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R.R. Donnelley & Sons Co. v. Vanguard Transp. Sys. - 641 F. Supp. 2d 707 (N.D. Ill. 2009)
RULE:
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. To 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.
FACTS:
Plaintiff R.R. Donnelley & Sons Co. filed a suit against defendant Vanguard Transportation
Systems, Inc. alleging breach of contract. The case arose from an admittedly delayed delivery by
defendant of advertising brochures announcing a post-Christmas sale. The brochures were
delivered to plaintiff's distribution center on December 27, 2005 -- eleven days after the
promised date of delivery. Defendant admitted that the delivery did not occur until December
27, but claimed plaintiff caused the problem by refusing to let defendant's driver unload the
truck. Plaintiff claimed that it could and would have mitigated its damages by retaining a local
cartage company to deliver the load if only defendant had told the truth about not having a
driver to redeliver the load and not having misled it on a daily basis.
ISSUE:
Under the circumstances, did the plaintiff fail to mitigate its damages from defendant’s breach?
ANSWER:
Yes.
CONCLUSION:
The court found that beyond pointing out how easy it would have been for defendant to have
rented a truck from a local company and delivered the brochures, plaintiff's post trial briefs had
effectively nothing to say about its own duty to mitigate damages. The court also found that
because plaintiff chose to do nothing, as it had the right to do, the avoidable loss of more than $
80,000 could not be taxed to defendant. Finally, the court found that plaintiff was not entitled to
damages or to attorney's fees.
Hadley v. Baxendale
Brief Fact Summary. Plaintiffs operated a mill, and a component of their steam engine broke
causing them to shut down the mill. Plaintiffs then contracted with Defendants, common
carriers, to take the component to W. Joyce & Co. to have a new part created. When delivery
was delayed due to Defendants’ neglect, causing Plaintiffs’ mill to remain closed longer than
expected, Plaintiffs sued to recover damages.
Synopsis of Rule of Law. The damages to which a nonbreaching party is entitled are those
arising naturally from the breach itself or those that are in the reasonable contemplation of the
parties at the time of contracting.
Facts. Plaintiffs operated a mill, which they were forced to shut down when the crank shaft of
their steam engine broke. They contacted the manufacturer of the engine, W. Joyce & Co.
(Joyce), and Joyce agreed to make a new shaft from the pattern of the old one. Therefore, a
servant of Plaintiffs went to the office of Defendants, common carriers, to have the crank shaft
taken to Joyce. Plaintiffs’ servant told Defendants’ clerk that the mill was shut down and the
shaft must be sent immediately. The clerk informed Plaintiffs’ servant that if the shaft were
given to them by twelve o’clock any day, it would be delivered by the next day. Plaintiffs took
the shaft to Defendants the next day before noon. Due to Defendants’ neglect, the delivery to
Joyce was delayed, and Plaintiffs did not receive the new shaft for several days after they should
have received it.
Issue. Are Defendants liable to Plaintiffs for damages suffered by Plaintiffs due to lost profits?
Held. No. A nonbreaching party is entitled damages arising naturally from the breach itself or
those that are in the reasonable contemplation of the parties at the time of contracting. Here,
while the breach by Defendants was the actual cause of the lost profits of Plaintiffs, it cannot be
said that under ordinary circumstances such loss arises naturally from this type of breach. There
is a multitude of reasons for a miller to send a crank shaft to a third party. Defendants had no
way of knowing that their breach would cause a longer shutdown of the mill, resulting in lost
profits. Further, Plaintiffs never communicated the special circumstances to Defendants, nor did
Defendants know of the special circumstances.
Discussion. Damages are limited to those that arise naturally from a breach and those that are
reasonably contemplated by the parties at the time of contracting.
Sunnyland Farms v. Cent. N.M. Elec. Coop., Inc. - 2013-NMSC-017, 301 P.3d 387
RULE:
The Hadley v. Baxendale 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. Restatement (Second) of
Contracts § 351 cmt. a (1981). 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." In the
absence of such circumstances, the breaching party is liable only for general damages.
Restatement (Second) of Contracts § 351 cmt. b (1981).
FACTS:
A fire destroyed a hydroponic tomato facility belonging to plaintiff-petitioner Sunnyland Farms.
The day before the fire, Sunnyland's electricity had been shut off by its local utility, defendantrespondent Central New Mexico Electrical Cooperative (CNMEC), due to nonpayment.
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. The trial court found the utility liable for negligence
and breach of contract. The trial court awarded damages but reduced them for Sunnyland's
comparative fault. It also awarded $100,000 in punitive damages. The appellate court reversed
the contract judgment, vacated the punitive damages, held that the lost profit damages were
not supported by sufficient evidence, affirmed the trial court's offset of damages based on
CNMEC's purchase of a subrogation lien, and affirmed the rulings on pre- and post-judgment
interest. Sunnyland appealed.
ISSUE:
Did the appellate court err in reversing the trial court's award of contract/consequential
damages to plaintiff farm business, which had sued defendant utility after it shut off the
electricity before a fire destroyed a building and its hydroponic crop.
ANSWER:
No
CONCLUSION:
The Supreme Court of New Mexico affirmed the appellate court's judgment regarding the
contract judgment, punitive damages, and interest, and reversed on the lost profit damages and
the offset. The Court viewed this as an opportunity to re-examine the standard for
consequential contract damages in New Mexico. After considering case law, the Court decided
to abandon the "tacit agreement" test previously applied in the Camino Real case. The Court
ruled that Hadley v. Baxendale and Restatement (Second) of Contracts state the proper test for
consequential damages in New Mexico. 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. 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.
Here, upon de novo review, the Court found that there were no special circumstances
warranting an award of consequential damages to plaintiff Sunnyland. It did not appear that the
trial court actually applied the foreseeability standard correctly. To support the conclusion that
Sunnyland's damages were foreseeable to defendant CNMEC at the time of contracting, the trial
court should have found "special circumstances, beyond the ordinary course of events." For
example, 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. CNMEC
cannot have been expected to anticipate Sunnyland's negligence. Accordingly, the appellate
court's reversal of the award of contract damages to Sunnyland was proper because there were
no findings 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.
Manouchehri v. Heim - 1997-NMCA-052, 123 N.M. 439, 941 P.2d 978
RULE:
N.M. Stat. Ann. § 55-2-714 states that 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. In a proper case any incidental and
consequential damages under the next section may also be recovered.
FACTS:
On December 9, 1991, Dr. A. H. Manouchehri purchased a used x-ray machine from Jeff 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, when he wanted to purchase a 100/100
machine. 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.
Consequently, Manouchehri filed a complaint against Heim for breach of warranty. The trial
court found in favor of Manouchehri, and the latter was awarded $4400 in damages after a
bench trial. Heim challenged the decision, claiming that direct damages based on the cost of
repair should not have been awarded because there was no evidence of such cost. Moreover,
Heim alleged that consequential damages should not have been awarded because Manouchehri
could have avoided them by obtaining a replacement machine; they were not foreseeable, and
they were not proved with the required certainty.
ISSUE:
Was the computation of direct damages proper?
Was it correct to award the buyer consequential damages for the alleged breach of warranty by
the seller?
ANSWER:
1) Yes. 2) Yes.
CONCLUSION:
The court affirmed the award of direct damages because the record indicated that the trial
court computed the direct damages on a proper ground even though the judgment did not
state that ground. The court concluded that it was proper to calculate the direct damages as the
difference between the value of the x-ray machine as warranted and the value of the machine
actually delivered to the buyer. The court also affirmed the award of consequential damages,
concluding that it was rational for the trial court to find that by the time the buyer should have
stopped relying on the seller's promises, the buyer had lost profits. According to the court,
consequential damages resulting from the seller's breach include: 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 injury
to person or property proximately resulting from any breach of warranty.
Dobson Bay Club II DD, Ltd. Liab. Co. v. La Sonrisa de Siena, Ltd. Liab. Co. - 242 Ariz. 108, 393
P.3d 449 (2017)
RULE:
A liquidated damages provision is enforceable, but only at an amount that is reasonable in the
light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss.
This test requires courts to consider (1) the anticipated or actual loss caused by the breach, and
(2) the difficulty of proof of loss. Whether a fixed amount is a penalty turns on the relative
strengths of these factors. If the difficulty of proof of loss is great, considerable latitude is
allowed in the approximation of anticipated or actual harm. If, on the other hand, the difficulty
of proof of loss is slight, less latitude is allowed in that approximation. If, to take an extreme
case, it is clear that no loss at all has occurred, a provision fixing a substantial sum as damages is
unenforceable.
FACTS: In 2006, Canadian Imperial Bank of Commerce loaned Dobson Bay Club II DD, LLC and
related entities (Dobson Bay) $28.6 million. The loan was secured by a deed of trust
encumbering those properties. In case of delay in payment, Dobson Bay was required to pay
default interest and collection costs, including reasonable attorney fees, and a 5% late fee
assessed on the payment amount. If Canadian Imperial Bank foreclosed the deed of trust,
Dobson Bay was also obligated to pay costs, trustee's fees, and reasonable attorney fees. The
maturity date passed, and Dobson Bay failed to make the balloon payment. La Sonrisa de Siena,
LLC (Sonrisa) bought the note and deed of trust from Canadian Imperial Bank and promptly
noticed a trustee's sale of the secured properties. It contended that Dobson Bay owed more
than $30 million, including a nearly $1.4 million late fee. Litigation ensued. The parties filed
cross-motions for partial summary judgment on whether the late fee provision in the note was
an enforceable liquidated damages provision or, instead, an unenforceable penalty. The
superior court granted partial summary judgment for Sonrisa, ruling that the late fee was
enforceable as liquidated damages. The court of appeals reversed, holding "as a matter of law,
that absent unusual circumstances the imposition of a flat 5% late-fee on a balloon payment for
a conventional, fixed-interest rate loan is not enforceable as liquidated damages.
ISSUE: Was the imposition of a flat 5% late-fee on a balloon payment for a conventional-fixedinterest rate loan enforceable as liquidated damages?
ANSWER: No.
CONCLUSION:
The Arizona Supreme Court held that a liquidated damages contract provision that assessed a
late fee of five percent of the principal ($1.4 million) on a final loan balloon payment constituted
an unenforceable penalty because it did not reasonably forecast anticipated damages likely to
result from an untimely payment; it either duplicated other fees triggered by a default or was
grossly disproportionate to any remaining sums needed to compensate for anticipated losses.
Moreover, it did not reasonably approximate the actual costs of processing the late payment or
the loss of use of that payment; and the note holder would have had no difficulty proving its
loss, if any. Hence, the judgment of the intermediate appellate court was affirmed.