.Supp.2d 707 (2009)

JEFFREY COLE, United States Magistrate Judge.

INTRODUCTION

This breach of contract dispute proves the wisdom of Shakespeare’s injunction, “Defer no time, delays have dangerous ends.” Henry VI, Part 1, Act III, sc. ii 1.331 (1592). The case arose from an admittedly delayed delivery by Vanguard Transportation Systems of advertising brochures announcing a post-Christmas Macy’s sale in Florida. The brochures were delivered to Donnelley’s distribution center in Atlanta on December 27, 2005—eleven days after the promised date of delivery. By then it was too late to mail the brochures to Macy’s customers. Donnelley had to credit the $81,650 cost of the brochures to its customer, Continental Web Press, the printer of the Macy’s brochures. At the bench trial, Donnelley sought this amount in damages …

…Vanguard contends that even if it breached the contract, Donnelley cannot recover because it failed to mitigate its damages. Failure to mitigate is an affirmative defense on which Vanguard has the burden of proof.

… While acknowledging that the victim of a breach of contract must mitigate damages, Donnelley argues that it did not do so—although it concedes that it would have been easy and cheap for it to have done so—because it justifiably relied on Vanguard’s repeated assurances that it would make delivery.

Stating the parties’ respective positions is simple; nothing else in the case is, for the parties disagree over virtually every factual and legal issue in the case. …

THE EVIDENCE AT TRIAL

…

On about December 15, 2005, Vanguard was engaged to transport a shipment of printed material from Continental Web Press in Walton, Kentucky, to Donnelley’s distribution center in Atlanta. Vanguard knew Continental Web Press printed and shipped finished paper products. …

… Vanguard [agreed to] deliver the load to the Donnelley distribution center in Atlanta on December 16 before 2:00 p.m. …

[Vanguard encountered difficulty with the delivery, and after an] aborted delivery attempt on Friday the 16th, Vanguard and Donnelley were in daily contact to reschedule the delivery. It is unclear whether the Atlanta facility was open on Saturday and could have accepted delivery. But Vanguard could not deliver that day, and so delivery was rescheduled for Monday, December 19th. Vanguard reported to Donnelley on the morning of the 19th that it “will attempt delivery today.” That did not occur. Nor did it occur until December 27th—too late for the Macy’s brochure to have any value. Not one of the several calls between Donnelley and Vanguard from December 19 on even hinted at the time-sensitive nature of the load and the urgency of the situation, and, while Donnelley knew, it never conveyed that information to Vanguard. There was not a single exhibit presented at trial by Donnelley that showed that either before or during the period of December 16–December 27, Vanguard was alerted to the fact that the load had to be delivered not later than December 21st in order to have any utility at all.

In the post-December 16 calls, Vanguard told Donnelley variously that it would “attempt” to deliver the load, that it was having difficulty getting a driver, and that its computers were down. Nonetheless, even as the last day approached on which the brochures had to be received by Donnelley in order to be mailed in time for the Macy’s sale, Donnelley did nothing to mitigate its damages. And it remained inert even though, as the evidence showed and Donnelley’s post-trial briefing conceded (indeed emphasized), neither cost nor effort would have been required for Donnelley to have mitigated all its damages.

Donnelley contracted to and paid Vanguard $751.35 in cartage costs. The production cost of the Macy’s brochures was $81,650.00, [which was the amount of Donnelly’s losses]. …

II

ANALYSIS

A.

… Vanguard did not deliver the load until December 27th and hence breached the contract. This … brings us to … the critical issue in the case, namely whether Donnelley failed to mitigate its damages, and if so, what are the consequences?

The so-called duty to mitigate damages, which is often referred to as a general contractual duty is a principle of ancient vintage. Referring to mitigation of damages—or as it is called in tort law “avoidable consequences”—in terms of a “duty” is somewhat misleading, because a plaintiff incurs no liability for failing to act. Rather, the amount of loss that could reasonably have been avoided by stopping performance or making substitute arrangements is simply subtracted from the amount that would otherwise have been recoverable as damages. Phrased differently, the duty to mitigate damages “forbids the victim of a breach of contract, which might well be involuntary, to allow his damages to balloon (when he could easily prevent that from happening), as he might be tempted to do in order to force a lucrative settlement.”  []

The victim of the breach must “exercise reasonable diligence and ordinary care in attempting to minimize the damages after injury has been inflicted.” [] And while he must act with “reasonable dispatch,” the injured party is not required to take steps that involve “undue risk or burden.” [] But there are instances where the victim of the breach might be lulled by the breaching party into inaction because of assurances that all will be well. “[T]o put this differently, the [breaching party] may not insist on mitigation when by its words or deeds it has led the [non-breaching party] to believe that it has assumed what would otherwise be the buyer’s burden of mitigation.” [] While that is going on, the duty to mitigate is suspended.

… Donnelley is adamant that it could and would have mitigated its damages by retaining a “local cartage company” to deliver the load if only Vanguard had told the truth about not having a driver to redeliver the load and not having misled it on a daily basis. …

The evidence shows that by December 20th or December 21st at the latest, Donnelley, could no longer reasonably rely on Vanguard’s equivocal statements that it would “attempt” to deliver the load. Accepting Donnelley’s theory of the case that Vanguard breached the contract by arriving late on December 16th, Donnelley’s duty to mitigate arguably arose at that time. Mitigation …would have eliminated the possibility of any damage and would not have involved an “undue risk or burden.”

…

Donnelley had the right to assume that Vanguard would redeliver the load within 48 hours by Monday, the 19th as the contract required in the event Vanguard was unable to make delivery on the 16th. But Donnelley could not indefinitely operate on that assumption or on the further assumption that the load would be delivered by the 21st. There comes a point at which even unequivocal promises by the breaching party—and there were no such promises by Vanguard —cannot be uncritically relied on. Judge Posner made the point … with the tale of the host waiting for the late dinner guest: “If you invite someone to dinner, and hours after he was due he still hasn’t arrived, you had better infer that he isn’t coming, and start eating. You can’t let yourself and your other guests starve merely because there is a slight chance that he will show up days later.” [] The evidence shows that by either December 20th or the morning of the 21st Donnelley should have inferred that Vanguard wasn’t coming and arranged for delivery by other means—an undertaking that Donnelley’s post-trial Reply Brief says would have been simplicity itself

No delivery was made on Saturday the 17th either because Vanguard or Donnelley or perhaps both were closed. The contact note from the Donnelley tracing department states that Vanguard was waiting to deliver on Monday the 19th. On Monday morning, Vanguard told the Donnelley tracing department that it would “attempt delivery today.” When that did not occur, Donnelley might still reasonably have assumed that delivery would be effectuated on the 20th. But on the morning of the 20th, Vanguard informed Donnelley it was waiting for a driver and would have to call back. That afternoon, Vanguard told Donnelley that it would not be delivering that day, and the best it could say was that it would “attempt delivery tomorrow.” The load did not arrive.

Even when that did not occur, Donnelley was perhaps entitled to wait until Tuesday the 20th. It was not, however, entitled to wait beyond that since the brochures would be of no value unless delivered to Donnelley by Wednesday the 21st. Donnelley has never claimed—nor could it—that it was unaware of the time constraints, and the evidence shows Donnelley never shared that information with Vanguard. By the 20th, it should have been clear to any reasonable and commercially sophisticated person in the industry—and Donnelley was an exceedingly sophisticated consumer of cartage services—that Vanguard’s equivocal statement that it would “attempt” delivery on the 21st could not be relied on. On the morning of the 21st—which Mr. Janiak described at trial as the “drop dead” date for delivery—the best Vanguard could say was that it “will attempt delivery this AM.” At 2:23 p.m. that afternoon, Donnelley was told that the load would not be delivered until the 22nd at 1:00 p.m.

Inexplicably, Donnelley did nothing, even though delivery on the 22nd may have been a day late and $81,000 dollars short. Mr. Janiak testified that December 23rd was the last date for the brochures to be in the mail and that the bulk mail center date was December 27th. On the morning of the 22nd, Donnelley knew that there would be no delivery since Vanguard’s computer was down—and still did nothing—and on the afternoon of the 23rd, Donnelley was told that the carrier did not have a truck and would not deliver until December 27th. And still, Donnelley did nothing.

Normally “[i]t is a nice question, however, just when the [non-breaching party] should have awakened to the fact that [the breaching party]” can no longer be relied on. [] In most cases, there will be no precise time that can be pointed to that marks when the plaintiff’s duty to mitigate can no longer be held in suspension. It is often a guess and “no more than a guess [will be] possible.” [] … In the instant case, there is no guess work involved, and the precise time can be pointed to that marks when the plaintiff’s duty to mitigate can no longer be held in suspension. For Donnelley to have allowed December 20th to have passed without having taken the remedial steps its Reply Brief admits were cheap and easy was unreasonable. To return to Judge Posner’s parable, by December 20th—and surely by the morning of the 21st—Donnelley should have “infer[red] that [Vanguard] [wa]sn’t coming,” and if it continued to wait for Vanguard to arrive, the souffle would fall, the candles would go out, and the guests would all be gone.

The evidence is clear that while Donnelley knew that the “drop dead date” for delivery of the load was December 21st—the 23rd was also mentioned at the trial however—Vanguard did not. Indeed, at trial Mr. Janiak conceded that Vanguard was “never notified of the expiration date of the flyers.” Hence, while the parties may have been symmetrically situated in their ability to have taken appropriate remedial action, they were asymmetrically situated in their knowledge of the urgency of the situation and hence the need for immediate action.

Donnelley’s inaction is mystifying, especially in light of what its post-trial Reply Brief concedes was the minimal time and effort needed for Donnelley to have eliminated any damage. As the Reply Brief acknowledges, all that would have been entailed was the minimal cost of renting a truck from a local cartage company and driving the half hour to the Vanguard lot to pick up the load and delivering it to the Atlanta facility. Mr. Menne, of Vanguard, estimated that the cost would have been about $250. Even if that estimate is low, the cost would have been less than the $750 it cost to haul the load the several hundred miles from Kentucky to Georgia.

The fact that Vanguard could have rented another truck or hired a local cartage company does not resolve the question of whether Donnelley was required to mitigate its damages by making the alternative arrangements it insists Vanguard should have made. “Contract law seeks to preserve the [the non-breaching party’s] incentive to consider a wide range of possible methods of mitigation of damages, by imposing a duty to mitigate even if some of the possibilities are equally within the [breaching party’s] power.” [] Phrased differently, the breaching party’s ability to cure the breach does not excuse the victim of the breach from its duty to mitigate.

[A]s already discussed, Vanguard merely told Donnelley that it would attempt to deliver the load, and it was apparent certainly by the morning of the 21st, if not by the afternoon of the 20th, that it was unlikely that the load would be delivered in time. The specific time-sensitivity of the load and Vanguard’s repeated failures to have made good on its “attempts” to deliver it made Donnelley’s duty to mitigate all the more obvious and urgent.

All that stood between Donnelley and the fulfillment of its obligations to Continental Web Press and the complete mitigation of its certain damages of $81,000 was about an hour of either its time or that of a local cartage company and a few hundred dollars. Donnelley chose to do nothing, as it had the right to do. But in law as in life, choices have consequences. The consequence here is that the avoidable loss of more than $80,000 cannot be taxed to Vanguard.

* * *

Hadley v. Baxendale

Court of the Exchequer

9 Exch. 341, 156 Eng.Rep. 145 (1854)

OPINION

[Reporter: At the trial before Crompton, J., at the last Gloucester Assizes, it appeared that the plaintiffs carried on an extensive business as millers at Gloucester; and that, on the 11^th of May, their mill was stopped by a breakage of the crank shaft by which the mill was worked. The steam-engine was manufactured by Messrs. Joyce & Co., the engineers, at Greenwich, and it became necessary to send the shaft as a pattern for a new one to Greenwich. The fracture was discovered on the 12^th, and on the 13^th the plaintiffs sent one of their servants to the office of the defendants, who are the well-known carriers trading under the name of Pickford & Co., for the purpose of having the shaft carried to Greenwich. The plaintiffs’ servant told the clerk that the mill was stopped, and that the shaft must be sent immediately; and in answer to the inquiry when the shaft would be taken, the answer was, that if it was sent up by twelve o’clock [that] day, it would be delivered at Greenwich on the following day. On the following day the shaft was taken by the defendants, before noon, for the purpose of being conveyed to Greenwich, and the sum of 2£. 4s. was paid for its carriage for the whole distance; at the same time the defendants’ clerk was told that a special entry, if required, should be made to hasten its delivery. The delivery of the shaft at Greenwich was delayed by some neglect; and the consequence was, that the plaintiffs did not receive the new shaft for several days after they would otherwise have done, and the working of their mill was thereby delayed, and they thereby lost the profits they would otherwise have received.]

The judgment of the Court was now delivered by

ALDERSON, B.

… Now we think the proper rule in such a case as the present is this: Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. Now, if the special circumstances under which the contract was actually made where communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated. But, on the other hand, if these special circumstances were wholly unknown to the party breaking the contract, he, at the most, could only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract. For such loss would neither have flowed naturally from the breach of this contract in the great multitude of such cases occurring under ordinary circumstances, nor were the special circumstances, which, perhaps, would have made it a reasonable and natural consequence of such breach of contract, communicated to or known by the defendants. The Judge ought, therefore, to have told the jury, that, upon the facts then before them, they ought not to take the loss of profits into consideration at all in estimating the damages. There must therefore be a new trial in this case.

Sunnyland Farms, Inc. v. Central New Mexico Electric Cooperative, Inc.

Supreme Court of New Mexico

301 P.3d 387 (2013)

CHÁVEZ, Justice.

This case comes before us because of a fire that destroyed a hydroponic tomato facility belonging to a new business, Sunnyland Farms, Inc. (Sunnyland). The day before the fire, Sunnyland’s electricity had been shut off by its local utility, the Central New Mexico Electrical Cooperative (CNMEC), for nonpayment. Sunnyland’s water pumps were powered by electricity, and without power, Sunnyland’s facility had no water. Sunnyland sued CNMEC, alleging both that CNMEC had wrongfully suspended service, and if its electrical service had been in place, firefighters and Sunnyland employees would have been able to stop the fire from consuming the facility.

After a bench trial, the trial court found CNMEC liable for negligence and breach of contract. The trial court awarded damages, including lost profits, of over $21 million in contract and tort, but reduced the tort damages by 80% for Sunnyland’s comparative fault. It also awarded $100,000 in punitive damages. The parties cross-appealed to the Court of Appeals, which (1) reversed the contract judgment, (2) vacated the punitive damages, (3) held that the lost profit damages were not supported by sufficient evidence, …

Sunnyland appealed, and we granted certiorari. We affirm the Court of Appeals regarding the contract judgment, punitive damages, and interest, and reverse on the lost profit damages and the offset. We also take this opportunity to re-examine the standard for consequential contract damages in New Mexico.

BACKGROUND

Sunnyland purchased its electricity from CNMEC. On September 8, 2003, CNMEC shut off electrical service to Sunnyland. Prior to disconnecting electricity for nonpayment, CNMEC ordinarily gives its customers notice that they have fifteen days to pay their overdue bills before service is suspended. It did not give Sunnyland this fifteen-day notice. The trial court record indicates a confusing array of possible billing irregularities, but it is not necessary to address them here because CNMEC does not contest the trial court’s findings that it was negligent and that it breached its duty to Sunnyland.

On the morning of September 9, 2003, before electrical service was restored, several Sunnyland employees engaged in arc welding near flammable materials, including cardboard boxes. In doing so, they started a fire that ultimately consumed Sunnyland Farms’ packhouse and operations building. When Sunnyland’s employees initially discovered the fire, they attempted to put it out using ordinary hoses, but without electricity, the Sunnyland facility had no running water, and the fire grew. Sunnyland does not contest that its employees were negligent both in starting the fire and in reacting to it, for example, by failing to use a fire extinguisher.

Someone living on Sunnyland’s property called the fire department. Fire trucks arrived, but they were unable to access well water for firefighting because there was no electricity to power the pumps. Sunnyland had also failed to make alternative arrangements for emergency water in the event that power failed. Firefighters attempted to contact CNMEC to restore electricity to the water sources, but CNMEC employees expressed reservations to the emergency dispatcher, and the firefighters interpreted their statements as a threat that the fire department would have to assume liability. Firefighters attempted to use reservoir water and to preserve water by using foam and smaller hoses, but the buildings were nonetheless destroyed.

Sunnyland sued CNMEC in contract and tort, among other causes of action, for damages resulting from the fire, alleging that if CNMEC had taken adequate care prior to disconnecting Sunnyland’s electrical service, firefighters and Sunnyland employees would have had access to water and the fire could have been contained. The trial court found CNMEC liable both in contract and in tort. It calculated total consequential damages of over $21 million, of which $13.7 million was the net value of lost crops that the facility would have been able to grow in the absence of the fire. The trial court reduced the damages in tort by 80% to account for Sunnyland’s comparative fault; however, in contract, the trial court awarded the entire almost $21.4 million. The trial court allowed plaintiffs to elect a remedy in contract or tort after the resolution of their appeals.

The trial court also awarded $100,000 in punitive damages based on CNMEC’s failure to restore energy when requested to do so by firefighters. The trial court granted CNMEC an offset of approximately $3.2 million for subrogation rights that it had obtained in a settlement with Sunnyland’s insurer. Finally, the trial court awarded post-judgment interest on the contract damages at a rate of 8.75%, awarded post-judgment interest on damages awarded under tort at 15%, and declined to award any prejudgment interest.

CNMEC and Sunnyland cross-appealed to the Court of Appeals, which affirmed on all issues raised by Sunnyland and reversed on several issues raised by CNMEC. The Court of Appeals held that in New Mexico, awards of consequential damages in contract are governed by a “tacit agreement” test, which the trial court had failed to apply. It therefore reversed the award of damages in contract. It vacated the trial court’s calculation of future lost profits, finding that the trial court’s calculations of crop yields lacked sufficient evidence and did not rise to the level of “reasonable certainty,” and then substituted a calculation that it found more reasonable. The Court of Appeals vacated the award of punitive damages due to the trial court’s failure to find the facts necessary to establish corporate liability. Finally, it affirmed the trial court’s rulings on pre- and post-judgment interest and on CNMEC’s offset of the damages.

Sunnyland appealed all of the Court of Appeals’ holdings to this Court. We address each issue in turn.

DISCUSSION

A. CONTRACT DAMAGES

1. Hadley v. Baxendale and Restatement (Second) of Contracts state the proper test for consequential damages in New Mexico

This Court has previously stated that in an action for breach of contract, the breaching party “is justly responsible for all damages flowing naturally from the breach.” Camino Real Mobile Home Park v. Wolfe, 119 N.M. 436, 443 (1995). Damages “that arise naturally and necessarily as the result of the breach” are “general damages,” which give the plaintiff whatever value he or she would have obtained from the breached contract. In some circumstances, the plaintiff can also recover for “consequential damages” or “special damages,” which “are not based on the capital or present value of the promised performance but upon benefits it can produce or losses that may be caused by its absence.” Id.

The classic test for whether a plaintiff may recover consequential damages comes from Hadley v. Baxendale. In that case, a mill was temporarily shut down due to a broken crankshaft. The defendants were common carriers who were supposed to ship the broken crankshaft to an engineering company to have a new one built, but the defendants “wholly neglected and refused so to do for the space of seven days,” and the mill was shut down for five days longer than should have been necessary. Id. The jury awarded the mill damages for the profits it lost due to the delay. appellate court reversed, holding that in an action for breach of contract, recovery was permitted for consequential damages only “such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.” Id.

The Hadley standard has been interpreted as an objective foreseeability test: A defendant is liable for losses that were foreseeable at the time of contracting, regardless of whether the defendant actually contemplated or foresaw the loss. This foreseeability standard is more stringent than “proximate cause” in tort law; the loss must have been foreseeable as the probable result of breach, not merely as a possibility. The Restatement asks whether there were “special circumstances, beyond the ordinary course of events, that the party in breach had reason to know.” Restatement (Second) Contracts § 351; see also U.C.C. § 2-715(2)(a) (allowing buyers consequential damages 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”). In the absence of such circumstances, the breaching party is liable only for general damages.

This Court has cited the Hadley standard approvingly and described it as the appropriate rule of analysis in New Mexico cases dealing with consequential damages. However, we have also stated that “the foreseeability ... rule anticipates an explicit or tacit agreement by the defendant” that he or she will assume particular damages if he or she breaches. Camino Real, 119 N.M. at 446 (suggesting that the conditions required for an award of special damages must include a “tacit agreement”).

Engaging in an exhaustive analysis of Camino Real, Wall, and other cases in his well-written opinion, Judge Sutin synthesized a “New Mexico rule” of consequential damages. This rule is similar to the test in Restatement (Second) of Contracts, but it incorporates the requirement that “the nonperforming party must explicitly or tacitly agree to respond in damages for the particular damages understood to be likely in the event of a breach.” This makes the “New Mexico rule ... more limited and restrictive than the notion of foreseeability in ... the Restatement or the UCC.” [citations omitted].

We now abandon the “tacit agreement” test. While we suspect that there may not, in fact, be much space between a “tacit agreement” and the special circumstances required to render a defendant liable for consequential damages, our previous emphasis on the tacit agreement test from Globe Refining is confusing and antiquated. We hold that the proper test for consequential damages in New Mexico is the Hadley standard as interpreted in Restatement (Second) of Contracts Section 351. In a contract action, a defendant is liable only for those consequential damages that were objectively foreseeable as a probable result of his or her breach when the contract was made. To the extent our earlier cases suggest a different standard, they are overruled.

2. There were no special circumstances in this case warranting consequential damages

… However, despite this sign that the trial court contemplated the appropriate standard, we cannot say that the trial court actually applied the foreseeability standard correctly. To support the conclusion that Sunnyland’s damages were foreseeable to CNMEC at the time of contracting, we would expect the trial court to find “special circumstances, beyond the ordinary course of events.” Restatement (Second) of Contracts § 351(2)(b). Despite the voluminous findings of fact by the trial court, there were no findings that special circumstances of this type existed.

Sunnyland suggests that it was sufficient that CNMEC knew that Sunnyland was a for-profit enterprise and it depended on electricity. Both of these factual statements are supported by the trial court’s findings of fact and by the evidence presented at trial. The trial court found that “CNMEC [e]mployees ... testified that it was well known within the community that [the Sunnyland] facility was a hydroponic tomato facility.” Furthermore, the trial court found that prior to disconnecting electricity, a CNMEC employee allowed a Sunnyland employee to open the windows in the greenhouse to allow venting, which suggests that CNMEC might have known that cutting off electricity could harm Sunnyland’s tomato crop.

Taking these findings of fact to indicate the presence of special circumstances is problematic for three reasons. First, although this Court indulges reasonable inferences in favor of the trial court’s judgment, this is simply too speculative. This Court does not speculate about what the fact-finder might have meant to say but did not.

Second, Sunnyland’s injury was not directly caused by the lack of electricity. The actual harm was more attenuated: the lack of electricity interrupted Sunnyland’s water supply, which, in conjunction with Sunnyland’s lack of backup firefighting options, made it difficult for Sunnyland to respond to the fire its employees negligently started. There were no findings that CNMEC should have known that Sunnyland was likely to start fires or was depending on electricity in order to fight any fires that occurred. Even if some damage to the tomato crop was foreseeable from the disconnection of electricity, the particular damage that occurred was not, and consequential damages are only permissible if the particular damage that actually occurred was foreseeable. “The mere circumstance that some loss was foreseeable, or even that some loss of the same general kind was foreseeable, will not suffice if the loss that actually occurred was not foreseeable.” Restatement (Second) of Contracts § 351 cmt. (a).

Third, even if CNMEC had reason to know that Sunnyland depended on its electricity to power water in the event of a fire, CNMEC would still not be liable without the presence of additional special circumstances. Hadley provides a good example of what does and does not qualify as “special circumstances.” In Hadley, the defendant knew that the crankshaft it was carrying was a broken part of a for-profit mill. However, the plaintiff never told the defendant exactly what was at stake, i.e., that there was no backup shaft or other alternative plan to keep the mill running.¹ Similarly, in this case, CNMEC would have needed to know not only that Sunnyland depended on its electricity for access to water, but that there was no backup power source, or that there was a particularized need for uninterrupted water or power. There is no evidence that CNMEC had reason to know any of this. In particular, CNMEC could not have been expected to know that Sunnyland did not have a separate power source, independent of the power for the main building, for the well that was to be used in the event of a fire. A firefighter’s trial testimony agreed that “if it’s going to be an approved firefighting source of water, it has to have two separate sources of electricity ... [a]nd one of them cannot come through the building that’s being ... protected by the pump,” and the trial court found that “Sunnyland Farms was negligent in having only one source of power which ran through the support building to energize the exterior well pump.” CNMEC cannot have been expected to anticipate Sunnyland’s negligence in this regard.

Langley v. Pacific Gas & Electric Co., 41 Cal.2d 655 (1953) (in bank), provides an instructive example of what a utility company would need to know to render it liable for consequential damages in the event of a power shutoff. The plaintiff ran a trout hatchery that required electricity to oxygenate the water and keep the trout alive. If power was shut off, the fish could survive for only three and a half hours. The plaintiff purchased electricity from the utility and explained his situation to its employees, asking whether the utility had 24–hour monitoring and would always be able to tell him before power was shut off. The plaintiff told the utility that if it was not able to make this guarantee, he would put in a backup pump. The utility’s employees assured the plaintiff that he would be notified any time the power was shut off. Several years later, power to the fish hatchery was shut off for several hours, and the utility failed to warn or inform the plaintiff. Nearly all of the plaintiff’s fish died. The plaintiff sued the utility for breach of contract, and the California Supreme Court upheld a jury verdict in his favor, apparently including full consequential damages. The court found that the utility “knew that a continuous supply of electric current to plaintiff was imperative,” and the utility had an obligation either to provide it or to give the plaintiff notice so that he could make alternative arrangements. Id.at 850.

The facts in Langley are starkly different from the facts in the present case. In Langley, the plaintiff had an unusual and pressing need for uninterrupted service, and he took steps to notify the utility of that need. He also relied on the utility’s assurances by choosing not to install backup power, and the utility knew of that fact as well. Unlike in Hadley and the present case, the utility in Langley understood the particular consequences that would result from a breach, and it accepted the contract anyway.

There were no findings in this case that CNMEC should have known of a particular vulnerability to fire on Sunnyland’s part, or that Sunnyland had no backup source of power or water. With neither findings nor evidence of special circumstances, we cannot uphold a judgment for consequential damages. Accordingly, we affirm the Court of Appeals’ reversal of the trial court’s award of contract damages to Sunnyland.

* * *

Manouchehri v. Heim

Court of Appeals of New Mexico

123 N.M. 439 (1997)

HARTZ, Chief Judge.

Jeff Heim sold Dr. A.H. Manouchehri a used x-ray machine. Manouchehri sued for breach of warranty and was awarded $4400 in damages after a bench trial. Heim appeals, claiming the following errors: (1) venue was improper; (2) direct damages based on the cost of repair should not have been awarded because there was no evidence of such cost; and (3) consequential damages should not have been awarded because (a) Manouchehri could have avoided them by obtaining a replacement machine; (b) they were not foreseeable, and (c) they were not proved with the required certainty. We affirm.

I. BACKGROUND

Manouchehri was the sole witness at trial. Heim presented no evidence other than through cross-examination of Manouchehri. We summarize Manouchehri’s testimony.

Manouchehri is a physician in Cedar Crest, New Mexico. Heim, a sales representative of a medical supply company, had previously sold various items to Manouchehri. In December 1991 Heim learned that Manouchehri wanted to buy a used 100/100 x-ray machine. The two numbers refer to the rating of the machine in kilovolts and milliamps, respectively. The rating of the machine affects the quality of the image obtained. A weak machine often will not be able to produce adequate images.

On December 9 Manouchehri purchased a machine from Heim. He paid with a check for $1900 on which he wrote at the top “guaranteed to work (install Continental 100–100 x-ray) without limitation” and wrote on the memo line “purchase and installation of Continental 100–100 x-ray.” Heim signed his name on the front of the check after Manouchehri read the notations to him.

During the following weeks Manouchehri realized that the machine was performing as a 100/60 machine. The power was sufficient only for x-rays of small children and thin people. Manouchehri notified Heim and asked him to repair it, offering to pay half the repair costs. Although Heim sent someone to inspect the machine, no repairs were made. Manouchehri continued to talk regularly with Heim about the problem until the lawsuit was filed in September 1994. Heim at first denied knowing that the x-ray machine was a 100/60 machine but later admitted that he knew. At that time he indicated that it was the sort of machine one can buy for only $1900.

Manouchehri initially obtained a default judgment, but it was later set aside. After trial on April 4, 1996 Manouchehri obtained judgment in the amount of $4400. Of the total, $1900 was for direct contract damages and $2500 was for consequential damages. The district court denied Heim’s motion for reconsideration and Heim appealed.

* * *

III. DAMAGES

Heim does not dispute the district court’s finding that he breached a warranty to provide Manouchehri with a 100/100 x-ray machine. His appeal focuses on the propriety of the award of damages. …

A contract for the sale of merchandise is governed by Article 2 of the Uniform Commercial Code. [See U.C.C. §§ 2-102.] For breach of warranty the buyer may recover direct, incidental, and consequential damages. …. The pertinent portions of [Section 2-714] state:

(2) The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount.

(3) In a proper case any incidental and consequential damages under the next section may also be recovered.

 [Section 2-715] states:

(1) Incidental damages resulting from the seller’s breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach.

(2) Consequential damages resulting from the seller’s breach include:

     (a) 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; and

     (b) injury to person or property proximately resulting from any breach of warranty.

Of the $4400 awarded by the district court, $1900 is for direct damages under [Section 2-714] and $2500 is for damages under [Section 2-715]. Heim challenges both figures. We first discuss direct damages.

A. Direct Damages

The judgment awarded Manouchehri $1900 for the cost to repair the x-ray machine. The cost of repair can be an appropriate measure of direct damages. Although [Section 2-714(2)] sets the measure of direct damages for breach of warranty as the difference between the value of the goods as warranted and the value of the goods as accepted, often that difference can be approximated by the cost to repair the goods so that they conform to the warranty. For example, if it costs $200 to fix the x-ray machine so that it performed as a 100/100 machine, then one could assume that the unrepaired machine (the “goods accepted”) was worth $200 less than the repaired machine (the goods “as warranted”). Thus, the cost of repair is commonly awarded as the direct damages.

As pointed out by Heim, however, there was no evidence at trial of the cost to repair the x-ray machine. On the contrary, the evidence at trial was that the machine could not be transformed into a 100/100 machine. Consequently, Manouchehri could not be awarded direct damages based on a cost of repair. As stated in a leading treatise:

There are many cases in which the goods will be irreparable or not replaceable and therefore the costs of repair or replacement cannot serve as a yardstick of the buyer’s damages. In those cases, the court will have to find some other way to measure the difference between the value of the goods as warranted and the value of the goods as accepted. (1 White & Summers, supra, § 10-2, at 557.) 

Nevertheless, we affirm the award of $1900 as direct damages. When to do so would not be unfair to the appellant, we can affirm a ruling by the trial court on a ground other than what was expressed by that court. Such a course is particularly appropriate in this case because our review of the record indicates that the district court in fact computed the direct damages on a proper ground even though the judgment does not state that ground.

At the hearing on Heim’s motion for reconsideration, Heim’s attorney properly stated the law, arguing that Manouchehri’s direct damages should be limited to the difference between the value of the x-ray machine as warranted and the value of the machine as it was delivered to Manouchehri. He sought to set aside the award of $1900 on the basis that there was insufficient evidence to support it. Acknowledging that the sales price constituted sufficient evidence of the value of the machine as warranted, he focused his argument on the alleged absence of evidence to support a finding regarding the value of the machine delivered to Manouchehri.

The district court did not dispute the contentions of Heim’s attorney as to the proper measure of damages, but it rejected the claim that there was insufficient evidence regarding the value of the machine delivered to Manouchehri. Indeed, Finding No. 5 in the district court’s decision states: “Any value to [Manouchehri] of the X–Ray machine ‘as is’ is offset by the cost to [Manouchehri] of having the machine removed from his premises.” On appeal Heim has not challenged this finding. As we understand Finding No. 5, the court determined that Manouchehri could not recover any money for the machine; at the conclusion of trial the court had said, “I presume that someone will be willing to remove the machine for its residual value.” Hence, we do not find it unfair to affirm the district court’s award of $1900 in direct damages as the difference between the value of the x-ray machine as warranted and the value of the machine actually delivered to Manouchehri.

B. Consequential Damages

The district court’s judgment awarded “$2500 for incidental damages.” Again, the judgment was not prepared with sufficient care. The damage award was clearly for consequential damages, not incidental damages. See § 2-715 (defining “incidental” and “consequential” damages). Finding No. 6 of the district court’s decision states: “[Manouchehri] has suffered consequential damages in the form of loss of business of at least $2,500.00 during the time [Manouchehri] reasonably waited for [Heim] to repair the X–Ray machine or otherwise perform under the guarantee.”

Manouchehri’s testimony with respect to consequential damages was straightforward. He said that taking an x-ray would cost him from three to six dollars and he would charge “about $85 to $88” for taking and reading an x-ray. He also claimed that the inadequacy of the machine prevented him from taking at least 30 x-rays a month, although he had no documentation to support his estimate. Using the lowest possible profit per x-ray, Manouchehri contended in closing argument that the monthly loss would be $2370—computed by multiplying $79 net income per x-ray times 30 x-rays a month.

Heim contends that the award is improper for three reasons. First, he contends that Manouchehri failed to present evidence that he could not avoid the damages by renting or buying a substitute machine. Second, he contends that any lost profits were not reasonably foreseeable. Third, he contends that the proof of damages was too indefinite. Each of Heim’s arguments has some force. But they must be examined in light of the district court’s award of only $2500. It appears that the district court considered the three matters raised by Heim and adjusted the award accordingly. We now examine each of Heim’s arguments.

1. Failure to Obtain Replacement Machine

Consequential damages are not recoverable if they could “reasonably be prevented by cover or otherwise.” [Section 2-715(2)]. Heim argues that Manouchehri needed to present evidence that he could not avoid the damages by renting or buying a substitute machine. On the record before us, we reject the argument.

Manouchehri testified that he asked Heim to have someone repair the machine and that Heim responded that he would have someone come to the office for that purpose. Manouchehri further testified that he talked to Heim on a monthly basis regarding the problem and that until about a month before he filed the lawsuit he believed that Heim would fix the problem.

The UCC requirement to take reasonable steps to prevent consequential damages derives from standard contract law. In particular, guidance in interpreting [Section 2-715(2)(a)] can be found in the Restatement (Second) of Contracts § 350. [That provision] reads:

Avoidability as a Limitation on Damages

(1) Except as stated in Subsection (2), damages are not recoverable for loss that the injured party could have avoided without undue risk, burden or humiliation.

(2) The injured party is not precluded from recovery by the rule stated in Subsection (1) to the extent that he has made reasonable but unsuccessful efforts to avoid loss.

The comment to this section states that it may be reasonable to rely on a breaching party’s assurances that the breach will be remedied.

We cannot say that it was unreasonable as a matter of law for Manouchehri to delay seeking a replacement machine for a few months. The district court found that Manouchehri “suffered consequential damages in the form of loss of business of at least $2,500.00 during the time [he] reasonably waited for [Heim] to repair the X–Ray machine or otherwise perform under the guarantee.” The district court did not state how long it was reasonable for Manouchehri to wait, nor did it state how much business Manouchehri lost in any particular month. Nevertheless, we see no need for mathematical precision in the circumstances of this case. The question is only whether it was rational for the district court to find, on the basis of the evidence presented, that by the time Manouchehri should have stopped relying on Heim’s promises, he had lost at least $2500 in profits. Our answer is yes.

2. Foreseeability

Heim next argues that the lost profits cannot be awarded because Manouchehri failed to present any evidence on the issue of foreseeability. He relies on the language in [Section 2-715] that restricts recovery for consequential damages to losses “resulting from general or particular requirements ... of which the seller at the time of contracting had reason to know....” We are not persuaded.

This was not a sale of a mass-produced item to an anonymous buyer. Heim knew his customer and knew how the x-ray machine was to be used. Any reasonable person in his position would assume that a doctor using such a machine would charge more for its use than the cost of operation and would earn income from it. Moreover, Manouchehri testified to conversations with Heim that at least touched on the economics of the machine. For example, Manouchehri related one occasion when parts from an old failed x-ray machine were in front of his office:

[Heim] asked that I had that x-ray and what to do with them and how come it was still sitting there. And I told him that this was a failed x-ray and I am stuck with the loss of this much money. And at that time he promised me, quoting from him, that “I know a doctor that has just x-ray that you want. X-ray 100/100 is what you want, and I can get it for you and install in your office for this much money.”

On the evidence at trial the district court could properly find that lost income would be a foreseeable consequence of an underpowered x-ray machine. Although Manouchehri did not tell Heim how much income he would earn from use of the machine, he did not need to do so in order to recover consequential damages so long as the consequence of lost income was reasonably foreseeable. The law does not require those who enter into contracts to disclose to other parties the profits they expect to make from the contracts. See Richard A. Posner, Economic Analysis of Law 115 (3d ed. 1986) (“Any other rule would make it difficult for a good bargainer to collect damages unless before the contract was signed he had made disclosures that would reduce the advantage of being a good bargainer—disclosures that would prevent the buyer from appropriating the gains from his efforts to identify a resource that was undervalued in its present use.”). Perhaps some limit could be placed on recovery for particularly large lost profits, but the award of $2500 in this case was within proper bounds.

3. Certainty of Proof of Damages

Finally, Heim argues that the evidence of lost profits was not certain enough. We disagree. We recognize that “when it is possible to present accurate evidence on the amount of damages, the party upon whom the burden rests to prove damages must present such evidence.” [citation omitted] This requirement must be understood, however, in the context of the amount at stake. What it is “possible” to present in a suit for a million dollars may be an excessive burden for a small claim. Although Manouchehri’s evidence was minimal, it was adequate in the circumstances. The absence of detail and documentary corroboration detracted from the weight of the testimony, but the district court could still find it sufficiently credible to support the $2500 award.

ESPN, Inc. v. Office of the Commissioner of Baseball

United States District Court, S.D. New York

76 F.Supp.2d 416 (1999)

SCHEINDLIN, District Judge.

On October 15, 1999, ESPN, Inc. (“ESPN”) and the Office of the Commissioner of Baseball (“Baseball”) moved in limine to preclude the admission of certain evidence and argument at their forthcoming trial. Ten separate motions—five by ESPN and five by Baseball—were fully submitted on October 29, 1999. Six of the motions were resolved by opinion dated November 22, 1999. Three of the motions were resolved from the bench during a hearing on November 23, 1999. The final motion, ESPN’s motion in limine to preclude damages evidence, is the subject of this Opinion and Order.

I. ESPN’s Motion in Limine to Preclude Damages Evidence

In my November 22 opinion, I ruled that ESPN breached its 1996 telecasting agreement (“1996 Agreement”) with Baseball when it preempted six baseball games scheduled for Sunday nights in September 1998 and September 1999 without the prior written approval of Baseball. ESPN broadcast NFL football games rather than the previously scheduled baseball games on those six nights.

Baseball claims that it has been damaged in an amount “believed to exceed millions of dollars” as a result of ESPN’s breach of the 1996 Agreement. Baseball attributes its damages to an alleged loss of:

     (1) national television exposure;

     (2) promotional opportunities and ratings;

     (3) value of the “Sunday Night Baseball” television package;

     (4) prestige;

     (5) potential sponsorships; and

     (6) the future value of all of Baseball’s national telecast packages

Because Baseball received full payment from ESPN under the contract, it may only seek extra-contractual damages stemming from the six preemptions.

By its motion, ESPN seeks to preclude Baseball from introducing testimony or other evidence of its alleged monetary damages. ESPN contends that “there is no factual basis to support any claim for monetary damages arising from these perceived injuries, and that such claims are the product of speculation and guesswork.” Baseball argues that it has made the “requisite showing of damage” and therefore it is “entitled to have the opportunity to prove its damages at trial.”

II. Legal Standard

It is well-settled under New York law that

"[a] plaintiff seeking compensatory damages has the burden of proof and should present to the court a proper basis for ascertaining the damages [it] seeks to recover. They must be susceptible of ascertainment in some manner other than by mere conjecture or guesswork." [citation]

Although it is true that “[w]hen the existence of damage is certain, and the only uncertainty is as to its amount, the plaintiff will not be denied recovery of substantial damages,” but even then the plaintiff must show “a stable foundation for a reasonable estimate” of damages. [citations omitted]

With respect to damages for loss of goodwill, business reputation or future profits, the proof requirements are much more stringent. Not only must the claimant prove the fact of loss with certainty, but the “loss must be ‘reasonably certain in amount.’” “In other words, the damages may not be merely possible speculative or imaginary but must be reasonably certain and directly traceable to the breach, not remote or the result of other intervening causes.” [citations omitted]

III. Baseball’s Proffered Damages Evidence

During discovery, ESPN served Baseball with interrogatories regarding its claims for monetary damages. Among other things, ESPN asked Baseball to “state the amount of monetary damages you seek in this action and explain the basis for the computation of your claim.” Baseball responded as follows:

Baseball has not quantified the amount of damages it has sustained by reason of ESPN’s willful refusal to carry [baseball] games as required by the 1996 Agreement. A quantification of those damages, however real, is extremely complex and for that reason Baseball insisted, and ESPN agreed, in the 1996 Agreement that ESPN would produce and distribute the telecasts and that its failure to do so could be specifically enforced, without regard to the need for Baseball to prove irreparable harm. At its essence the damages, believed to exceed millions of dollars, are attributable to [loss of national television exposure; promotional opportunities and ratings; value of the “Sunday Night Baseball” television package; prestige; potential sponsorships; and the future value of all of Baseball’s national telecast packages].

Id. at 7–8.² Nowhere in its response does Baseball set forth any specific dollar amount of monetary damages other than its estimate that damages are “believed to exceed millions of dollars.” Nor does Baseball set forth any method of calculating its alleged damages.

As the following excerpts demonstrate, Baseball’s 30(b)(6) witness on the topic of damages, Baseball’s President Paul Beeston, was equally speculative and vague regarding the alleged harm caused by ESPN’s breach.

Q: Has Baseball quantified any of the damages it alleges in this case?

A: No, we have not quantified it to the extent of a specific dollar, no.

Q: Has Baseball made any calculations as to any specific element of its alleged damages?

A: We have not.

Q: Is there a reason why Baseball has not done any calculation of its damages in this case?

A: No. We just believe it’s significant. We believe that the case speaks for itself at the present time, and we have not worked out what the dollars are of the damages.

* * *

Q: [W]hat’s the basis for your belief that Baseball’s alleged damages exceed millions of dollars?

A: Based on what we have right here and what we’ve said what we’ve [g]ot here going forward. I don’t have anything specific, as I said.

Q: [I]f somebody suggested to you that they believed you’re right, Baseball was damaged but it’s only a hundred thousand dollars, would you be able to point me to anything to say it’s not a hundred thousand dollars, it’s a million dollars?

A: Specifically I won’t be able to say this is what it is, try this calculation and that’s the way it works out, no.

* * *

Q: Can you point to anything specific as evidence that ESPN’s [breach] has made Baseball less valuable in any way?

A: “Specifically, no if you’re asking for one example that I could give you....”

Q: You say you think it probably hurt you. Are you able to point to us specifically—

A: No, I said I cannot.

Not once during his deposition did Beeston offer a concrete example of harm or monetary loss stemming from ESPN’s breach. Baseball’s expert witness, Robert J. Wussler, was similarly unable to cite specific examples of loss. During his deposition, Wussler testified as follows:

Q: Are you aware of any money that Baseball lost as a result of those three games?

A: No I’m not.

Q: And the same thing is true in ‘99, same question with respect to ‘99?

A: They’ve lost in perception. It’s very hard to evaluate dollars and perception.

Q: I’m not going to ask you about perception. You are not aware of any dollars lost, correct?

A: I’m not.

* * *

Q: Again, just so I’m clear, are you aware of 5 cents of advertising revenue that Baseball lost as a result of the three games being [not shown on ESPN]—-

A: No I’m not.

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Q: I take it you are not aware of any lost sponsors or lost advertisers; is that correct?

A: That is correct.

 

Finally, on November 23, this Court held oral argument on ESPN’s motion to preclude damages evidence. During that argument, this Court specifically asked counsel for Baseball whether Baseball had any “concrete proof of monetary harm.” In response, counsel for Baseball merely reiterated the entirely subjective and speculative assertion that Baseball “feel[s] this was very dilatory [sic] to our position and denigrated our product and cost us in the marketplace and otherwise.” Counsel for Baseball was unable to show “any loss of sponsorship, any loss of advertising, [or] any loss of ancillary sales or ticket sales.” As counsel for Baseball conceded: “We have not shown specific losses your Honor, we agree with you there. What we have said is we believe it did affect us.” ³

IV. Discussion

As the above-quoted testimony and answers to ESPN’s interrogatories demonstrate, there can be no question that Baseball has failed to adequately demonstrate either the fact of damages or the amount of damages. Put simply, Baseball’s subjective belief that the amount of damages is “significant”—no matter how fervent—does not meet any of the required proofs set forth under New York law. Baseball has not cited a single lost promotional opportunity, sponsor or advertising dollar stemming from ESPN’s breach. Nor has Baseball set forth any evidence of a decrease in ratings or box office ticket sales. Although damage to Baseball’s prestige and future value are difficult to prove, such difficulty does not allow Baseball to proceed with speculative claims of damages. To the contrary, under New York law, a claim of damages for loss of reputation and future profits must be “reasonably certain.”

Baseball’s damages claim is based on nothing more than its own vague assertions that it was “hurt.” Baseball cites no specific examples of monetary damage, nor does it proffer a method for calculating such damages. The proffered unsupported allegations are simply inadequate to sustain a claim for damages under New York law, and therefore ESPN’s motion to preclude damages evidence is granted.

V. Nominal Damages and Materiality

Although Baseball is not entitled to an award of money damages, it may still receive nominal damages. “[I]t is a well-settled tenet of contract law that even if the breach of contract caused no loss or if the amount of the loss cannot be proven with sufficient certainty, the injured party is entitled to recover as nominal damages a small sum fixed without regard to the amount of the loss, if any.” [citations omitted] Accordingly, I will instruct the jury that if Baseball proves its breach of damages claim, it is entitled to an award of nominal damages.⁵

Baseball’s ability to recover only nominal damages does not impede its ability to present testimony and evidence regarding the materiality of ESPN’s breach. Materiality goes to the essence of the contract. That is, a breach is material if it defeats the object of the parties in making the contract and “deprive[s] the injured party of the benefit that it justifiably expected.” Farnsworth, Contracts § 8.16 (3d ed.1999). Materiality does not depend upon the amount of provable money damages, it depends upon whether the nonbreaching party lost the benefit of its bargain. Thus, although Baseball is only entitled to nominal damages, it may still present evidence and argument to the effect that ESPN’s breach was material.

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