[Contracts 2] 13. Hadley v. Baxendale

[자은]

13. Hadley v. Baxendale

Ⅰ. Fact

- Hadley (Plaintiff) was an owner who operated a business of corn mill in Gloucester and possessed a steam-engine by means of working. Since the crank shaft of the steam-engine was broken and out of repair so that prevented P from working, P had ordered a new crank shaft from W. Joyce & Co., at Greenwich (W). However, P was required to send the broken shaft to W in order to ensure that the new shaft would fit together with other parts of the steam-engine. Baxendale (Defendant) was a carrier whose job is to deliver to W the broken shaft. Although P informed D that because the mill was stopped, the shaft must be sent immediately, the delivery was delayed by D negligently. As a result, P was unable to work, and they thereby lost the profits they would have received. P sued D to recover damages.

Ⅱ. Issue

- Whether D is liable to P for his damages with respect to loss of profits.

Ⅲ. Rule

3rd chapter in Sedgwick on the Measure of Damages

- It is sometimes said, in regard to contracts, that the defendant shall be held liable for those damages only which both parties may fairly be supposed to have at the time contemplated as likely to result from the nature of the agreement.

Ⅳ. Application

- In this case, the result of D’s non-delivery in due time would be the stoppage of P’s work. However, the damages are too remote, and the immediate cause is to be regarded in considering the loss should be applicable here. D has a certain duty as a carrier cast upon him and that duty is not to be enlarged to an indefinite extent. D is merely bound to carry it safely and to deliver it within a reasonable time and he cannot be responsible for results which is beyond his foreseeability. Thus, where two parties have made a contract and one of them has broken, the damages which the nonbreaching party would receive with respect to such breach of contract should be fairly, reasonably, and naturally arise from such breach of contract itself, or reasonably 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. Here, there was no special circumstances were wholly known to D and D could not be supposed to have had in his contemplation the amount of P’s loss of profit which would not arise generally from such a breach of contract. Therefore, since such loss would not occur under a reasonable and natural consequence of such breach of contract nor communicated to D, jury should not take the loss of profits into consideration at all in estimating the damages.

Ⅴ. Conclusion

- P’s loss of profit should not be considered as damages so that new trial is ordered.

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To deal with contract case, we should check;

① formation of contract --> ② content of contract --> ③ breach of contract --> ④ damages

Here, formation of ‘delivery contract’ established, and the most important content in contract is TIME.

Delivery time is supposed to be specified by both parties, so D should deliver the shaft in due time. Otherwise, it would be a breach of contract.

(Cf. W. Joyce & Co is a sub-party and not involved in delivery contract between P and D)

- P가 broken shaft를 맡기는 동안 대체품을 받진 않았는가?

1800년대였다는 시대 상황을 고려해보면, mass production이 가능하지 않았던 시기였으므로 대부분의 제품들이 맞춤 제작이었기 때문에 다른 제품으로 대체할 수 없었을 것이라고 추정됨

- General damage vs Special damage (+ Torts vs Contract area)

General damages

: General damages cover the loss directly and necessarily incurred by the breach of contract. General damages are the most common type of damages awarded for breaches of contract.

Special damages

: Special damages (also called ‘consequential damages’ in contract dispute) cover any loss incurred by the breach of contract because of special circumstances or conditions that are not ordinarily predictable. These are actual losses caused by the breach, but not in a direct and immediate way. To obtain damages for this type of loss, the nonbreaching party must prove that the breaching party knew of the special circumstances or requirements at the time the contract was made.

* Examples for damages

	General damage	Special damage
Torts	- Price for repairing car - Price for medical examination or mental suffering	- Lost important chance to contract
Contract	- Refund (= contract price)	- loss of profit or company was shut down because of delivery delay

- hypothesis (car accident in torts)

(1) case that there’s legally no evidence, damages, or personal injury at all.

--> damages X

(2) case when the car got the scratch and driver is not okay.

--> general damage (e.g., money award for pain and suffering, mental anguish) / special damage (e.g., lost important contract because of car accident, intangible losses)

- Special damages (Consequential damages)

These damages may be recovered only if, at the time the contract was made, a reasonable person would have foreseen the damages as a probable result of a beach. FORSEEABILITY is the key issue for consequential damages. To recover consequential damages, the breaching party must have known or had reason to know of the special circumstances giving rise to the damages and nonbreaching party must have informed him in advance.

However, it is difficult to receive because they do not make any promise in contract with respect to special circumstances regarding foreseeability.

- Proximate cause

Torts: proximate causation and foreseeability is always required.

Contract: proximate cause and foreseeability is required to prove SPECIAL DAMAGES ONLY because general damages related to losses incurred under the contract. (General damages are coming from contract itself)

LEGAL RESEARCH – MONETARY REMEDY (DAMAGES)

- Types of damages

1. Compensatory damages

: The usual goal of damages for breach of contract is to put the nonbreaching party in the position she would have been in had the promise been performed.

(1)  Expectation damages (Standard measure of damages)

: In most cases, the plaintiff’s standard measure of damages will be based on an expectation measure. It is to put plaintiff in the position he would have been if the contract had been performed as promise.

(2)  Reliance damages measure

: If the plaintiff’s expectation damages are too speculative to measure, the plaintiff may elect to recover those damages she has suffered based on her reasonable reliance on the contract. Reliance damages award the plaintiff the cost of her performance, i.e., they are designed to put the plaintiff in the position she would have been in had the contract never been formed.

(3)  Consequential damages

: Consequential damages are special damages and reflect losses over and above standard expectation damages and it include loss of product and loss of profit or revenue. This may be recovered if it is determined such damages were reasonably foreseeable or ‘within the contemplation of the parties’ at the time of contract formation. This is a factual determination that could lead to the contractor’s liability for an enormous loss.

(4)  Incidental damages

: Incidental damages are most commonly associated with contracts for the sale of goods and typically include expenses reasonably incurred by a buyer in inspection, receipt, transportation, care, and custody of goods rightfully rejected and other expenses reasonably incident to the seller’s breach, and by the seller in storing, shipping, returning, and reselling the goods as a result of the buyer’s breach. 

* Certainty rule

: The plaintiff must prove that the losses suffered were certain in their nature and not speculative. Modern courts may allow lost profits as damages if they can be made more certain by observing similar businesses in the area or other businesses previously owned by the same party.

2. Punitive damages

: Punitive damages are assessed in order to punish the defendant for outrageous conduct or to reform or deter the defendant and others from engaging in conduct similar to that which formed the basis of the lawsuit. Although the purpose of punitive damages is not to compensate the plaintiff, the plaintiff will receive all or some of the punitive damages award. However, punitive damages are generally not awarded in contract cases. (Exception: in insurance bad faith cases --> it could be considered to be a tort cause of action eligible for punitive damages)

3. Nominal damages

: Nominal damages (e.g., $1) may be awarded when a breach is shown but no actual loss is proven.

4. Liquidated damages 

: The parties to a contract may stipulate what damages are to be paid in the event of a breach. (e.g., 위약금) These liquidated damages must be in an amount that is reasonable in view of the actual or anticipated harm caused by the breach. It is recoverable even if no actual money or pecuniary damages have been suffered.

Requirements for enforcement: (1) damages for contractual breach must have been difficult to estimate or ascertain at the time the contract was formed; and (2) The amount agreed on must have been a reasonable forecast of compensatory damages in the case of breach.

- Set formula for measuring expectation damages

Restatements Second of Contracts, section 347

Measure of damages in general

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.

 Expectation Damages = (Loss in value) + (Other losses) - (Cost avoided) - (Loss avoided)

- Loss in value: (vaule P should have receied under the contract) - (value P already received)

- Other losses: Incidental costs + Consequential costs

- Cost avoided: value P saves NOT having to perform any further

- Loss avoided: value P recovers by salvaging resources that would have been used to perform contract

Ex) 집을 지어주기로 함

revenue = $100K, estimated expenses = $90K (예상 지출 견적) --> profits = $10K (수익)

- loss in value = (실제로 받은 돈이 0라고 가정한다면) $100K – 0 = $100K

- other losses = (Incidental costs + consequential costs가 없었다고 가정한다면) = 0

- cost avoided = ($90K가 예상 견적이었는데 실제로는 $20K만 썼다면) $90K - $20K = $70K (saving)

- loss avoided = (loss avoided가 없었다고 가정한다면) = 0

--> 만약 project #1에 쓰기 위해 lumber를 $100K 어치 구매했는데 이 계약이 breached돼서 이 lumber를 project #2에 쓰였다면 loss가 avoided된 것 -->  salvage and relocated!

Method #1) ∴($100K) + ($0) – ($70K) – ($0) = $30K

Method #2) profits ($10K) + actual expenses ($20K) = $30K

[koa-bels]

네, 굿!!
위에 나열된 damages들을 두가지 종류의 damages로 나누어 분류할 수 있나요?
general damages와 special damages로

[자은]

contract에 따른 direct result를 general damages로, indirect result를 special damages로 나누어 보았을 때, expectation damages, reliance damages, liquidated damages는 general damages, 나머지incidental damages, consequential damages, punitive damages, nominal damages는 special damages로 분류된다고 판단했습니다.
(1) General damages
: 먼저, ① expectation damages는 general standard의 compensatory damages로, 약속이 이행됐더라면 원고가 받을 수 있었을 금액을 damage로 산정하기 때문에 계약 내용에 direct하게 근거하여 판단하는 general damages입니다.

[자은]

② Reliance damages는 계약에 의존하여 손해를 본 금액을 배상해주는 것인데 ‘promise가 이루어지지 않았더라면 손해보지 않았을 금액’을 damages로 책정하므로, direct하게 계약에 기반하고 있다는 것이 assumption이라고 생각하여 general damages로 분류했습니다. 그리고 ③ liquidated damages는 계약을 이행하지않을 시 지불해야 할, 또는 손해배상액에서 차감될 금액을 뜻하는데, 이는 대부분의 계약서에 ‘위약금’의 형태로 명시되어 있기 때문에 계약에 direct하게 근거하여 책정하는 general damages에 해당합니다.
(2) Special damages
: ① Incidental damages와 consequential damages로 배상을 받기 위해서는 계약을 위반했을 때의 result가 ordinarily predicable하지 않은 special circumstances여야 하고, 이에 대한 foreseeability를 입증해야 배상 받을 수 있는 special damages입니다.

[자은]

즉, 계약에 따른 direct한 damages가 아니기 때문에 general이 아닌 special damages에 해당합니다. 또한 ② punitive damages는 일반적으로 계약에서는 적용되지 않지만, punitive damages의 목적상 compensatory가 아닌 punish를 위해 재판부에서 부과하는 damages이기 때문에 special damages라고 보았습니다. 마지막으로 ③ nominal damages 또한 계약위반으로 인한 실질적인 loss or harm은 없지만 원고의 주장을 지지 해주기 위해 nominal하게 compensatory damages를 받을 수 있다고 재판부에서 판결해주는 것이므로 general damages가 아닌 special damages에 해당한다고 보아 special damages로 분류하였습니다.

[koa-bels]

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