Expectation; Foreseeability

Contracts – Prof Merges

4.12.2011

Groves v. John Wunder Co.

Groves v. John Wunder Co.

• Facts

• Procedural History

Groves v. John Wunder Co.

• Facts

• Procedural History

Why the award below for $15,000?

Groves

• According to π Groves, what is the proper measure of damages here?

Groves

• According to π Groves, what is the proper measure of damages here?

• Why?

Value of land at end of performance

Market value of land if K properly performed

Difference in value: “dimunition in value” measure

Cost to put land in condition req’d by K = $60,000

Dim. In value

Why did Minn. Supreme Ct. come out as it did?

Why did Minn. Supreme Ct. come out as it did?

• Does not want to “favor the faithless contractor”

• Why did trial court award do this?

What was Grove’s lost expectation?

What was Grove’s lost expectation?

• Did Court’s award exceed this amount?

Should the nature of the breach matter?

• Willful versus innocent

What about “efficient breach” story?

• Isn’t that a willful breach?

• Should it really matter?

Oliver Wendell Holmes Jr.

Oliver Wendell Holmes Jr.

Damn foolish business, this willfulness . . .

Globe Refining, n. 1 p. 517

What price estimate did the parties put on grading when the K was signed?

• $60,000 or $12,000?

What price estimate did the parties put on grading when the K was signed?

• $60,000 or $12,000?

• If $12,000, K price of $105,000 + $12,000 if Groves agreed to do the grading

What if they did estimate cost at 12,000; why was it more?

1. Wunder made a (big) mistake

2. Rise in labor costs

3. Wunder waited until the end, instead of grading as he went

What if they knew grading was going to be $60,000?

• K would have been for $165,000 if Groves had to do grading himself

What if they knew grading was going to be $60,000?

• K would have been for $165,000 if Groves had to do grading himself

• Why did grading turn out to be worth only $12,000?

3 possibilities

• Great Depression drove down land prices

• Groves overesitmated value of graded land

• Groves had a special value for graded land

Peevyhouse v. Garland

A Mountain Top Removal Mine, using a Dragline to remove overburden and mine coal. This particular mine took a very steep mountain, sliced the top off, creating a flat area, where after mining a school was built on the site, and is still being utilized. This was one school located in mountainous East Kentucky that did not ever have to worry about flooding!

Peevyhouse v. Garland

• Facts

• History

Do you agree with holding?

• Why or why not?

Is this a good way to remedy land use problems?

• No requirement that owner use the damage award to remedy the problem

• See notes after Groves . . .

Rest. 2d. § 348(2)

(2) If a breach results in defective or unfinished construction and the loss in value to the injured party is not proved with sufficient certainty, he may recover damages based on.

(a) the diminution in the market price of the property caused by the breach, or

(b) the reasonable cost of completing performance or of remedying the defects if that cost is not clearly disproportionate to the probable loss in value to him.

Rest. - commentDamages based on the cost to remedy the defects

would then give the injured party a recovery greatly in excess of the loss in value to him and result in a substantial windfall. Such an award will not be made. It is sometimes said that the award would involve “economic waste,” but this is a misleading expression since an injured party will not, even if awarded an excessive amount of damages, usually pay to have the defects remedied if to do so will cost him more than the resulting increase in value to him.

Hadley v. Baxendale

Gloucester Mills Today

Modern mill shaft

Hadley v. Baxendale

• Facts

• History

What is the holding in Hadley?

What is the holding in Hadley?

• Is it that the π’s damages must be limited to those of an “average” or “normal” person in his or her position?

What is the holding in Hadley?

• Is it that the π’s damages must be limited to those of an “average” or “normal” person in his or her position?

No; then why were the higher damages denied here?

Holding

• New trial

• Damages: £ 2, 4 s; £ 25; £ 300?

Alderson opinion

• K damages fall into two categories . . .

Alderson opinion

• K damages fall into two categories . . .

1. “Naturally arising” damages

2. “In contemplation of both parties at time K was formed”

Why lower damages here?

1. Naturally arising?

Why lower damages here?

1. Naturally arising?

2. In contemplation of both parties?

§ 351. Unforeseeability And Related Limitations On Damages

(1) Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made.

(2) Loss may be foreseeable as a probable result of a breach because it follows from the breach

(a) in the ordinary course of events, or

(b) as a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know.

A and B make a written contract under which A is to recondition by a stated date a used machine owned by B so that it will be suitable for sale by B to C. A knows when they make the contract that B has contracted to sell the machine to C but knows nothing of the terms of B's contract with C. Because A delays in returning the machine to B, B is unable to sell it to C and loses the profit that he would have made on that sale. B's loss of reasonable profit was foreseeable by A as a probable result of the breach at the time the contract was made.

The profit that B would have made under his contract with A was extraordinarily large because C promised to pay an exceptionally high price as a result of a special need for the machine of which A was unaware. A is not liable for B's loss of profit to the extent that it exceeds what would ordinarily result from such a contract. To that extent the loss was not foreseeable by A as a probable result of the breach at the time the contract was made.

Delchi Carrier v. Rotorex

Delchi Carrier v. Rotorex

• Facts

• History

CISG

• In effect; “self-executing”

Holding

• Award of damages for lost sales

• Plus incidental costs

Kenford v. Erie

Buffalo Bills Stadium

Kenford v. Erie

• Facts

• History

• Holding

Holding

• No damages for lost appreciation in land close to planned stadium site

• “not in contemplation of the parties”

• “Tacit agreement” test

• Discredited

• Do you see why?

R2 351(3)

(3) A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation