Damages limitations stack: foreseeability filter
Remedies & Third Parties · Mar 31
Floor. ~40 min: R2d § 344 + Hadley. The doctrine the next class assumes you have covered.
Target. ~75 min: Floor + R2d § 347 + synthesis.
Judicial remedies under the rules stated in this Restatement serve to protect one or more of the following interests of a promisee:
(a) his "expectation interest," which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed,
(b) his "reliance interest," which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made, or
(c) his "restitution interest," which is his interest in having restored to him any benefit that he has conferred on the other party.
Subject to the limitations stated in §§ 350-53, the injured party has a right to damages based on his expectation interest as measured by
(a) the loss in the value to him of the other party's performance caused by its failure or deficiency, plus
(b) any other loss, including incidental or consequential loss, caused by the breach, less
(c) any cost or other loss that he has avoided by not having to perform.
(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.
(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.
Every claimed loss enters as one of two types:
9 Ex. 341, 156 Eng. Rep. 145 (1854)
Court of Exchequer
Rule. Damages for breach of contract are recoverable for losses (1) arising naturally, that is, according to the usual course of things, from the breach itself, or (2) 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 its breach. Special damages not within either branch are not recoverable.
Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty.
Foreseeability lets a loss in. Certainty asks whether the plaintiff can prove it. R2d § 352 bars damages "beyond an amount that the evidence permits to be established with reasonable certainty."
Two consequences:
Facts. Gateway contracts with Xanadu Freight to ship 14,000 unfolded cardboard boxes from Scranton to Youngstown for $1,000. Gateway tells Xanadu time is of the essence; Pennington's will refuse late shipment. The day before pickup, Xanadu cancels. Gateway pays Cassiopeia Trucking $1,600 to make the run on time.
Question. What does Gateway recover from Xanadu?
Analysis. Direct expectancy damages: $1,600 cover cost − $1,000 contract = $600 under R2d § 347(a). Variation: Gateway cannot find a substitute carrier, Pennington's cancels, Gateway loses $2,000 on this order plus the $5,000/year ongoing account. Those are consequential damages under R2d § 351 / Hadley branch 2, recoverable only if (i) reasonable certainty (R2d § 352) and (ii) Xanadu had reason to know at contracting that delay would lose the Pennington's account. Gateway's "time of the essence" statement supplies the notice.
Stretch variation. Some jurisdictions add a "tacit agreement" gloss: even with notice, the breaching party must be found to have implicitly assumed the risk of the special loss. Globe Refining Co. v. Landa Cotton Oil, 190 U.S. 540 (1903) (Holmes, J.). Modern majority (and R2d § 351 cmt. a) rejects tacit agreement; reasonable contemplation is enough.
Vary Gateway. Gateway tells Xanadu about Pennington's at the loading dock, after the price is set. Did Xanadu tacitly assume the lost-account risk? Under the modern rule: yes, notice is enough. Under Holmes: probably no — the price was already fixed.
Facts. Joe the Plumber contracts with Bistro Hotel to replace cast iron with copper pipes for $20,000. Bistro repudiates before work starts. Joe expected $15,000 in labor and supplies and $5,000 profit.
Question. What does Bistro pay Joe?
Answer. If Joe proves $5,000 profit with reasonable certainty (R2d § 352), Joe recovers $5,000 in direct expectancy damages under R2d § 347, the loss in value of the bargain. He did not incur the $15,000 cost; that is "cost avoided" under § 347(c).
Variation. Joe had bought $2,000 in copper and could only resell for $1,000. Recovery rises to $6,000: $5,000 profit plus $1,000 unrecoverable reliance.
Rules. R2d § 344 (three interests), R2d § 347 (expectation measure), R2d § 351 (foreseeability filter).
Cases. Hadley v. Baxendale.
Punchline. Notice converts a downstream loss from non-recoverable to recoverable. The carrier in Hadley did not know about the idle mill; with notice, the result reverses.
Open question. Foreseeability filters loss in. What other filters strip loss out? Next class: defective performance and the cost-vs-diminution measure.
Next class: Defective Performance — cost-to-complete vs. diminution in value
_Remedies & Third Parties_ · Apr 6
Read Peevyhouse v. Garland Coal. The Peevyhouses' contract said the coal company would restore their land after strip mining. Restoration would cost $29,000; the land was worth $300 more restored than unrestored. What should the court do? Come ready to answer. You may be called.