This is a preview of how your content will look on export. To export the complete content in DOC format, click the blue export button in the upper right corner of this page.
III. A. 3. Limitation on Recovery of Expectation Damages
  • 1 III. A. 3. a. Uncertain Damages

    • 1.1 Freund v. Washington Square Press, Inc.

      1

      [857]

      2

      357 N.Y.S.2d 857
      34 N.Y.2d 379, 314 N.E.2d 419
      Philip FREUND, Respondent,
      v.
      WASHINGTON SQUARE PRESS, INC., Appellant.
      Court of Appeals of New York.
      June 13, 1974. [858]

      3

      Joel T. Camche and Selig J. Levitan, New York City, for appellant.

      4

      [34 N.Y.2d 380] Janet Fine Cotton, New York City, for respondent.

      5

      SAMUEL RABIN, Judge.

      6

      In this action for breach of a publishing contract, we must decide what damages are recoverable for defendant's failure to publish plaintiff's manuscript. In 1965, plaintiff, an author and a college teacher, and defendant, Washington Square Press, Inc., entered into a written agreement which, in relevant part, provided as follows. Plaintiff ('author') granted defendant ('publisher') exclusive rights to publish and sell in book form plaintiff's work on modern drama. Upon plaintiff's delivery of the manuscript, defendant agreed to complete payment of a nonreturnable $2,000 'advance'. Thereafter, if defendant deemed the manuscript not 'suitable for publication', it had the right to terminate the agreement by written notice within 60 days of delivery. Unless so terminated, defendant agreed to publish the work in hardbound[314 N.E.2d 420] edition within 18 [34 N.Y.2d 381] months and afterwards in paperbound edition. The contract further provided that defendant would pay royalties to plaintiff, based upon specified percentages of sales. (For example, plaintiff was to receive 10% Of the retail price of the first 10,000 copies sold in the continental United States.) If defendant failed to publish within 18 months, the contract provided that 'this agreement shall terminate and the rights herein granted to [859] the Publisher shall revert to the Author. In such event all payments therefore made to the Author shall belong to the Author without prejudice to any other remedies which the Author may have.' The contract also provided that controversies were to be determined pursuant to the New York simplified procedure for court determination of disputes (CPLR 3031--3037, Consol.Laws, c. 8).

      7

      Plaintiff performed by delivering his manuscript to defendant and was paid his $2,000 advance. Defendant thereafter merged with another publisher and ceased publishing in hardbound. Although defendant did not exercise its 60-day right to terminate, it has refused to publish the manuscript in any form.

      8

      Plaintiff commenced the instant action pursuant to the simplified procedure practice and initially sought specific performance of the contract. The Trial Term Justice denied specific performance but, finding a valid contract and a breach by defendant, set the matter down for trial on the issue of monetary damages, if any, sustained by the plaintiff. At trial, plaintiff sought to prove: (1) delay of his academic promotion; (2) loss of royalties which would have been earned; and (3) the cost of publication if plaintiff had made his own arrangements to publish. The trial court found that plaintiff had been promoted despite defendant's failure to publish, and that there was no evidence that the breach had caused any delay. Recovery of lost royalties was denied without discussion. The court found, however, that the lost of hardcover publication to plaintiff was the natural and probable consequence of the breach and, based upon expert testimony, awarded $10,000 to cover this cost. It denied recovery of the expenses of paperbound publication on the ground that plaintiff's proof was conjectural.

      9

      The Appellate Division, (3 to 2) affirmed, finding that the cost of publication was the proper measure of damages. In support of its conclusion, the majority analogized to the construction [34 N.Y.2d 382] contract situation where the cost of completion may be the proper measure of damages for a builder's failure to complete a house or for use of wrong materials. The dissent concluded that the cost of publication is not an appropriate measure of damages and consequently, that plaintiff may recover nominal damages only.[1] We agree with the dissent. In so concluding, we look to the basic purpose of damage recovery and the nature and effect of the parties' contract.

      10

      It is axiomatic that, except where punitive damages are allowable, the law awards damages for breach of contract to compensate for injury caused by the breach--injury which was foreseeable, i.e., reasonably within the contemplation of the parties, at the time the [860] contract was entered into. (Swain v. Schieffelin, 134 N.Y. 471, 473, 31 N.E. 1025, 1026.) Money damages are substitutional relief designed in theory 'to put the injured party in as good a position as he would have been put by full performance of the contract, at the least cost to the defendant and without charging him with harms that he had no sufficient reason to foresee when he made the contract.' (5 Corbin, Contracts, § 1002, pp. 31--32; 11 Williston, Contracts (3d ed.), § 1338, p. 198.) In other words, so far as possible, the law attempts to secure to the injured party the benefit of his bargain, subject to the limitations that the injury--whether it be losses suffered or gains prevented--was [314 N.E.2d 421] foreseeable, and that the amount of damages claimed be measurable with a reasonable degree of certainty and, of course, adequately proven. (See, generally, Dobbs, Law of Remedies, p. 148; see, also, Farnsworth, Legal Remedies for Breach of Contract, 70 Col.L.Rev. 1145, 1159.) But it is equally fundamental that the injured party should not recover more from the breach than he would have gained had the contract been fully performed. (Baker v. Drake, 53 N.Y. 211, 217; see, generally, Dobbs, Law of Remedies, p. 810.)

      11

      Measurement of damages in this case according to the cost of publication to the plaintiff would confer greater advantage than performance of the contract would have entailed to plaintiff and would place him in a far better position than he would have occupied had the defendant fully performed. Such measurement[34 N.Y.2d 383] bears no relation to compensation for plaintiff's actual loss or anticipated profit. Far beyond compensating plaintiff for the interests he had in the defendant's performance of the contract--whether restitution, reliance or expectation (see Fuller & Perdue, Reliance Interest in Contract Damages, 46 Yale L.J. 52, 53--56) an award of the cost of publication would enrich plaintiff at defendant's expense.

      12

      Pursuant to the contract, plaintiff delivered his manuscript to the defendant. In doing so, he conferred a value on the defendant which, upon defendant's breach, was required to be restored to him. Special Term, in addition to ordering a trial on the issue of damages, ordered defendant to return the manuscript to plaintiff and plaintiff's restitution interest in the contract was thereby protected. (Cf. 5 Corbin, Contracts, § 996, p. 15.)

      13

      At the trial on the issue of damages, plaintiff alleged no reliance losses suffered in performing the contract or in making necessary preparations to perform. Had such losses, if foreseeable and ascertainable, been incurred, plaintiff would have been entitled to compensation for them. (Cf. Bernstein v. Meech, 130 N.Y. 354, 359, 29 N.E. 255, 257.)

      14

      As for plaintiff's expectation interest in the contract, it was basically two-fold--the 'advance' and the royalties. (To be sure, [861] plaintiff may have expected to enjoy whatever notoriety, prestige or other benefits that might have attended publication, but even if these expectations were compensable, plaintiff did not attempt at trial to place a monetary value on them.) There is no dispute that plaintiff's expectancy in the 'advance' was fulfilled--he has received his $2,000. His expectancy interest in the royalities--the profit he stood to gain from sale of the published book--while theoretically compensable, was speculative. Although this work is not plaintiff's first, at trial he provided no stable foundation for a reasonable estimate of royalties he would have earned had defendant not breached its promise to publish. In these circumstances, his claim for royalties falls for uncertainty. (Cf. Broadway Photoplay Co. v. World Film Corp., 225 N.Y. 104, 121 N.E. 756; Hewlett v. Caplin, 275 App.Div. 797, 88 N.Y.S.2d 428.)

      15

      Since the damages which would have compensated plaintiff for anticipated royalties were not proved with the required certainty,[34 N.Y.2d 384] we agree with the dissent in the Appellate Division that nominal damages alone are recoverable. (Cf. Manhattan Sav. Inst. v. Gottfried Baking Co., 286 N.Y. 398, 36 N.E.2d 637.) Though these are damages in name only and not at all compensatory, they are nevertheless awarded as a formal vindication of plaintiff's legal right to compensation which has not been given a sufficiently certain monetary valuation. (Cf. Baker v. Hart, 123 N.Y. 470, 474, 25 N.E. 948, 949; see, generally, Dobbs, Law of Remedies, p. 191; 11 Williston, Contracts (3d ed.), § 1339A, pp. 206--208.)

      16

      In our view, the analogy by the majority in the Appellate Division to the construction contract situation was inapposite. In [314 N.E.2d 422] the typical construction contract, the owner agrees to pay money or other consideration to a builder and expects, under the contract, to receive a completed building in return. The value of the promised performance to the owner is the properly constructed building. In this case, unlike the typical construction contract, the value to plaintiff of the promised performance--publication--was a percentage of sales of the books published and not the books themselves. Had the plaintiff contracted for the printing, binding and delivery of a number of hardbound copies of his manuscript, to be sold or disposed of as he wished, then perhaps the construction analogy, and measurement of damages by the cost of replacement or completion, would have some application.

      17

      Here, however, the specific value to plaintiff of the promised publication was the royalties he stood to receive from defendant's sales of the published book. Essentially, publication represented what it would have cost the defendant to confer that value upon the plaintiff, and, by its breach, defendant saved that cost. The error by the courts below was in measuring damages not by the value to plaintiff of the promised performance but by the cost of that performance [862] to defendant. Damages are not measured, however, by what the defaulting party saved by the breach, but by the natural and probable consequences of the breach To the plaintiff. In this case, the consequence to plaintiff of defendant's failure to publish is that he is prevented from realizing the gains promised by the contract--the royalties. But, as we have stated, the amount of royalties plaintiff would have realized was not ascertained with adequate certainty[34 N.Y.2d 385] and, as a consequence, plaintiff may recover nominal damages only.

      18

      Accordingly, the order of the Appellate Division should be modified to the extent of reducing the damage award of $10,000 for the cost of publication to six cents, but with costs and disbursements to the plaintiff.

      19

      BREITEL, C.J., and JASEN, GABRIELLI, JONES and WACHTLER, JJ., concur.

      20

      STEVENS, J., taking no part.

      21

      Order modified, with costs and disbursements to plaintiff-respondent, in accordance with opinion herein and, as so modified, affirmed.

      22

      ---------------

      23

      [1] Plaintiff does not challenge the trial court's denial of damages for delay in promotion or for anticipated royalties.

    • 1.2 Fera v. Village Plaza Inc.

      1
      396 Mich. 639 (1976)
      2
      242 N.W.2d 372
      3
      FERA
      v.
      VILLAGE PLAZA, INC
      4
      Docket No. 55910, (Calendar No. 1).
      5

      Supreme Court of Michigan.

      6
      Argued June 3, 1975.
      7
      Decided June 3, 1976.
      8

      Keywell & Rosenfeld (by Sidney L. Frank and Christopher Jeffries) for plaintiffs.

      9

      Zussman, Doctoroff, Wartell & Kaplow for defendants Village Plaza, Inc., and Fairborn Property Co., Inc.

      10

      Hammond, Ziegelman & Sotiroff (by Lawrence R. Abramczyk) for defendants Schostak Brothers & Company, Inc., and Bank of the Commonwealth.

      11

      Decided June 3, 1976. Rehearing denied 397 Mich 956.

      12
      KAVANAGH, C.J.
      13

      Plaintiffs received a jury award of $200,000 for loss of anticipated profits in their proposed new business as a result of defendants' breach of a lease. The Court of Appeals reversed. 52 Mich App 532; 218 NW2d 155 (1974). We reverse and reinstate the jury's award.

      14
      FACTS
      15

      On August 20, 1965 plaintiffs and agents of Fairborn-Village Plaza executed a ten-year lease for a "book and bottle" shop in defendants' proposed shopping center. This lease provided for occupancy of a specific location at a rental of $1,000 minimum monthly rent plus 5% of annual receipts in excess of $240,000. A $1,000 deposit was paid by plaintiffs.

      16

      After this lease was executed, plaintiffs gave up approximately 600 square feet of their leased space so that it could be leased to another tenant. In exchange, it was agreed that liquor sales would be excluded from the percentage rent override provision of the lease.

      17

      Complications arose, including numerous work stoppages. Bank of the Commonwealth received a [642] deed in lieu of foreclosure after default by Fairborn and Village Plaza. Schostak Brothers managed the property for the bank.

      18

      When the space was finally ready for occupancy, plaintiffs were refused the space for which they had contracted because the lease had been misplaced, and the space rented to other tenants. Alternative space was offered but refused by plaintiffs as unsuitable for their planned business venture.

      19

      Plaintiffs initiated suit in Wayne Circuit Court, alleging inter alia a claim for anticipated lost profits. The jury returned a verdict for plaintiffs against all defendants for $200,000.

      20

      The Court of Appeals reversed and remanded for new trial on the issue of damages only, holding that the trial court "erroneously permitted lost profits as the measure of damages for breach of the lease". 52 Mich App 532, 542; 218 NW2d 155, 160.

      21

      In Jarrait v Peters, 145 Mich 29, 31-32; 108 NW 432 (1906), plaintiff was prevented from taking possession of the leased premises. The jury gave plaintiff a judgment which included damages for lost profits. This Court reversed:

      22

      "It is well settled upon authority that the measure of damages when a lessor fails to give possession of the leased premises is the difference between the actual rental value and the rent reserved. 1 Sedgwick on Damages (8th ed), § 185. Mr. Sedgwick says:

      "`If the business were a new one, since there could be no basis on which to estimate profits, the plaintiff must be content to recover according to the general rule.'

      "The rule is different where the business of the lessee has been interrupted.

      * * *

      [643] "The evidence admitted tending to show the prospective profits plaintiff might have made for the ensuing two years should therefore have been excluded under the objections made by defendant, and the jury should have been instructed that the plaintiff's damages, if any, would be the difference between the actual rental value of the premises and the rent reserved in the lease."

      23

      Six years later, in Isbell v Anderson Carriage Co, 170 Mich 304, 318; 136 NW 457 (1912), the Court wrote:

      24

      "It has sometimes been stated as a rule of law that prospective profits are so speculative and uncertain that they cannot be recognized in the measure of damages. This is not because they are profits, but because they are so often not susceptible of proof to a reasonable degree of certainty. Where the proof is available, prospective profits may be recovered, when proven, as other damages. But the jury cannot be asked to guess. They are to try the case upon evidence, not upon conjecture."

      25

      These cases and others since should not be read as stating a rule of law which prevents every new business from recovering anticipated lost profits for breach of contract. The rule is merely an application of the doctrine that "[i]n order to be entitled to a verdict, or a judgment, for damages for breach of contract, the plaintiff must lay a basis for a reasonable estimate of the extent of his harm, measured in money". 5 Corbin on Contracts, § 1020, p 124. The issue becomes one of sufficiency of proof. "The jury should not [be] allowed to speculate or guess upon this question of the amount of loss of profits". Kezeli v River Rouge Lodge IOOF, 195 Mich 181, 188; 161 NW 838 (1917).

      26

      [644] "Assuming, therefore, that profits prevented may be considered in measuring the damages, are profits to be divided into classes and kinds? Does the term `speculative profits' express one of these classes, differing in nature from nonspeculative profits? Do `uncertain' profits differ in kind from `certain' profits? The answer is assuredly, No. There is little that can be regarded as `certain,' especially with respect to what would have happened if the march of events had been other than it in fact has been. Neither court nor jury is required to attain `certainty' in awarding damages; and this is just as true with respect to `value' as with respect to `profits'. Therefore, the term `speculative and uncertain profits' is not really a classification of profits, but is instead a characterization of the evidence that is introduced to prove that they would have been made if the defendant had not committed a breach of contract. The law requires that this evidence shall not be so meager or uncertain as to afford no reasonable basis for inference, leaving the damages to be determined by sympathy and feelings alone. The amount of evidence required and the degree of its strength as a basis of inference varies with circumstances." 5 Corbin on Contracts, § 1022, pp 139-140.

      27

      The rule was succinctly stated in Shropshire v Adams, 40 Tex Civ App 339, 344; 89 SW 448, 450 (1905):

      28

      "Future profits as an element of damage are in no case excluded merely because they are profits but because they are uncertain. In any case when by reason of the nature of the situation they may be established with reasonable certainty they are allowed."

      29

      It is from these principles that the "new business"/"interrupted business" distinction has arisen.

      30

      "If a business is one that has already been established a reasonable prediction can often be made as to [645] its future on the basis of its past history. * * * If the business * * * has not had such a history as to make it possible to prove with reasonable accuracy what its profits have been in fact, the profits prevented are often but not necessarily too uncertain for recovery." 5 Corbin on Contracts, § 1023, pp 147, 150-151.

      31

      Cf Jarrait v Peters, supra.

      32

      The Court of Appeals based its opinion reversing the jury's award on two grounds: First, that a new business cannot recover damages for lost profits for breach of a lease. We have expressed our disapproval of that rule. Secondly, the Court of Appeals held plaintiffs barred from recovery because the proof of lost profits was entirely speculative. We disagree.

      33

      The trial judge in a thorough opinion made the following observations upon completion of the trial.

      34

      "On the issue of lost profits, there were days and days of testimony. The defendants called experts from the Michigan Liquor Control Commission and from Cunningham Drug Stores, who have a store in the area, and a man who ran many other stores. The plaintiffs called experts and they, themselves, had experience in the liquor sales business, in the book sales business and had been representatives of liquor distribution firms in the area.

      "The issue of the speculative, conjectural nature of future profits was probably the most completely tried issue in the whole case. Both sides covered this point for days on direct and cross-examination. The proofs ranged from no lost profits to two hundred and seventy thousand dollars over a ten-year period as the highest in the testimony. A witness for the defendants, an expert from Cunningham Drug Company, testified the plaintiffs probably would lose money. Mr. Fera, an expert in his own right, testified the profits would probably be two hundred and seventy thousand dollars. The jury found two hundred thousand dollars. This is [646] well within the limits of the high and the low testimony presented by both sides, and a judgment was granted by the jury.

      * * *

      "The court cannot invade the finding of fact by the jury, unless there is no testimony to support the jury's finding. There is testimony to support the jury's finding. We must realize that witness Stein is an interested party in this case, personally. He is an officer or owner in Schostak Brothers. He may personally lose money as a result of this case. The jury had to weigh this in determining his credibility. How much credibility they gave his testimony was up to them. How much weight they gave to counter-evidence was up to them.

      * * *

      "The court must decide whether or not the jury had enough testimony to take this fact from the speculative-conjecture category and find enough facts to be able to make a legal finding of fact. This issue [damages for lost profits] was the most completely tried issue in the whole case. Both sides put in testimony that took up days and encompassed experts on both sides. This fact was adequately taken from the category of speculation and conjecture by the testimony and placed in the position of those cases that hold that even though loss of profits is hard to prove, if proven they should be awarded by the jury. In this case, the jury had ample testimony to make this decision from both sides.

      * * *

      "The jury award was approximately seventy thousand dollars less than the plaintiffs asked and their proofs showed they were entitled to. The award of the jury was well within the range of the proofs and the court cannot legally alter it, as determination of damages is a jury function and their finding is justified by the law in light of the evidence in this case.

      * * *

      "The loss of profits are often speculative and conjectural on the part of witnesses. When this is true, the court should deny loss of profits because of the speculative nature of the testimony and the proofs. However, [647] the law is also clear that where lost profits are shown, and there is ample proof on this point, they should not be denied merely because they are hard to prove. In this case, both parties presented testimony on this issue for days. This testimony took the lost profits issue out of the category of speculation and conjecture. The jury was given an instruction on loss of profits and what the proofs must show, and the nature of the proofs, and if they found them to be speculative they could not award damages therefor. The jury, having found damages to exist, and awarded the same in this case in accord with the proper instructions, the court cannot, now, overrule the jury's finding."

      35

      As Judge Wickens observed, the jury was instructed on the law concerning speculative damages. The case was thoroughly tried by all the parties. Apparently, the jury believed the plaintiffs. That is its prerogative.

      36

      The testimony presented during the trial was conflicting. The weaknesses of plaintiffs' specially prepared budget were thoroughly explored on cross-examination. Defendants' witnesses testified concerning the likelihood that plaintiffs would not have made profits if the contract had been performed. There was conflicting testimony concerning the availability of a liquor license. All this was spread before the jury. The jury weighed the conflicting testimony and determined that plaintiffs were entitled to damages of $200,000.

      37

      As we stated in Anderson v Conterio, 303 Mich 75, 79; 5 NW2d 572 (1942):

      38

      "The testimony * * * is in direct conflict, and that of plaintiff * * * was impeached to some extent. However, it cannot be said as a matter of law that the testimony thus impeached was deprived of all probative value or that the jury could not believe it. The credibility of witnesses is for the jury, and it is not for us to determine who is to be believed."

      39

      [648] The trial judge, who also listened to all of the conflicting testimony, denied defendants' motion for a new trial, finding that the verdict was justified by the evidence. We find no abuse of discretion in that decision. Sloan v Kramer-Orloff Co, 371 Mich 403; 124 NW2d 255 (1963). "The trial court has a large amount of discretion in determining whether to submit the question of profits to the jury; and when it is so submitted, the jury will also have a large amount of discretion in determining the amount of its verdict." 5 Corbin on Contracts, § 1022, pp 145-146.

      40

      "`[W]here injury to some degree is found, we do not preclude recovery for lack of precise proof. We do the best we can with what we have. We do not, "in the assessment of damages, require a mathematical precision in situations of injury where, from the very nature of the circumstances precision is unattainable." Particularly is this true where it is defendant's own act or neglect that has caused the imprecision.'" Godwin v Ace Iron & Metal Co, 376 Mich 360, 368; 137 NW2d 151 (1965).

      41

      While we might have found plaintiffs' proofs lacking had we been members of the jury, that is not the standard of review we employ. "As a reviewing court we will not invade the fact-finding of the jury or remand for entry of judgment unless the factual record is so clear that reasonable minds may not disagree." Hall v Detroit, 383 Mich 571, 574; 177 NW2d 161 (1970). This is not the situation here.

      42

      The Court of Appeals is reversed and the trial court's judgment on the verdict is reinstated.

      43

      Costs to plaintiffs.

      44
      WILLIAMS, FITZGERALD, and LINDEMER, JJ., concurred with KAVANAGH, C.J.
      45
      [649] LEVIN and RYAN, JJ., took no part in the decision of this case.
      46
      COLEMAN, J. (concurring in part, dissenting in part).
      47

      Although anticipated profits from a new business may be determined with a reasonable degree of certainty such was not the situation regarding loss of profits from liquor sales as proposed by plaintiffs.

      48

      First, plaintiffs had no license and a Liquor Control Commission regional supervisor and a former commissioner testified that the described book and bottle store could not obtain a license. Further, the proofs of possible profits from possible liquor sales — if a license could have been obtained — were too speculative. The speculation of possible licensing plus the speculation of profits in this case combine to cause my opinion that profits from liquor sales should not have been submitted to the jury.

      49

      I agree with Judge O'HARA in his Court of Appeals dissent and would have allowed proof of loss from the bookstore operation to go to the jury, but not proof of loss from liquor sales. His remedy is also approved. I would affirm the trial court judgment conditioned upon plaintiffs' consenting within 30 days following the release of this opinion, to "remitting that portion of the judgment in excess of $60,000. Otherwise, the judgment should be reversed and a new trial had". Plaintiffs are also entitled to the $1,000 deposit.

    • 1.3 Security Stove & Mfg. Co. v. American Ry. Express Co.

      1

      51 S.W.2d 572

      2
      SECURITY STORE & MANUFACTURING CO., RESPONDENT,
      v.
      AMERICAN RAILWAYS EXPRESS CO., APPELLANT.
      3

      No. 17560.
      Kansas City Court of Appeals. Missouri.
      May 23, 1932.

      4

      [573] Appeal from the Circuit Court of Jackson County. — Hon. Ralph S. Latshaw, Judge.

      5

      AFFIRMED.

      6

      Joseph F. Keirnan for respondent.

      7

      Lathrop, Crane, Reynolds, Sawyer & Mersereau and Dean Wood for appellant.

      8

      BLAND, J.

      9

      This is an action for damages for the failure of defendant to transport, from Kansas City to Atlantic City, New Jersey, within a reasonable time, a furnace equipped with a combination oil and gas burner. The cause was tried before the court without the aid of a jury, resulting in a judgment in favor of plaintiff in the sum of $801.50 and interest, or in a total sum of $1000. Defendant has appealed.

      10

      The facts show that plaintiff manufactured a furnace equipped with a special combination oil and gas burner it desired to exhibit at the American Gas Association Convention held in Atlantic City in October, 1926. The president of plaintiff testified that plaintiff engaged space for the exhibit for the reason "that the Henry L. Dougherty Company was very much interested in putting out a combination oil and gas burner; we had just developed one, after we got through, better than anything on the market and we thought this show would be the psychological time to get in contact with the Dougherty Company;" that "the thing wasn't sent there for sale but primarily to show;" that at the time the space was engaged it was too late to ship the furnace by freight so plaintiff decided to ship it by express, and, on September 18, 1926, wrote the office of the defendant in Kansas City, stating that it had engaged a booth for exhibition purposes at Atlantic City, New Jersey, from the American Gas Association, for the week beginning October 11th; that its exhibition consisted of an oil burning furnace, together with two oil burners which weighed at least 1500 pounds; that, "In order to get this exhibit in place on time it should be in Atlantic City not later than October the 8th. What we want you to do is to tell us how much time you will require to assure the delivery of the exhibit on time."

      11

      Mr. Bangs, chief clerk in charge of the local office of the defendant, upon receipt of the letter, sent Mr. Johnson, a commercial representative of the defendant, to see plaintiff. Johnson called upon plaintiff taking its letter with him. Johnson made a notation on the bottom of the letter giving October 4th, as the day that defendant was required to have the exhibit in order for it to reach Atlantic City on October 8th.

      12

      On October 1st, plaintiff wrote the defendant at Kansas City, referring to its letter of September 18th, concerning the fact that the furnace must be in Atlantic City not later than October 8th, and stating what Johnson had told it, saying:

      13

      "Now, Mr. Banks, we want to make doubly sure that this shipment is in Atlantic City not later than October 8th and the purpose of this letter is to tell you that you can have your truck call for the shipment between 12 and 1 o'clock on Saturday, October 2nd for this." (Italics plaintiff's.)

      14

      On October 2nd, plaintiff called the office of the express company in Kansas City and told it that the shipment was ready. Defendant came for the shipment on the last mentioned day, received it and delivered the express receipt to plaintiff. The shipment contained twenty-one packages. Each package was marked with stickers backed with glue and covered with silica of soda, to prevent the stickers being torn off in shipping. Each package was given a number. They ran from one to twenty-one.

      15

      Plaintiff's president made arrangements to go to Atlantic City to attend the convention and install the exhibit, arriving there about October 11th. When he reached Atlantic City he found the shipment had been placed in the booth that had been assigned to plaintiff. The exhibit was set up, but it was found [574] that one of the packages shipped was not there. This missing package contained the gas manifold, or that part of the oil and gas burner that controlled the flow of gas in the burner. This was the most important part of the exhibit and a like burner could not be obtained in Atlantic City.

      16

      Wires were sent and it was found that the stray package was at the "over and short bureau" of defendant in St. Louis. Defendant reported that the package would be forwarded to Atlantic City and would be there by Wednesday, the 13th. Plaintiff's president waited until Thursday, the day the convention closed, but the package had not arrived at the time, so he closed up the exhibit and left. About a week after he arrived in Kansas City, the package was returned by the defendant.

      17

      Banks testified that the reasonable time for a shipment of this kind to reach Atlantic City from Kansas City would be four days; that if the shipment was received on October 4th, it would reach Atlantic City by October 8th; that plaintiff did not ask defendant for any special rate; that the rate charged was the regular one; that plaintiff asked no special advantage in the shipment; that all defendant, under its agreement with plaintiff was required to do was to deliver the shipment at Atlantic City in the ordinary course of events; that the shipment was found in St. Louis about Monday afternoon or Tuesday morning; that it was delivered at Atlantic City at the Ritz Carlton Hotel, on the 16th of the month. There was evidence on plaintiff's part that the reasonable time for a shipment of this character to reach Atlantic City from Kansas City was not more than three or four days.

      18

      The petition upon which the case was tried alleges that plaintiff, on October 2, 1926, delivered the shipment to the defendant; that defendant agreed, in consideration of the express charges received from plaintiff, to carry the shipment from Kansas City to Atlantic City, and

      19

      "to deliver the same to plaintiff at Atlantic City, New Jersey, on or before October 8, 1926, the same being the reasonable and proper time necessary to transport said shipment to Atlantic City, in as good condition as when received of defendant (plaintiff) at Kansas City, Missouri; that previous to the delivery of said goods to defendant at Kansas City, Missouri, this plaintiff apprised defendant of the kind and nature of the goods and told defendant of the necessity of having the goods at Atlantic City by October 8, 1926, and the reason therefor; that defendant knew that the goods were intended for an exhibit at the place and that they would have to be at Atlantic City by that date to be of any service to the defendant (plaintiff)." (Italics ours.)

      "That this defendant through its servants and agents, after being apprised of the nature of the shipment of goods and all of the necessity of having the goods at Atlantic City at the time specified, to-wit: October 8, 1926, agreed with plaintiff and promised and assured plaintiff that if they would transport the goods through defendant, and deliver said goods to defendant at Kansas City by October 4th, that they would be at Atlantic City by said date, to-wit: October 8, 1926; that relying upon the promises and assurances of the defendant's agents and servants that the goods would be in Atlantic City by October 8, 1926, this plaintiff delivered said goods to the defendant on October 2, 1926, at Kansas City, Missouri, and paid defendant the express charges on same, as above set out, in packages or parcels, numbered from one to twenty-one inclusive.

      "That relying upon defendant's promise and the promises of its agents and servants, that said parcels would be delivered at Atlantic City by October 8, 1926, if delivered to defendant by October 4, 1926, plaintiff herein hired space for an exhibit at the American Gas Association Convention at Atlantic City, and planned for an exhibit at said Convention and sent men in the employ of this plaintiff to Atlantic City to install, show and operate said exhibit, and that these men were in Atlantic City ready to set up this plaintiff's exhibit at the American Gas Association Convention on October 8, 1926."

      "That defendant, in violation of its agreement, failed and neglected to deliver one of the packages to its destination on October 8, 1926:

      "That the package not delivered by defendant contained the essential part of plaintiff's exhibit which plaintiff was to make at said convention on October 8th, was later discovered in St. Louis, Missouri, by the defendant herein, and that plaintiff, for this reason, could not show his exhibit."

      20

      Plaintiff asked damages, which the court in its judgment allowed as follows: $147 express charges (on the exhibit); $45.12 freight on the exhibit from Atlantic City to Kansas City; $101.39 railroad and pullman fares to and from Atlantic City, expended by plaintiff's president and a workman taken by him to Atlantic City; $48 hotel room for the two; $150 for the time of the president; $40 for wages of plaintiff's other employee and $270 for rental of the booth, making a total of $801.51.

      21

      Defendant contends that its instructions in the nature of demurrers to the evidence should have been given for the reason that the petition and plaintiff's evidence show that plaintiff has based its cause of action on defendant's breach of a promise to deliver [575] the shipment at a specified time and that promise is non-enforceable and void under the Interstate Commerce Act; that the court erred in allowing plaintiff's expenses as damages; that the only damages, if any, that can be recovered in cases of this kind, are for loss of profits and that plaintiff's evidence is not sufficient to base any recovery on this ground.

      22

      No attack was made upon the petition at the trial and at this late day it must be adjudged to be sufficient if it states any cause of action whatever, however in artificially it may be drawn. Of course, the law applicable to the case is governed by the Statutes of the United States as construed by the Federal Courts. [Bilby v. A.T.S.F. Ry. Co., 199 S.W. 1004.] It is well established that a shipper cannot recover on a special contract to move a shipment within a specified time, for such would work an unjust discrimination among shippers. The only duty that the carrier is under is to carry the shipment safely and to deliver it at its destination within a reasonable time. [United States v. Am. Ry. Exp. Co., 265 U.S. 425; 44 Sup. Ct. Rep. 560; C. & A.R.R. Co. v. Kirby, 225 U.S. 155, 164; A.T. & S.F. Ry. v. Robinson, 233 U.S. 173, 34 Sup. Ct. 556; Fruit & Produce Co. v. Pa. Co., 201 Mo. App. 609.]

      23

      While the petition alleges that defendant agreed to deliver the shipment at Atlantic City on or before October 8, 1926, it also alleges that this was the reasonable and proper time necessary to transport said shipment to Atlantic City. Therefore, giving the petition a liberal construction, it would appear that all that plaintiff was contending therein was that defendant had agreed to transport the shipment within a reasonable time, and that delivery on or before October 8th was necessary to comply with the agreement. The petition refers several times to the agreement that if the goods were delivered to defendant by October 4th, they would be delivered at Atlantic City not later than October 8th, but it also alleges that the goods were not delivered to defendant until October 2nd. It is quite apparent from reading the petition, as a whole, that it was not upon a contract to deliver at Atlantic City on October 8th, goods delivered by plaintiff to defendant at Kansas City on October 4th. It would appear that the purpose of plaintiff, in pleading this agreement, was to allege sufficient facts to base its claim of special damages, that is that defendant was notified that it was necessary to have the shipment at Atlantic City by October 8th, and that the damages sustained accrued as a result of plaintiff's reliance on its being so delivered and that October 8th was plenty of time for defendant to have taken to transport the shipment. Much of the petition is surplusage but we cannot adjudge it wholly insufficient at this juncture.

      24

      There is nothing in the evidence tending to show any unjust discrimination between shippers in the agreement had between plaintiff and defendant. Boiled down to its last analysis, the agreement was nothing more than that the shipment would be transported within the ordinary time. Plaintiff sought no special advantage, was asking nothing that would be denied any other shipper, was asking no particular route, no particular train, nor for any expedited service. It was simply seeking the same rights any other shipper could have enjoyed on the same terms. No special instructions were given or involved in the case. [Foster v. Cleveland, et al. R. Co., 56 Fed. 434; Packing Co. v. Alaska S.S. Co., 22 Fed. (2d) 12.]

      25

      We think, under the circumstances in this case, that it was proper to allow plaintiff's expenses as its damages. Ordinarily the measure of damages where the carrier fails to deliver a shipment at destination within a reasonable time is the difference between the market value of the goods at the time of the delivery and the time when they should have been delivered. But where the carrier has notice of peculiar circumstances under which the shipment is made, which will result in an unusual loss by the shipper in case of delay in delivery, the carrier is responsible for the real damage sustained from such delay if the notice given is of such character, and goes to such extent, in informing the carrier of the shipper's situation, that the carrier will be presumed to have contracted with reference thereto. [Central Trust Co. v. Savannah & W.R. Co., 69 Fed. 683, 685.]

      26

      In the case at bar defendant was advised of the necessity of prompt delivery of the shipment. Plaintiff explained to Johnson the "importance of getting the exhibit there on time." Defendant knew the purpose of the exhibit and ought to respond for its negligence in failing to get it there. As we view the record this negligence is practically conceded. The undisputed testimony shows that the shipment was sent to the over and short department of the defendant in St. Louis. As the packages were plainly numbered this, prima facie, shows mistake or negligence on the part of the defendant. No effort was made by it to show that it was not negligent in sending it there, or not negligence in not forwarding it within a reasonable time after it was found.

      27

      There is no evidence or claim in this case that plaintiff suffered any loss of profits by reason of the delay in the shipment. In fact defendant states in its brief:

      28

      "The plaintiff introduced not one whit of [576] evidence showing or tending to show that he would have made any sales as a result of his exhibit but for the negligence of the defendant. On the contrary Blakesley testified that the main purpose of the exhibit was to try to interest the Henry L. Dougherty Company in plaintiff's combination oil and gas burner, yet that was all the evidence that there was as to the benefit plaintiff expected to get from the exhibit.

      "As a matter of evidence, it is clear that the plaintiff would not have derived a great deal of benefit from the exhibit by any stretch of the imagination....

      "Nowhere does plaintiff introduce evidence showing that the Henry L. Doherty Company in all probability would have become interested in the combination oil and gas burner and made a profitable contract with the plaintiff."

      29

      There is evidence that the exhibit was not sent to make a sale.

      30

      In support of its contention that plaintiff can sue only for loss of profit, if anything, in a case of this kind, defendant, among other cases cites that of Adams Exp. Co. v. Egbert, 36 Pa. 360. That case involved the shipment of a box containing architectural drawings or plans for a building, to a building committee of the Touro Almshouse, in New Orleans. This committee had offered a premium of $500 to the successful competitor. These plans arrived after the various plans had been passed upon and the award made to another person. It was sought in that case to recover the value of the plans. The evidence, however, showed that the plans would not have won the prize had they arrived on time. The court held that the plans, under the circumstances, had no appreciable value and recovery could not be had for them and there was no basis for recovery for loss of the opportunity to compete for the prize. The opinion states that in denying recovery for the plans it is contrary to the English rule in such cases. Other cases cited by defendant involve loss of profits or the loss of opportunity to compete in such events as horse racing and the like. In one case, Table & Chair Co. v. R.R., 105 Miss. 861, it was held that the plaintiff could recover for loss of profits that might have been made in the sale of its commodity, as a result of exhibiting a sample at an exhibition, where the shipment was delayed too late for the exhibit. Some of the cases cited by defendant hold that such profits in those classes of cases are not recoverable, and others to the contrary.

      31

      Defendant contends that plaintiff "is endeavoring to achieve a return of the status quo in a suit bases on a breach of contract. Instead of seeking to recover what he would have had, had the contract not been broken, plaintiff is trying to recover what he would have had, had there never been any contract of shipment;" that the expenses sued for would have been incurred in any event. It is no doubt, the general rule that where there is a breach of contract the party suffering the loss can recover only that which he would have had, had the contract not been broken, and this is all the cases decided upon which defendant relies, including C.M. & St. P. Ry. v. McCaull-Dinsmore Co., 253 U.S. 97, 100, 40 Sup. Ct. Rep. 504, 504. But this is merely a general statement of the rule and is not inconsistent with the holdings that, in some instances, the injured party may recover expenses incurred in relying upon the contract, although such expenses would have been incurred had the contract not been breached. [See Morrow v. Railroad, 140 Mo. App. 200, 212, 213; Bryant v. Barton, 32 Neb. 613, 616; Woodbury v. Jones, 44 N.H. 206; Driggs v. Dwight, 31 Am. Dec. 283.]

      32

      In Sperry et al. v. O'Neill-Adams Co., 185 Fed. 231, the court held that the advantages resulting from the use of trading stamps as a means of increasing trade are so contingent that they cannot form a basis on which to rest a recovery for a breach of contract to supply them. In lieu of compensation based thereon the court directed a recovery in the sum expended in preparation for carrying on business in connection with the use of the stamps. The court said, l.c 239:

      33

      "Plaintiff in its complaint had made a claim for lost profits, but, finding it impossible to marshal any evidence which would support a finding of exact figures, abandoned that claim. Any attempt to reach a precise sum would be mere blind guesswork. Nevertheless a contract, which both sides conceded would prove a valuable one, had been broken and the party who broke it was responsible for resultant damage. In order to carry out this contract, the plaintiff made expenditures which otherwise it would not have made. . . . The trial judge held, as we think rightly, that plaintiff was entitled at least to recover these expenses to which it had been put in order to secure the benefits of a contract of which defendant's conduct deprived it."

      34

      In the case of Gilbert v. Kennedy, 22 Mich. 117, involved the question of the measure of plaintiff's damages, caused by the conduct of defendant in wrongfully feeding his cattle with plaintiff's in the latter's pasture, resulting in plaintiff's cattle suffering by the overfeeding of the pasture. The court said l.c. 135, 136:

      35

      "There being practically no market value for pasturage when there was none in the market, that element of certainty is wanting, even as to those cattle which were removed [577] from the Pitcher farm to the home farm of the plaintiff for pasturage; and, as it could not apply to the others at all, and there being no other element of certainty by which the damages can be accurately measured, resort must be had to such principle or basis of calculation applicable to the circumstances of the case (if any be discoverable) as will be most likely to approximate certainty, and which may serve as a guide in making the most probable estimate of which the nature of the case will admit; and, though it may be less certain as a scale of measurement, yet if the principle be just in itself, and more likely to approximate the actual damages, it is better than any rule, however certain, which must certainly produce injustice, by excluding a large portion of the damages actually sustained."

      36

      In Hobbs v. Davis, 30 Ga. 423, a negro slave was hired to make a crop, but she was taken away by her owner in the middle of the year, the result of which the crop was entirely lost. The court said, l.c. 425:

      37

      "As it was, the true criterion of damages was perhaps, the hire of the negro, the rent of the land and all the expense incurred, and actual loss sustained by the misconduct of the defendant, rather than the conjecture of the witness, as to what the crop would have been worth.

      "Compensation is a fundamental principle of damages whether the action is in contract or tort. [Wicker v. Hoppock, 6 Wall, 94, 99, 18 L. Ed. 752.] One who fails to perform his contract is justly bound to make good all damages that accrue naturally from the breach; and the other party is entitled to be put in as good a position pecuniarily as he would have been by performance of the contract."

      38

      The case at bar was to recover damages for loss of profits by reason of the failure of the defendant to transport the shipment within a reasonable time, so that it would arrive in Atlantic City for the exhibit. There were no profits contemplated. The furnace was to be shown and shipped back to Kansas City. There was no money loss, except the expenses, that was of such a nature as any court would allow as being sufficiently definite or lacking in pure speculation. Therefore, unless plaintiff is permitted to recover the expenses that it went to, which were a total loss to it by reason of its inability to exhibit the furnace and equipment, it will be deprived of any substantial compensation for its loss. The law does not contemplate any such injustice. It ought to allow plaintiff, as damages, the loss in the way of expenses that it sustained, and which it would not have been put to if it had not been for its reliance upon the defendant to perform its contract. There is no contention that the exhibit would have been entirely valueless and whatever it might have accomplished defendant knew of the circumstances and ought to respond for whatever damages plaintiff suffered. In cases of this kind the method of estimating the damages should be adopted which is the most definite and certain and which best achieves the fundamental purpose of compensation. [17 C.J., p. 846: Miller v. Robertson, 266 U.S. 243, 257, 45 Sup. Ct. Rep. 73, 78.] Had the exhibit been shipped in order to realize a profit on sales and such profits could have been realized, or to be entered in competition for a prize, and plaintiff failed to show loss of profits with sufficient definiteness, or that he would have won the prize, defendant's cases might be in point. But as before stated, no such situation exists here.

      39

      While, it is true that plaintiff already had incurred some of these expenses, in that it had rented space at the exhibit before entering into the contract with defendant for the shipment of the exhibit and this part of plaintiff's damages, in a sense, arose out of a circumstance which transpired before the contract was even entered into, yet, plaintiff arranged for the exhibit knowing that it could call upon defendant to perform its common-law duty to accept and transport the shipment with reasonable dispatch. The whole damage, therefore, was suffered in contemplation of defendant performing its contract, which it failed to do, and would not have been sustained except for the reliance by plaintiff upon defendant to perform it. It can, therefore, be fairly said that the damages or loss suffered by plaintiff grew out of the breach of the contract, for had the shipment arrived on time, plaintiff would have had the benefit of the contract, which was contemplated by all parties, defendant being advised of the purpose of the shipment.

      40

      The judgment is affirmed. All concur.

    • 1.4 Restatement of Contracts, Second, § 352

    • 1.5 Restatement of Contracts, Second, § 349

  • 2 III. A. 3. b. Avoidable Damages

    • 2.1 Rockingham County v. Luten Bridge Co.

      1
      35 F.2d 301 (1929)
      2
      ROCKINGHAM COUNTY
      v.
      LUTEN BRIDGE CO.
      3
      No. 2873.
      4

      Circuit Court of Appeals, Fourth Circuit.

      5
      October 15, 1929.
      6

      [302] F. P. Hobgood, Jr., of Greensboro, N. C., and W. M. Hendren, of Winston-Salem, N. C., for appellant.

      7

      Edward S. Parker, Jr., of Greensboro, N. C. (Aubrey L. Brooks, of Greensboro, N. C., Julius C. Smith, of Robersonville, N. C., and C. R. Wharton, of Greensboro, N. C., on the brief), for appellee.

      8

      Before PARKER, Circuit Judge, and McCLINTIC and SOPER, District Judges.

      9
      PARKER, Circuit Judge.
      10

      This was an action at law instituted in the court below by the Luten Bridge Company, as plaintiff, to recover of Rockingham county, North Carolina, an amount alleged to be due under a contract for the construction of a bridge. The county admits the execution and breach of the contract, but contends that notice of cancellation was given the bridge company before the erection of the bridge was commenced, and that it is liable only for the damages which the company would have sustained, if it had abandoned construction at that time. The judge below refused to strike out an answer filed by certain members of the board of commissioners of the county, admitting liability in accordance with the prayer of the complaint, allowed this pleading to be introduced in evidence as the answer of the county, excluded evidence offered by the county in support of its contentions as to notice of cancellation and damages, and instructed a verdict for plaintiff for the full amount of its claim. From judgment on this verdict the county has appealed.

      11

      The facts out of which the case arises, as shown by the affidavits and offers of proof appearing in the record, are as follows: On January 7, 1924, the board of commissioners of Rockingham county voted to award to plaintiff a contract for the construction of the bridge in controversy. Three of the five commissioners favored the awarding of the contract and two opposed it. Much feeling was engendered over the matter, with the result that on February 11, 1924, W. K. Pruitt, one of the commissioners who had voted in the affirmative, sent his resignation to the clerk of the superior court of the county. The clerk received this resignation on the same day, and immediately accepted same and noted his acceptance thereon. Later in the day, Pruitt called him over the telephone and stated that he wished to withdraw the resignation, and later sent him written notice [303] to the same effect. The clerk, however, paid no attention to the attempted withdrawal, and proceeded on the next day to appoint one W. W. Hampton as a member of the board to succeed him.

      12

      After his resignation, Pruitt attended no further meetings of the board, and did nothing further as a commissioner of the county. Likewise Pratt and McCollum, the other two members of the board who had voted with him in favor of the contract, attended no further meetings. Hampton, on the other hand, took the oath of office immediately upon his appointment and entered upon the discharge of the duties of a commissioner. He met regularly with the two remaining members of the board, Martin and Barber, in the courthouse at the county seat, and with them attended to all of the business of the county. Between the 12th of February and the first Monday in December following, these three attended, in all, 25 meetings of the board.

      13

      At one of these meetings, a regularly advertised called meeting held on February 21st, a resolution was unanimously adopted declaring that the contract for the building of the bridge was not legal and valid, and directing the clerk of the board to notify plaintiff that it refused to recognize same as a valid contract, and that plaintiff should proceed no further thereunder. This resolution also rescinded action of the board theretofore taken looking to the construction of a hard-surfaced road, in which the bridge was to be a mere connecting link. The clerk duly sent a certified copy of this resolution to plaintiff.

      14

      At the regular monthly meeting of the board on March 3d, a resolution was passed directing that plaintiff be notified that any work done on the bridge would be done by it at its own risk and hazard, that the board was of the opinion that the contract for the construction of the bridge was not valid and legal, and that, even if the board were mistaken as to this, it did not desire to construct the bridge, and would contest payment for same if constructed. A copy of this resolution was also sent to plaintiff. At the regular monthly meeting on April 7th, a resolution was passed, reciting that the board had been informed that one of its members was privately insisting that the bridge be constructed. It repudiated this action on the part of the member and gave notice that it would not be recognized. At the September meeting, a resolution was passed to the effect that the board would pay no bills presented by plaintiff or any one connected with the bridge. At the time of the passage of the first resolution, very little work toward the construction of the bridge had been done, it being estimated that the total cost of labor done and material on the ground was around $1,900; but, notwithstanding the repudiation of the contract by the county, the bridge company continued with the work of construction.

      15

      On November 24, 1924, plaintiff instituted this action against Rockingham county, and against Pruitt, Pratt, McCollum, Martin, and Barber, as constituting its board of commissioners. Complaint was filed, setting forth the execution of the contract and the doing of work by plaintiff thereunder, and alleging that for work done up until November 3, 1924, the county was indebted in the sum of $18,301.07. On November 27th, three days after the filing of the complaint, and only three days before the expiration of the term of office of the members of the old board of commissioners, Pruitt, Pratt, and McCollum met with an attorney at the county seat, and, without notice to or consultation with the other members of the board, so far as appears, had the attorney prepare for them an answer admitting the allegations of the complaint. This answer, which was filed in the cause on the following day, did not purport to be an answer of the county, or of its board of commissioners, but of the three commissioners named.

      16

      On December 1, 1924, the newly elected board of commissioners held its first meeting and employed attorneys to defend the action which had been instituted by plaintiff against the county. These attorneys immediately moved to strike out the answer which had been filed by Pruitt, Pratt, and McCollum, and entered into an agreement with opposing counsel that the county should have 30 days from the action of the court on the motion within which to file answer. The court denied the motion on June 2, 1927, and held the answer filed by Pruitt, Pratt, and McCollum to be the answer of the county. An order was then entered allowing the county until August 1st to file answer, pursuant to stipulation, within which time the answer of the county was filed. This answer denied that the contract sued on was legal or binding, and for a further defense set forth the resolutions of the commissioners with regard to the building of the bridge, to which we have referred, and their communication to plaintiff. A reply was filed to this, and the case finally came to trial.

      17

      At the trial, plaintiff, over the objection [304] of the county, was allowed to introduce in evidence the answer filed by Pruitt, Pratt, and McCollum, the contract was introduced, and proof was made of the value under the terms of the contract of the work done up to November 3, 1924. The county elicited on cross-examination proof as to the state of the work at the time of the passage of the resolutions to which we have referred. It then offered these resolutions in evidence, together with evidence as to the resignation of Pruitt, the acceptance of his resignation, and the appointment of Hampton; but all of this evidence was excluded, and the jury was instructed to return a verdict for plaintiff for the full amount of its claim. The county preserved exceptions to the rulings which were adverse to it, and contends that there was error on the part of the judge below in denying the motion to strike out the answer filed by Pruitt, Pratt, and McCollum; in allowing same to be introduced in evidence; in excluding the evidence offered of the resignation of Pruitt, the acceptance of his resignation, and the appointment of Hampton, and of the resolutions attempting to cancel the contract and the notices sent plaintiff pursuant thereto; and in directing a verdict for plaintiff in accordance with its claim.

      18

      As the county now admits the execution and validity of the contract, and the breach on its part, the ultimate question in the case is one as to the measure of plaintiff's recovery, and the exceptions must be considered with this in mind. Upon these exceptions, three principal questions arise for our consideration, viz.: (1) Whether the answer filed by Pruitt, Pratt, and McCollum was the answer of the county. If it was, the lower court properly refused to strike it out, and properly admitted it in evidence. (2) Whether, in the light of the evidence offered and excluded, the resolutions to which we have referred, and the notices sent pursuant thereto, are to be deemed action on the part of the county. If they are not, the county has nothing upon which to base its position as to minimizing damages, and the evidence offered was properly excluded. And (3) whether plaintiff, if the notices are to be deemed action by the county, can recover under the contract for work done after they were received, or is limited to the recovery of damages for breach of contract as of that date.

      19

      With regard to the first question the learned District Judge held that the answer of Pruitt, Pratt, and McCollum was the answer of the county, but we think that this holding was based upon an erroneous view of the law. It appears, without contradiction, not only that their answer purports to have been filed by them individually, and not in behalf of the county or of the board of commissioners, but also that it was not authorized by the board of commissioners, acting as a board at a meeting regularly held. It appears that Pruitt, Pratt, and McCollum merely met at the county seat to consider the filing of an answer to plaintiff's complaint. This was not a "regular" meeting of the board, held on the first Mondays of December and June. It was not a "special" meeting held on the first Monday in some other month. It was not shown to be a meeting "called" by the chairman upon the written request of a member of the board, and advertised at the courthouse door and in a newspaper as provided by statute. Consol. St. § 1296. And between the filing of the complaint and the filing of the answer there was not sufficient time for the advertising of a called meeting of the board. Consequently any action taken by Pruitt, Pratt, and McCollum with regard to filing an answer was not taken at a meeting of the board in legal session. Even if it be assumed that Pruitt continued to be a member of the board, and that he, Pratt, and McCollum constituted a majority thereof, nevertheless such majority could bind the county only by action taken at a meeting regularly held. The rule is well settled that the governing board of a county can act only as a body and when in legal session as such. 7 R. C. L. 941; 15 C. J. 460 and cases cited; O'Neal v. Wake County, 196 N. C. 184, 145 S. E. 28, 29; Grand Island & N. W. R. Co. v. Baker, 6 Wyo. 369, 45 P. 494, 34 L. R. A. 835, 71 Am. St. Rep. 926; Board of Com'rs of Jasper County v. Allman, 142 Ind. 573, 42 N. E. 206, 39 L. R. A. 58, 68; Campbell County v. Howard & Lee, 133 Va. 19, 112 S. E. 876; Paola, etc., R. Co. v. Anderson County Com'rs, 16 Kan. 302, 310. As said in the case last cited: "* * * Commissioners casually meeting have no power to act for the county. There must be a session of the `board.' This single entity, the `board,' alone can by its action bind the county. And it exists only when legally convened."

      20

      The North Carolina case of Cleveland Cotton-Mills v. Commissioners, 108 N. C. 678, 13 S. E. 271, 274, established the rule in North Carolina. That case arose under the old law, which required bridge contracts involving more than $500 to be made with the concurrence of a majority of the justices [305] of the peace of the county. Such a contract was made, and a majority of the justices of the county, who were not then in session, executed a written instrument approving it. Afterwards, at a regular meeting of the justices with the board of commissioners, a majority of the quorum of the justices present voted to ratify the contract. A divided court held that this ratification at the regular meeting was sufficient, although the majority of the quorum which voted for ratification was less than a majority of all of the justices of the county; but all of the members of the court agreed that the execution of the instrument by a majority of the justices when not in session was without effect. As to this, it was said in the majority opinion:

      21

      "We attach no importance to the paper signed by an actual majority of the whole number of justices of the peace of the county. The action contemplated by the law was that of the justices of the peace in a lawfully constituted meeting as a body, as in cases where the validity of an agreement made by the governing officials of any other corporation is drawn in question. Duke v. Markham, 105 N. C. 131, 10 S. E. 1017 [18 Am. St. Rep. 889]."

      22

      It will be seen that the court applied to this case, where the validity of the action of the governing officials of a public corporation was drawn in question, the rule laid down in Duke v. Markham, which is, of course, the well-settled rule in the case of private corporations, viz. that such officials can exercise their powers as members of the governing board only at a meeting regularly held. See, also, First National Bank v. Warlick, 125 N. C. 593, 34 S. E. 687; Everett v. Staton, 192 N. C. 216, 134 S. E. 492.

      23

      But in the case of O'Neal v. Wake County, supra, decided in 1928, the Supreme Court of North Carolina set at rest any doubt which may have existed in that state as to the question here involved. In holding that the county could not be held liable on a contract made at a joint meeting of the county commissioners, the county board of education, and a representative of the insurance department, the court said:

      24

      "A county makes its contracts through the agency of its board of commissioners; but to make a contract which shall be binding upon the county the board must act as a body convened in legal session, regular, adjourned, or special. A contract made by members composing the board when acting in their individual and not in their corporate capacity while assembled in a lawful meeting is not the contract of the county. As a rule authorized meetings are prerequisite to corporate action based upon deliberate conference and intelligent discussion of proposed measures. 7 R. C. L. 941; 15 C. J. 460; 43 C. J. 497; P. & F. R. Ry. Co. v. Com'rs of Anderson County, 16 Kan. 302; Kirkland v. State, 86 Fla. 84, 97 So. 502. The principle applies to corporations generally, and by the express terms of our statute, as stated above, every county is a corporate body."

      25

      We think, therefore, that Pruitt, Pratt, and McCollum, even if they constituted a majority of the board of commissioners, did not bind the county by their action in filing an answer admitting its liability, where no meeting of the board of commissioners was held according to law, and where, so far as appears, the other commissioners were not even notified of what was being attempted. It is unthinkable that the county should be held bound by such action, especially where the commissioners attempting to bind it had taken no part in its government for nearly 10 months, and where the answer filed did not defend it in any particular, but, on the contrary, asserted its liability. If, therefore, the answer be considered as an attempt to answer on behalf of the county, it must be stricken out, because not authorized by its governing board; if considered as the answer of Pruitt, Pratt, and McCollum individually, it must go out because, having been sued in their official capacity, they had no right to answer individually. And, of course, not having been authorized by the county, the answer was not admissible as evidence against it on the trial of the cause.

      26

      Coming to the second inquiry — i. e., whether the resolutions to which we have referred and the notices sent pursuant thereto are to be deemed the action of the county, and hence admissible in evidence on the question of damages — it is to be observed that, along with the evidence of the resolutions and notices, the county offered evidence to the effect that Pruitt's resignation had been accepted before he attempted to withdraw same, and that thereafter Hampton was appointed, took the oath of office, entered upon the discharge of the duties of the office, and with Martin and Barber transacted the business of the board of commissioners until the coming into office of the new board. We think that this evidence, if true, shows (1) that Hampton, upon his appointment and qualification, became a member of the board in place of Pruitt, and that he, Martin, and [306] Barber constituted a quorum for the transaction of its business; and (2) that, even if this were not true, Hampton was a de facto commissioner, and that his presence at meetings of the board with that of the other two commissioners was sufficient to constitute a quorum, so as to give validity to its proceedings.

      27

      The North Carolina statutes make no provision for resignations by members of the boards of county commissioners. A public officer, however, has at common law the right to resign his office, provided his resignation is accepted by the proper authority. Hoke v. Henderson, 15 N. C. 1, 25 Am. Dec. 677; U. S. v. Wright, Fed. Cas. No. 16,775; Rowe v. Tuck, 149 Ga. 88, 99 S. E. 303, 5 A. L. R. 113; Van Orsdall v. Hazard, 3 Hill (N. Y.) 243; Philadelphia v. Marcer, 8 Phila. (Pa.) 319; Gates v. Delaware County, 12 Iowa, 405; 22 R. C. L. 556, 557; note, 19 A. L. R. 39, and cases there cited. And, in the absence of statute regulating the matter, his resignation should be tendered to the tribunal or officer having power to appoint his successor. 22 R. C. L. 558; State v. Popejoy, 165 Ind. 177, 74 N. E. 994, 6 Ann. Cas. 687, and note; State ex rel. Conley v. Thompson, 100 W. Va. 253, 130 S. E. 456; State v. Huff, 172 Ind. 1, 87 N. E. 141, 139 Am. St. Rep. 355; State v. Augustine, 113 Mo. 21, 20 S. W. 651, 35 Am. St. Rep. 696. In the case last cited it is said:

      28

      "It is well-established law that, in the absence of express statutory enactment, the authority to accept the resignation of a public officer rests with the power to appoint a successor to fill the vacancy. The right to accept a resignation is said to be incidental to the power of appointment. 1 Dillon on Municipal Corporations (3d Ed.) § 224; Mechem on Public Offices, § 413; Van Orsdall v. Hazard, 3 Hill (N. Y.) 243; State v. Boecker, 56 Mo. 17."

      29

      In North Carolina, the officer having power to appoint the successor of a member of the board of county commissioners is the clerk of the superior court of the county. Consolidated Statutes of North Carolina, § 1294. It is clear, therefore, that, when Pruitt tendered his resignation to the clerk of the superior court, he tendered it to the proper authority.

      30

      The mere filing of the resignation with the clerk of the superior court did not of itself vacate the office of Pruitt, it was necessary that his resignation be accepted. Hoke v. Henderson, supra; Edwards v. U. S., 103 U. S. 471, 26 L. Ed. 314. But, after its acceptance, he had no power to withdraw it. Mimmack v. U. S., 97 U. S. 426, 24 L. Ed. 1067; Murray v. State, 115 Tenn. 303, 89 S. W. 101, 5 Ann. Cas. 687, and note; State v. Augustine, supra; Gates v. Delaware County, supra; 22 R. C. L. 559. If, as the offer of proof seems to indicate, the resignation of Pruitt was accepted by the clerk prior to his attempt to withdraw it, the appointment of Hampton was unquestionably valid, and the latter, with Martin and Barber, constituted a quorum of the board of commissioners, with the result that action taken by them in meetings of the board regularly held was action by the county.

      31

      But, irrespective of the validity of Hampton's appointment, we think that he must be treated as a de facto officer, and that the action taken by him, Martin, and Barber in meetings regularly held is binding upon the county and upon those dealing with it. Hampton was appointed by the lawful appointing power. He took the oath of office and entered upon the discharge of the duties of a commissioner. The only government which the county had for a period of nearly 10 months was that which he and his associates, Martin and Barber, administered. If their action respecting this contract is to be ignored, then, for the same reason, their tax levy for the year must be treated as void, and the many transactions carried through at their 25 meetings, which were not attended by Pruitt, Pratt, or McCollum, must be set aside. This cannot be the law. It ought not be the law anywhere; it certainly is not the law in North Carolina. Section 3204 of the Consolidated Statutes provides:

      32

      "3204. Persons admitted to office deemed to hold lawfully. Any person who shall, by the proper authority, be admitted and sworn into any office, shall be held, deemed, and taken, by force of such admission, to be rightfully in such office until, by judicial sentence, upon a proper proceeding, he shall be ousted therefrom, or his admission thereto be, in due course of law, declared void."

      33

      In the case of State v. Lewis, 107 N. C. 967, 12 S. E. 457, 458, 13 S. E. 247, 11 L. R. A. 105, the court quotes with approval the widely accepted definition and classification of de facto officers by Chief Justice Butler in the case of State v. Carroll, 38 Conn. 449, 9 Am. Rep. 409, as follows:

      34

      "An officer de facto is one whose acts, though not those of a lawful officer, the law, upon principles of policy and justice, will hold valid so far as they involve the interests of the public and third persons, where the duties of the office were exercised — First, without a known appointment or election, [307] but under such circumstances of reputation or acquiescence as were calculated to induce people, without inquiry, to submit to or invoke his action, supposing him to be the officer he assumed to be; second, under color of a known and valid appointment or election, but where the officer failed to conform to some precedent requirement or condition, as to take an oath, give a bond, or the like; third, under color of a known election or appointment, void because there was a want of power in the electing or appointing body, or by reason of some defect or irregularity in its exercise, such ineligibility, want of power, or defect being unknown to the public; fourth, under color of an election or appointment by or pursuant to a public unconstitutional law before the same is adjudged to be such."

      35

      It is clear that, if the appointment of Hampton be considered invalid, the case falls under the third class in the above classification; for Hampton was discharging the duties of a county commissioner under color of a known appointment, the invalidity of which, if invalid, arose from a want of power or irregularity unknown to the public. Other North Carolina cases supporting this conclusion are Burke v. Elliott, 26 N. C. 355, 42 Am. Dec. 142; Burton v. Patton, 47 N. C. 124, 62 Am. Dec. 194; Norfleet v. Staton, 73 N. C. 546, 21 Am. Rep. 479; Markham v. Simpson, 175 N. C. 135, 95 S. E. 106; State v. Harden, 177 N. C. 580, 98 S. E. 782; 22 R. C. L. 596, 597. This is not a case like Baker v. Hobgood, 126 N. C. 149, 35 S. E. 253, where there were rival boards, both attempting to discharge the duties of office; for, upon the appointment of Hampton, Pruitt attended no further meetings and left him in the unchallenged possession of the office.

      36

      The rule is well settled in North Carolina, as it is elsewhere, that the acts of a de facto officer will be held valid in respect to the public whom he represents and to third persons with whom he deals officially, notwithstanding there was a want of power to appoint him in the person or body which professed to do so. Norfleet v. Staton, supra; Markham v. Simpson, supra; 22 R. C. L. 601, 602, and cases cited.

      37

      Coming, then, to the third question — i. e., as to the measure of plaintiff's recovery — we do not think that, after the county had given notice, while the contract was still executory, that it did not desire the bridge built and would not pay for it, plaintiff could proceed to build it and recover the contract price. It is true that the county had no right to rescind the contract, and the notice given plaintiff amounted to a breach on its part; but, after plaintiff had received notice of the breach, it was its duty to do nothing to increase the damages flowing therefrom. If A enters into a binding contract to build a house for B, B, of course, has no right to rescind the contract without A's consent. But if, before the house is built, he decides that he does not want it, and notifies A to that effect, A has no right to proceed with the building and thus pile up damages. His remedy is to treat the contract as broken when he receives the notice, and sue for the recovery of such damages as he may have sustained from the breach, including any profit which he would have realized upon performance, as well as any other losses which may have resulted to him. In the case at bar, the county decided not to build the road of which the bridge was to be a part, and did not build it. The bridge, built in the midst of the forest, is of no value to the county because of this change of circumstances. When, therefore, the county gave notice to the plaintiff that it would not proceed with the project, plaintiff should have desisted from further work. It had no right thus to pile up damages by proceeding with the erection of a useless bridge.

      38

      The contrary view was expressed by Lord Cockburn in Frost v. Knight, L. R. 7 Ex. 111, but, as pointed out by Prof. Williston (Williston on Contracts, vol. 3, p. 2347), it is not in harmony with the decisions in this country. The American rule and the reasons supporting it are well stated by Prof. Williston as follows:

      39

      "There is a line of cases running back to 1845 which holds that, after an absolute repudiation or refusal to perform by one party to a contract, the other party cannot continue to perform and recover damages based on full performance. This rule is only a particular application of the general rule of damages that a plaintiff cannot hold a defendant liable for damages which need not have been incurred; or, as it is often stated, the plaintiff must, so far as he can without loss to himself, mitigate the damages caused by the defendant's wrongful act. The application of this rule to the matter in question is obvious. If a man engages to have work done, and afterwards repudiates his contract before the work has been begun or when it has been only partially done, it is inflicting damage on the defendant without benefit to the plaintiff to allow the latter to insist on proceeding with the contract. The work may be useless to the defendant, and yet he would be forced to pay the full contract price. On [308] the other hand, the plaintiff is interested only in the profit he will make out of the contract. If he receives this it is equally advantageous for him to use his time otherwise."

      40

      The leading case on the subject in this country is the New York case of Clark v. Marsiglia, 1 Denio (N. Y.) 317, 43 Am. Dec. 670. In that case defendant had employed plaintiff to paint certain pictures for him, but countermanded the order before the work was finished. Plaintiff, however, went on and completed the work and sued for the contract price. In reversing a judgment for plaintiff, the court said:

      41

      "The plaintiff was allowed to recover as though there had been no countermand of the order; and in this the court erred. The defendant, by requiring the plaintiff to stop work upon the paintings, violated his contract, and thereby incurred a liability to pay such damages as the plaintiff should sustain. Such damages would include a recompense for the labor done and materials used, and such further sum in damages as might, upon legal principles, be assessed for the breach of the contract; but the plaintiff had no right, by obstinately persisting in the work, to make the penalty upon the defendant greater than it would otherwise have been."

      42

      And the rule as established by the great weight of authority in America is summed up in the following statement in 6 R. C. L. 1029, which is quoted with approval by the Supreme Court of North Carolina in the recent case of Novelty Advertising Co. v. Farmers' Mut. Tobacco Warehouse Co., 186 N. C. 197, 119 S. E. 196, 198:

      43

      "While a contract is executory a party has the power to stop performance on the other side by an explicit direction to that effect, subjecting himself to such damages as will compensate the other party for being stopped in the performance on his part at that stage in the execution of the contract. The party thus forbidden cannot afterwards go on, and thereby increase the damages, and then recover such damages from the other party. The legal right of either party to violate, abandon, or renounce his contract, on the usual terms of compensation to the other for the damages which the law recognizes and allows, subject to the jurisdiction of equity to decree specific performance in proper cases, is universally recognized and acted upon."

      44

      This is in accord with the earlier North Carolina decision of Heiser v. Mears, 120 N. C. 443, 27 S. E. 117, in which it was held that, where a buyer countermands his order for goods to be manufactured for him under an executory contract, before the work is completed, it is notice to the seller that he elects to rescind his contract and submit to the legal measure of damages, and that in such case the seller cannot complete the goods and recover the contract price. See, also, Kingman & Co. v. Western Mfg. Co. (C. C. A. 8th) 92 F. 486; Davis v. Bronson, 2 N. D. 300, 50 N. W. 836, 16 L. R. A. 655 and note, 33 Am. St. Rep. 783, and note; Richards v. Manitowoc & Northern Traction Co., 140 Wis. 85, 121 N. W. 837, 133 Am. St. Rep. 1063.

      45

      We have carefully considered the cases of Roehm v. Horst, 178 U. S. 1, 20 S. Ct. 780, 44 L. Ed. 953, Roller v. George H. Leonard & Co. (C. C. A. 4th) 229 F. 607, and McCoy v. Justices of Harnett County, 53 N. C. 272, upon which plaintiff relies; but we do not think that they are at all in point. Roehm v. Horst merely follows the rule of Hockster v. De La Tour, 2 El. & Bl. 678, to the effect that where one party to any executory contract refuses to perform in advance of the time fixed for performance, the other party, without waiting for the time of performance, may sue at once for damages occasioned by the breach. The same rule is followed in Roller v. Leonard. In McCoy v. Justices of Harnett County the decision was that mandamus to require the justices of a county to pay for a jail would be denied, where it appeared that the contractor in building same departed from the plans and specifications. In the opinions in all of these some language was used which lends support to plaintiff's position, but in none of them was the point involved which is involved here, viz. whether, in application of the rule which requires that the party to a contract who is not in default do nothing to aggravate the damages arising from breach, he should not desist from performance of an executory contract for the erection of a structure when notified of the other party's repudiation, instead of piling up damages by proceeding with the work. As stated above, we think that reason and authority require that this question be answered in the affirmative. It follows that there was error in directing a verdict for plaintiff for the full amount of its claim. The measure of plaintiff's damage, upon its appearing that notice was duly given not to build the bridge, is an amount sufficient to compensate plaintiff for labor and materials expended and expense incurred in the part performance of the contract, prior to its repudiation, plus the profit which would have been realized if it had been carried out in accordance with its terms. See [309] Novelty Advertising Co. v. Farmers' Mut. Tobacco Warehouse Co., supra.

      46

      Our conclusion, on the whole case, is that there was error in failing to strike out the answer of Pruitt, Pratt, and McCollum, and in admitting same as evidence against the county, in excluding the testimony offered by the county to which we have referred, and in directing a verdict for plaintiff. The judgment below will accordingly be reversed, and the case remanded for a new trial.

      47

      Reversed.

    • 2.2 Leingang v. City of Mandan Weed Bd.

      1
      468 N.W.2d 397 (1991)
      2
      Robert LEINGANG, Plaintiff and Appellant,
      v.
      CITY OF MANDAN WEED BOARD, Defendant and Appellee.
      3
      Civ. No. 900420.
      4

      Supreme Court of North Dakota.

      5
      April 18, 1991.
      6

      Kenneth S. Rau of Moench Law Firm, Bismarck, for plaintiff and appellant.

      7

      Sharon A. Gallagher, City Atty., Mandan, for defendant and appellee.

      8
      LEVINE, Justice.
      9

      Robert Leingang appeals from an award of damages for breach of contract. The issue is whether the trial court used the appropriate measure of damages. We hold it did not, and reverse and remand.

      10

      The City of Mandan Weed Board awarded Leingang a contract to cut weeds on lots with an area greater than 10,000 square feet.[1] Another contractor received the contract [398] for smaller lots. During 1987, Leingang discovered that the Weed Board's agent was improperly assigning large lots to the small-lot contractor. Leingang complained and the weed board assigned some substitute lots to him.

      11

      Leingang brought a breach of contract action in small claims court and the City removed the action to county court. The City admitted that it had prevented Leingang's performance under the contract and that the contract price for the lost work was $1,933.78. A bench trial was held to assess the damages suffered by Leingang.

      12

      At trial, Leingang argued that the applicable measure of damages was the contract price less the costs of performance he avoided due to the breach. Leingang testified that the total gas, oil, repair and replacement blade expenses saved when he was prevented from cutting the erroneously assigned lots was $211.18.

      13

      The City argued that to identify Leingang's damages for net profits, some of Leingang's overhead expenses should be attributed to the weed cutting contract and deducted from the contract price. The City offered testimony about the profitability of businesses in Mandan and testimony from Leingang's competitor about the profitability of a weed cutting business in Mandan. The City also offered Leingang's 1986 and 1987 federal tax returns. Based on the Schedule C—"Profit or Loss From Business" —in those returns, the City argued that Leingang attributed considerably more expenses to the business of cutting weeds than he had testified he had avoided.

      14

      The trial court adopted what it called a "modified net profit" approach as the measure of damages. It derived a profit margin of 20% by subtracting four categories of expenses reported on Leingang's Schedule C, and attributed to the weed-cutting business, from the weed-cutting income reported to the IRS. The trial court selected insurance, repairs, supplies, and car and truck expenses as costs attributed to the weed-cutting business. Applying the profit margin of 20% to the contract price, the trial court deducted 80% from the contract price as expenses and awarded Leingang $368.59 plus interest. Leingang appeals.

      15

      Leingang contends that the method used by the trial court to derive net profits was improper because it did not restrict the expenses that are deductible from the contract price to those which would have been incurred but for the breach of the contract, i.e., those expenses Leingang did not have to pay because the City kept him from doing the work. We agree.

      16

      For a breach of contract, the injured party is entitled to compensation for the loss suffered, but can recover no more than would have been gained by full performance. NDCC §§ 32-03-09, 32-03-36. Our law thus incorporates the notion that contract damages should give the nonbreaching party the benefit of the bargain by awarding a sum of money that will put that person in as good a position as if the contract had been performed. See generally 22 Am.Jur.2d Damages § 45 (1988). Where the contract is for service and the breach prevents the performance of that service, the value of the contract consists of two items: (1) the party's reasonable expenditures toward performance, including costs paid, material wasted, and time and services spent on the contract, and (2) the anticipated profits. Welch Mfg. Co. v. Herbst Dept. Store, 53 N.D. 42, 204 N.W. 849, 854 (1925). Thus, a party is entitled to recover for the detriment caused by the defendant's breach, including lost profits if they are reasonable and not speculative. Id. See 25 C.J.S. Damages § 78 (1966).

      17

      Where a plaintiff offers evidence estimating anticipated profits with reasonable certainty, they may be awarded. See King Features Synd. v. Courrier, 241 Iowa 870, 43 N.W.2d 718 (1950). In King Features, the plaintiff proved the value of its anticipated profits by reducing the contract price by the amount it would have spent to perform. The court held that this proof was reasonably certain. In quantifying the costs of performance, the plaintiff did not deduct "overhead" expenses because the evidence established that those [399] expenses were constant whether or not the contract was performed. 43 N.W.2d at 725-26.

      18

      The King Features approach fulfills the Welch Mfg. requirement that a plaintiff be compensated for all the detriment caused by the breach. Under King Features, constant overhead expenses are not deducted from the contract price because they are expenses the plaintiff had to pay whether or not the contract was breached. The King Features approach compensates plaintiff for constant overhead expenses by allowing an award of the contract price, reduced only by expenses actually saved because the contract did not have to be performed. The remaining contract proceeds are available to pay constant expenses. See also Buono Sales, Inc. v. Chrysler Motors Corp., 449 F.2d 715, 720 (3d Cir.1971) [because fixed expenses must be paid from the sum remaining after costs of performance are deducted, further reducing contract price by fixed expenses would not fully, or fairly, compensate plaintiff].

      19

      Neither side argues that lost profits are not calculable here. Instead, each urges a different method for computing lost profits. In measuring Leingang's anticipated profits, the trial court erroneously calculated a "net profit" margin by deducting general costs of doing business including insurance, repairs, supplies, and car and truck expenses, without determining whether these costs remained constant regardless of the City's breach and whether they were, therefore, not to be deducted from the contract price. King Features, 43 N.W.2d at 726. The reduction from the contract price of a portion of the "fixed," or constant expenses, effectively required Leingang to pay that portion twice. See Buono Sales, Inc., 449 F.2d at 720.

      20

      We reverse the judgment and remand for a new trial on the issue of damages.

      21

      ERICKSTAD, C.J., and VANDE WALLE, GIERKE and MESCHKE, JJ., concur.

      22

      [1] Leingang has not provided a transcript of proceedings as required by Rule 10(b), North Dakota Rules of Appellate Procedure. Although the parties stipulated that a transcript was not needed, they did not prepare a statement of the case using Rule 10(g), North Dakota Rules of Appellate Procedure or stipulate to any facts. We, therefore, base our recitation of facts upon undisputed assertions made by the parties on appeal.

    • 2.3 Parker v. Twentieth Century-Fox Film Corp.

      1
      3 Cal.3d 176 (1970)
      2
      474 P.2d 689
      3
      89 Cal. Rptr. 737
      4
      SHIRLEY MacLAINE PARKER, Plaintiff and Respondent,
      v.
      TWENTIETH CENTURY-FOX FILM CORPORATION, Defendant and Appellant.
      5
      Docket No. L.A. 29705.
      6

      Supreme Court of California. In Bank.

      7
      September 30, 1970.
      8

      [179] COUNSEL

      9

      Musick, Peeler & Garrett and Bruce A. Bevan, Jr., for Defendant and Appellant.

      10

      Benjamin Neuman for Plaintiff and Respondent.

      11

      OPINION

      12
      BURKE, J.
      13

      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.

      14

      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 $53,571.42 per week for 14 weeks commencing May 23, 1966, for a total 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.

      15

      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 [180] the 34 numbered provisions or articles of the original contract.[1] 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.[2] 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.

      16

      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 [181] allegedly deliberate failure to mitigate damages, asserting that she unreasonably refused to accept its offer of the leading role in "Big Country."

      17

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

      18

      (1a) The familiar rules are that the matter to be determined by the trial court on a motion for summary judgment is whether facts have been presented which give rise to a triable factual issue. The court may not pass upon the issue itself. (2) Summary judgment is proper only if the affidavits or declarations[3] in support of the moving party would be sufficient to sustain a judgment in his favor and his opponent does not by affidavit show facts sufficient to present a triable issue of fact. The affidavits of the moving party are strictly construed, and doubts as to the propriety of summary judgment should be resolved against granting the motion. Such summary procedure is drastic and should be used with caution so that it does not become a substitute for the open trial method of determining facts. (3) The moving party cannot depend upon allegations in his own pleadings to cure deficient affidavits, nor can his adversary rely upon his own pleadings in lieu or in support of affidavits in opposition to a motion; however, a party can rely on his adversary's pleadings to establish facts not contained in his own affidavits. (Slobojan v. Western Travelers Life Ins. Co. (1969) 70 Cal.2d 432, 436-437 [74 Cal. Rptr. 895, 450 P.2d 271]; and cases cited.) (1b) Also, the court may consider facts stipulated to by the parties and facts which are properly the subject of judicial notice. (Ahmanson Bank & Trust Co. v. Tepper (1969) 269 Cal. App.2d 333, 342 [74 Cal. Rptr. 774]; Martin v. General Finance Co. (1966) 239 Cal. App.2d 438, 442 [48 Cal. Rptr. 773]; Goldstein v. Hoffman (1963) 213 Cal. App.2d 803, 814 [29 Cal. Rptr. 334]; Thomson v. Honer (1960) 179 Cal. App.2d 197, 203 [3 Cal. Rptr. 791].)

      19

      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.

      20

      (4) 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. (W.F. Boardman Co. v. Petch (1921) 186 Cal. 476, 484 [182] [199 P. 1047]; De Angeles v. Roos Bros., Inc. (1966) 244 Cal. App.2d 434, 441-442 [52 Cal. Rptr. 783]; de la Falaise v. Gaumont-British Picture Corp. (1940) 39 Cal. App.2d 461, 469 [103 P.2d 447], and cases cited; see also Wise v. Southern Pac. Co. (1970) 1 Cal.3d 600, 607-608 [83 Cal. Rptr. 202, 463 P.2d 426].)[4] (5) 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. (Gonzales v. Internat. Assn. of Machinists (1963) 213 Cal. App.2d 817, 822-824 [29 Cal. Rptr. 190]; Harris v. Nat. Union etc. Cooks, Stewards (1953) 116 Cal. App.2d 759, 761 [254 P.2d 673]; Crillo v. Curtola (1949) 91 Cal. App.2d 263, 275 [204 P.2d 941]; de la Falaise v. Gaumont-British Picture Corp., supra, 39 Cal. App.2d 461, 469; Schiller v. Keuffel & Esser Co. (1963) 21 Wis.2d 545 [124 N.W.2d 646, 651]; 28 A.L.R. 736, 749; 22 Am.Jur.2d, Damages, §§ 71-72, p. 106.)

      21

      In the present case defendant has raised no issue of reasonableness of efforts by plaintiffs 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.[5]

      22

      [183] (6) 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.

      23

      [184] (7) 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 (see fn. 2, ante), 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. (See Gonzales v. Internat. Assn. of Machinists, supra, 213 Cal. App.2d 817, 823-824; and fn. 5, post.)

      24

      (8) Statements found in affidavits submitted by defendant in opposition to plaintiff's summary judgment motion, to the effect that the "Big County" offer was not of employment different from or inferior to that under the "Bloomer Girl" contract, merely repeat the allegations of defendant's answer to the complaint in this action, constitute only conclusionary assertions with respect to undisputed facts, and do not give rise to a triable factual issue so as to defeat the motion for summary judgment. (See Colvig v. KSFO (1964) 224 Cal. App.2d 357, 364 [36 Cal. Rptr. 701]; Dashew v. Dashew Business Machines, Inc. (1963) 218 Cal. App.2d 711, 715 [32 Cal. Rptr. 682]; Hatch v. Bush (1963) 215 Cal. App.2d 692, 707 [30 Cal. Rptr. 397, 13 A.L.R.3d 503]; Barry v. Rodgers (1956) 141 Cal. App.2d 340, 342 [296 P.2d 898].)

      25

      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.

      26

      The judgment is affirmed.

      27

      McComb, J., Peters, J., Tobriner, J., Kaus, J.,[6] and Roth, J.,[6] concurred.

      28
      SULLIVAN, Acting C.J.
      29

      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. [185] 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.

      30

      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.[7] 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.[8]

      31

      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" (Lewis v. Protective Security Life Ins. Co. (1962) 208 Cal. App.2d 582, 584 [25 Cal. Rptr. 213]; de la Falaise v. Gaumont-British Picture Corp. (1940) 39 Cal. App.2d 461, 469 [103 P.2d 447]); "comparable employment" (Erler v. Five Points Motors, Inc. (1967) 249 Cal. App.2d 560, 562 [57 Cal. Rptr. 516]; Harris v. Nat. Union etc. Cooks, Stewards (1953) 116 Cal. App.2d 759, 761 [254 P.2d 673]); employment "in the same general line of the first employment" (Rotter v. Stationers Corp. (1960) 186 Cal. App.2d 170, 172 [8 Cal. Rptr. 690]); "equivalent to his prior position" (De Angeles v. Roos Bros., Inc. (1966) 244 Cal. App.2d 434, 443 [52 Cal. Rptr. 783]); "employment in a similar capacity" (Silva v. McCoy (1968) 259 Cal. App.2d 256, 260 [186] [66 Cal. Rptr. 364]); employment which is "not ... of a different or inferior kind...." (Gonzales v. Internat. Assn. of Machinists (1963) 213 Cal. App.2d 817, 822 [29 Cal. Rptr. 190].)[9]

      32

      For reasons which are unexplained, the majority cite several of these cases yet select from among the various judicial formulations which they contain one particular phrase, "Not of a different or inferior kind," with which to analyze this case. I have discovered no historical or theoretical reason to adopt this phrase, which is simply a negative restatement of the affirmative standards set out in the above cases, as the exclusive standard. Indeed, its emergence is an example of the dubious phenomenon of the law responding not to rational judicial choice or changing social conditions, but to unrecognized changes in the language of opinions or legal treatises.[10] However, the phrase is a serviceable one and my concern is not with its use as the standard but rather with what I consider its distortion.

      33

      The relevant language excuses acceptance only of employment which is of a different kind. (Gonzales v. Internat. Assn. of Machinists, supra, 213 Cal. App.2d 817, 822; Harris v. Nat. Union etc. Cooks, Stewards, supra, 116 Cal. App.2d 759, 761; de la Falaise v. Gaumont-British Picture Corp., supra, 39 Cal. App.2d 461, 469.) It has never been the law that the mere existence of differences between two jobs in the same field is sufficient, as a matter of law, to excuse an employee wrongfully discharged from one from accepting the other in order to mitigate damages. Such an approach would effectively eliminate any obligation of an employee to attempt to [187] minimize damage arising from a wrongful discharge. The only alternative job offer an employee would be required to accept would be an offer of his former job by his former employer.

      34

      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" (ante, at p. 183), 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.

      35

      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.[11] 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.

      36

      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. (Garlock v. Cole (1962) 199 Cal. App.2d 11, 14 [18 Cal. Rptr. 393].)

      37

      [188] 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.

      38

      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.[12] 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."

      39

      The plaintiff's declarations were of no assistance to the trial court in its effort to justify reaching this conclusion on summary judgment. Instead, it was forced to rely on judicial notice of the definitions of "motion picture," "screenplay" and "director" (Evid. Code, § 451, subd. (e)) and then on [189] judicial notice of practices in the film industry which were purportedly of "common knowledge." (Evid. Code, § 451, subd. (f) or § 452, subd. (g).) This use of judicial notice was error. Evidence Code section 451, subdivision (e) was never intended to authorize resort to the dictionary to solve essentially factual questions which do not turn upon conventional linguistic usage. More important, however, the trial court's notice of "facts commonly known" violated Evidence Code section 455, subdivision (a).[13] Before this section was enacted there were no procedural safeguards affording litigants an opportunity to be heard as to the propriety of taking judicial notice of a matter or as to the tenor of the matter to be noticed. Section 455 makes such an opportunity (which may be an element of due process, see Evid. Code, § 455, Law Revision Com. Comment (a)) mandatory and its provisions should be scrupulously adhered to. "[J]udicial notice can be a valuable tool in the adversary system for the lawyer as well as the court" (Kongsgaard, Judicial Notice (1966) 18 Hastings L.J. 117, 140) and its use is appropriate on motions for summary judgment. Its use in this case, however, to determine on summary judgment issues fundamental to the litigation without complying with statutory requirements of notice and hearing is a highly improper effort to "cut the Gordion knot of involved litigation." (Silver Land & Dev. Co. v. California Land Title Co. (1967) 248 Cal. App.2d 241, 242 [56 Cal. Rptr. 178].)

      40

      The majority do not confront the trial court's misuse of judicial notice. They avoid this issue through the expedient of declaring that neither judicial notice nor expert opinion (such as that contained in the declarations in opposition to the motion)[14] is necessary to reach the trial court's conclusion. [190] Something, however, clearly is needed to support this conclusion. Nevertheless, the majority make no effort to justify the judgment through an examination of the plaintiff's declarations. Ignoring the obvious insufficiency of these declarations, the majority announce that "the deprivation or infringement of an employee's rights held under an original employment contract" changes the alternate employment offered or available into employment of an inferior kind.

      41

      I cannot accept the proposition that an offer which eliminates any contract right, regardless of its significance, is, as a matter of law, an offer of employment of an inferior kind. Such an absolute rule seems no more sensible than the majority's earlier suggestion that the mere existence of differences between two jobs is sufficient to render them employment of different kinds. Application of such per se rules will severely undermine the principle of mitigation of damages in the employer-employee context.

      42

      I remain convinced that the relevant question in such cases is whether or not a particular contract provision is so significant that its omission creates employment of an inferior kind. This question is, of course, intimately bound up in what I consider the ultimate issue: whether or not the employee acted reasonably. This will generally involve a factual inquiry to ascertain the importance of the particular contract term and a process of weighing the absence of that term against the countervailing advantages of the alternate employment. In the typical case, this will mean that summary judgment must be withheld.

      43

      In the instant case, there was nothing properly before the trial court by which the importance of the approval rights could be ascertained, much less evaluated. Thus, in order to grant the motion for summary judgment, the trial court misused judicial notice. In upholding the summary judgment, the majority here rely upon per se rules which distort the process [191] of determining whether or not an employee is obliged to accept particular employment in mitigation of damages.

      44

      I believe that the judgment should be reversed so that the issue of whether or not the offer of the lead role in "Big Country, Big Man" was of employment comparable to that of the lead role in "Bloomer Girl" may be determined at trial.

      45

      Appellant's petition for a rehearing was denied October 28, 1970. Mosk, J., did not participate therein. Sullivan, J., was of the opinion that the petition should be granted.

      46

      [1] Among the identical provisions was the following found in the last paragraph of Article 2 of the original contract: "We [defendant] shall not be obligated to utilize your [plaintiff's] services in or in connection with the Photoplay hereunder, our sole obligation, subject to the terms and conditions of this Agreement, being to pay you the guaranteed compensation herein provided for."

      47

      [2]Article 29 of the original contract specified that plaintiff approved the director already chosen for "Bloomer Girl" and that in case he failed to act as director plaintiff was to have approval rights of any substitute director. Article 31 provided that plaintiff was to have the right of approval of the "Bloomer Girl" dance director, and Article 32 gave her the right of approval of the screenplay.

      48

      Defendant's letter of April 4 to plaintiff, which contained both defendant's notice of breach of the "Bloomer Girl" contract and offer of the lead in "Big Country," eliminated or impaired each of those rights. It read in part as follows: "The terms and conditions of our offer of employment are identical to those set forth in the `BLOOMER GIRL' Agreement, Articles 1 through 34 and Exhibit A to the Agreement, except as follows:

      49

      "1. Article 31 of said Agreement will not be included in any contract of employment regarding `BIG COUNTRY, BIG MAN' as it is not a musical and it thus will not need a dance director.

      "2. In the `BLOOMER GIRL' agreement, in Articles 29 and 32, you were given certain director and screenplay approvals and you had preapproved certain matters. Since there simply is insufficient time to negotiate with you regarding your choice of director and regarding the screenplay and since you already expressed an interest in performing the role in `BIG COUNTRY, BIG MAN,' we must exclude from our offer of employment in `BIG COUNTRY, BIG MAN' any approval rights as are contained in said Articles 29 and 32; however, we shall consult with you respecting the director to be selected to direct the photoplay and will further consult with you with respect to the screenplay and any revisions or changes therein, provided, however, that if we fail to agree ... the decision of ... [defendant] with respect to the selection of a director and to revisions and changes in the said screenplay shall be binding upon the parties to said agreement."

      50

      [3] In this opinion "affidavits" includes "declarations under penalty of perjury." (See Code Civ. Proc., § 2015.5.)

      51

      [4] Although it would appear that plaintiff was not discharged by defendant in the customary sense of the term, as she was not permitted by defendant to enter upon performance of the "Bloomer Girl" contract, nevertheless the motion for summary judgment was submitted for decision upon a stipulation by the parties that "plaintiff Parker was discharged."

      52

      [5] Instead, in each case the reasonableness referred to was that of the efforts of the employee to obtain other employment that was not different or inferior; his right to reject the latter was declared as an unqualified rule of law. Thus, Gonzales v. Internat. Assn. of Machinists, supra, 213 Cal. App.2d 817, 823-824, holds that the trial court correctly instructed the jury that plaintiff union member, a machinist, was required to make "such efforts as the average [member of his union] desiring employment would make at that particular time and place" (italics added); but, further, that the court properly rejected defendant's offer of proof of the availability of other kinds of employmentat the same or higher pay than plaintiff usually received and all outside the jurisdiction of his union, as plaintiff could not be required to accept different employment or a nonunion job.

      53

      In Harris v. Nat. Union etc. Cooks, Stewards, supra, 116 Cal. App.2d 759, 761, the issues were stated to be, inter alia, whether comparable employment was open to each plaintiff employee, and if so whether each plaintiff made a reasonable effort to secure such employment. It was held that the trial court properly sustained an objection to an offer to prove a custom of accepting a job in a lower rank when work in the higher rank was not available, as "The duty of mitigation of damages ... does not require the plaintiff `to seek or to accept other employment of a different or inferior kind.'" (P. 764 [5].)

      54

      See also: Lewis v. Protective Security Life Ins. Co. (1962) 208 Cal. App.2d 582, 584 [25 Cal. Rptr. 213]: "honest effort to find similar employment...." (Italics added.)

      55

      de la Falaise v. Gaumont-British Picture Corp., supra, 39 Cal. App.2d 461, 469: "reasonable effort."

      56

      Erler v. Five Points Motors, Inc. (1967) 249 Cal. App.2d 560, 562 [57 Cal. Rptr. 516]: Damages may be mitigated "by a showing that the employee, by the exercise of reasonable diligence and effort, could have procured comparable employment...." (Italics added.)

      57

      Savitz v. Gallaccio (1955) 179 Pa.Super. 589 [118 A.2d 282, 286]; Atholwood Dev. Co. v. Houston (1941) 179 Md. 441 [19 A.2d 706, 708]; Harcourt & Co. v. Heller (1933) 250 Ky. 321 [62 S.W.2d 1056]; Alaska Airlines, Inc. v. Stephenson (1954) 217 F.2d 295, 299 [15 Alaska 272]; United Protective Workers v. Ford Motor Co. (7th Cir.1955) 223 F.2d 49, 52 [48 A.L.R.2d 1285]; Chisholm v. Preferred Bankers' Life Assur. Co. (1897) 112 Mich. 50 [70 N.W. 415]; each of which held that the reasonableness of the employee's efforts, or his excuses for failure, to find other similar employment was properly submitted to the jury as a question of fact. NB: Chisholm additionally approved a jury instruction that a substitute offer of the employer to work for a lesser compensation was not to be considered in mitigation, as the employee was not required to accept it.

      58

      Williams v. National Organization, Masters, etc. (1956) 384 Pa. 413 [120 A.2d 896, 901 [13]]: "Even assuming that plaintiff ... could have obtained employment in ports other than ... where he resided, legally he was not compelled to do so in order to mitigate his damages." (Italics added.)

      59

      [6] Assigned by the Acting Chairman of the Judicial Council.

      60

      [7] The issue is generally discussed in terms of a duty on the part of the employee to minimize loss. The practice is long-established and there is little reason to change despite Judge Cardozo's observation of its subtle inaccuracy. "The servant is free to accept employment or reject it according to his uncensored pleasure. What is meant by the supposed duty is merely this, that if he unreasonably reject, he will not be heard to say that the loss of wages from then on shall be deemed the jural consequence of the earlier discharge. He has broken the chain of causation, and loss resulting to him thereafter is suffered through his own act." (McClelland v. Climax Hosiery Mills (1930) 252 N.Y. 347, 359 [169 N.E. 605, 609], concurring opinion.)

      61

      [8] This qualification of the rule seems to reflect the simple and humane attitude that it is too severe to demand of a person that he attempt to find and perform work for which he has no training or experience. Many of the older cases hold that one need not accept work in an inferior rank or position nor work which is more menial or arduous. This suggests that the rule may have had its origin in the bourgeois fear of resubmergence in lower economic classes.

      62

      [9] See also 28 A.L.R. 736, 740-742; 15 Am.Jur. 431.

      63

      [10] The earliest California case which the majority cite is de la Falaise v. Gaumont-British Picture Corp., supra, 39 Cal. App.2d at p. 469. de la Falaise states "The `other employment' which the discharged employee is bound to seek is employment of a character substantially similar to that of which he has been deprived; he need not enter upon service of a different or inferior kind, ..." de la Falaise cites, in turn, two sources as authority for this proposition. The first is 18 R.C.L. (Ruling Case Law) 529. That digest, however, states only that the "discharged employee ... need not enter upon service of a more menial kind." (Italics added.) It was in this form that the rule entered California law explicitly, Gregg v. McDonald (1925) 73 Cal. App. 748, 757 [239 P. 373], quoting the text verbatim. The second citation is to 28 A.L.R. 737. The author of the annotation states: "The principal question with which this annotation is concerned is the kind of employment which the employee is under a duty to seek or accept in order to reduce the damages caused by his wrongful discharge. Must one who is skilled in some special work he is employed to do, as an actor, musician, accountant, etc., seek or accept employment of an entirely different nature?" (Italics added.) (28 A.L.R. 736.) In answering that question in the negative, the annotation employs the language adopted by the majority: The employee is "not obliged to seek or accept other employment of a different or inferior kind, ..." (Id. at p. 737.) Rather than a restatement of a generally agreed upon rule, however, the phrase is an epitomization of the varied formulations found in the cases cited. (See 28 A.L.R. 740-742.)

      64

      [11] The values of the doctrine of mitigation of damages in this context are that it minimizes the unnecessary personal and social (e.g., nonproductive use of labor, litigation) costs of contractual failure. If a wrongfully discharged employee can, through his own action and without suffering financial or psychological loss in the process, reduce the damages accruing from the breach of contract, the most sensible policy is to require him to do so. I fear the majority opinion will encourage precisely opposite conduct.

      65

      [12]Plaintiff's declaration states simply that she has not received any payment from defendant under the "Bloomer Girl" contract and that the only persons authorized to collect money for her are her attorney and her agent.

      66

      The declaration of Herman Citron, plaintiff's theatrical agent, alleges that prior to the formation of the "Bloomer Girl" contract he discussed with Richard Zanuck, defendant's vice president, the conditions under which plaintiff might be interested in doing "Big Country"; that it was Zanuck who informed him of Fox's decision to cancel production of "Bloomer Girl" and queried him as to plaintiff's continued interest in "Big Country"; that he informed Zanuck that plaintiff was shocked by the decision, had turned down other offers because of her commitment to defendant for "Bloomer Girl" and was not interested in "Big Country." It further alleges that "Bloomer Girl" was to have been a musical review which would have given plaintiff an opportunity to exhibit her talent as a dancer as well as an actress and that "Big Country" was a straight dramatic role; the former to have been produced in California, the latter in Australia. Citron's declaration concludes by stating that he has not received any payment from defendant for plaintiff under the "Bloomer Girl" contract.

      67

      Benjamin Neuman's declaration states that he is plaintiff's attorney; that after receiving notice of defendant's breach he requested Citron to make every effort to obtain other suitable employment for plaintiff; that he (Neuman) rejected defendant's offer to settle for $400,000 and that he has not received any payment from defendant for plaintiff under the "Bloomer Girl" contract. It also sets forth correspondence between Neuman and Fox which culminated in Fox's final rejection of plaintiff's demand for full payment.

      68

      [13] Evidence Code section 455 provides in relevant part: "With respect to any matter specified in Section 452 or in subdivision (f) of Section 451 that is of substantial consequence to the determination of the action: (a) If the trial court has been requested to take or has taken or proposes to take judicial notice of such matter, the court shall afford each party reasonable opportunity, before the jury is instructed or before the cause is submitted for decision by the court, to present to the court information relevant to (1) the propriety of taking judicial notice of the matter and (2) the tenor of the matter to be noticed."

      69

      [14]Fox filed two declarations in opposition to the motion; the first is that of Frank Ferguson, Fox's chief resident counsel. It alleges, in substance, that he has handled the negotiations surrounding the "Bloomer Girl" contract and its breach; that the offer to employ plaintiff in "Big Country" was made in good faith and that Fox would have produced the film if plaintiff had accepted; that by accepting the second offer plaintiff was not required to surrender any rights under the first (breached) contract nor would such acceptance have resulted in a modification of the first contract; that the compensation under the second contract was identical; that the terms and conditions of the employment were substantially the same and not inferior to the first; that the employment was in the same general line of work and comparable to that under the first contract; that plaintiff often makes pictures on location in various parts of the world; that article 2 of the original contract which provides that Fox is not required to use the artist's services is a standard provision in artists' contracts designed to negate any implied covenant that the film producer promises to play the artist in or produce the film; that it is not intended to be an advance waiver by the producer of the doctrine of mitigation of damages.

      70

      The second declaration is that of Richard Zanuck. It avers that he is Fox's vice president in charge of production; that he has final responsibility for casting decisions; that he is familiar with plaintiff's ability and previous artistic history; that the offer of employment for "Big Country" was in the same general line and comparable to that of "Bloomer Girl"; that plaintiff would not have suffered any detriment to her image or reputation by appearing in it; that elimination of director and script approval rights would not injure plaintiff; that plaintiff has appeared in dramatic and western roles previously and has not limited herself to musicals; and that Fox would have complied with the terms of its offer if plaintiff had accepted it.

    • 2.4 Billetter v. Posell

      1
      94 Cal.App.2d 858 (1949)
      2
      VILMA A. BILLETTER, Respondent,
      v.
      JULES POSELL et al., Appellant.
      3
      Civ. No. 17194.
      4

      California Court of Appeals. Second Dist., Div. Two.

      5
      Nov. 30, 1949.
      6

      Bernbaum, Kleinrock & Freeman for Appellant.

      7

      Lyle W. Rucker for Respondent.

      8
      WILSON, J.
      9

      Alleging that she was employed by defendants for a period of one year at an agreed salary and was wrongfully discharged before the expiration of the employment period, plaintiff brings this action to recover the balance owing to her for the remainder of the contract period. From a judgment in favor of plaintiff, defendant Posell appeals.

      10

      On or about July 1, 1946, plaintiff and defendants entered into an oral contract whereby plaintiff was employed as a floor lady and designer for the period of one year commencing July 1, 1946, and ending June 30, 1947, at an agreed salary of $75 per week and as additional compensation a Christmas bonus of $500 to be paid to her on or about December 25, 1946. About December 31, 1946, defendants terminated plaintiff's employment without cause under the circumstances hereinafter related.

      11

      Defendants contend the evidence is insufficient to sustain the findings (1) that they had employed plaintiff for a period of one year, and (2) that they breached the employment contract.

      12

      [1] Plaintiff testified that shortly prior to July 1, 1946, while in the employ of defendants, she told them she desired to resign her position with them for the reason that she had been offered an employment contract by another establishment for one year at $75 per week and a bonus of $500 at Christmas time; the proposed contract was in writing; at defendant Levy's request she gave him the contract and after reading [860] it he said they would give her the $75 per week for a year and the $500 Christmas bonus--they would give her that or better; he threw the contract into the wastepaper basket and thereupon called defendant Posell and told the latter he had made the arrangement above outlined. She further testified that during the Christmas holidays defendants told her they had decided to have another designer and to have plaintiff take the place of a floor lady at a salary of $55 per week. Being unwilling to accept the reduction in salary plaintiff left defendants' employ.

      13

      Plaintiff received $75 per week until the end of 1946 and $300 on account of the Christmas bonus.

      14

      The foregoing evidence sustains the findings complained of by defendants and since the evidence of the latter, contradictory of plaintiff's testimony, merely creates a conflict it need not be related. (Buckhantz v. R. G. Hamilton & Co., 71 Cal.App.2d 777, 779 [163 P.2d 756].)

      15

      [2] The contract which Levy threw into the wastepaper basket, having been recovered and retained by plaintiff, was offered and received in evidence. Defendants' contention that the court erred in admitting it is untenable. It was offered for the purpose of showing the terms upon which plaintiff had been employed. The document was not a self-serving declaration; its contents were known to both parties, and the terms of plaintiff's employment were adopted from it.

      16

      [3] During the time when plaintiff was unemployed she received payments from the State Unemployment Compensation Fund. Defendants contend they should be allowed credit for the moneys so received by her. Such funds are not deductible as compensation received from other employment in mitigation of damages. Benefits of this character are intended to alleviate the distress of unemployment and not to diminish the amount which an employer must pay as damages for the wrongful discharge of an employee. (Bang v. International Sisal Co., 212 Minn. 135 [4 N.W.2d 113, 116]. See section 1, Cal. Unemployment Ins. Act, Stats. 1935, p. 1226, 3 Deering's Gen. Laws (1944 ed.), Act 8780d, p. 3322.)

      17

      At the time plaintiff's employment terminated defendants offered to continue her in their employ at the rate of $60 per week and she refused to work for less than $65. Contrary to defendants' contention they are not entitled to credit for the amount they offered to pay her.

      18

      [4] When a person is employed for a definite period of time at an agreed rate of wages and is wrongfully discharged [861] before the expiration of the period for which he was employed, he may refuse his former employer's offer of reemployment at less wages than were stipulated in the original contract of employment when acceptance of such offer would amount to a modification of the original contract or to a waiver of his right to recover according to its terms. (Morris Shoe Co. v. Coleman, 187 Ky. 837 [221 S.W. 242, 245]; Jackson v. Independent School Dist., 110 Iowa 313 [81 N.W. 596, 597]; Chisholm v. Preferred Bankers' etc. Co., 112 Mich. 50 [70 N.W. 415, 416]; Miller v. Abraham, 159 Ark. 493 [252 S.W. 15]; People's Co-op. Ass'n v. Lloyd, 77 Ala. 387, 390; Wachs v. Friedmann, 11 Mo.App. 602; Whitmarsh v. Littlefield, 46 Hun. (N.Y.) 418; Hussey v. Holloway, 217 Mass. 100 [104 N.E. 471, 472]; Americus Grocery Co. v. Roney, 129 Ga. 40 [58 S.E. 462]; Trawick v. Peoria etc. Ry. Co., 68 Ill.App. 156, 159; Sparta School Twp. v. Mendell, 138 Ind. 188 [37 N.E. 604, 606]; Curtis v. A. Lehmann & Co., 115 La. 40 [38 So. 887, 888]; Howard v. Vaughan-Monnig Shoe Co., 82 Mo.App. 405, 410; Prichard v. Martin, 27 Miss. 305, 310.)

      19

      [5] It is the rule that an employee is not required to perform the same work for a less price in mitigation of damages, and an offer of an employer who has wrongfully discharged the employee to continue the employment at a lower rate of wages is not a defense. (Chisholm v. Preferred Bankers' etc. Co., supra; Redfield v. Boston P. & M. Co., 183 Iowa 194 [165 N.W. 365, 366]; Whitmarsh v. Littlefield, supra.) An employee, upon wrongful discharge, is not required to choose between making a new agreement with his employer and losing all his rights under the old one. He is not bound to accept a new employment from the same employer unless (1) the work is in the same general line of the first employment, and (2) the offer is made in such manner that his acceptance will not amount to a modification of the original agreement. (Jackson v. Independent School Dist., supra.)

      20

      Cases are cited in a note in 72 American Law Reports, page 1054, to the effect that an employee who has been wrongfully discharged must accept his employer's offer of reemployment in order to reduce the damages where the offer may be accepted in such manner that it will be without prejudice to the discharged employee's rights under his original contract. There is nothing in those cases contrary to the general rule above stated. In each of them the employee was fully compensated or his rights under his contract were properly protected. If the [862] employee is offered his former employment for the same time and at the same rate of wages for which he was originally employed or is otherwise protected against loss he is barred from recovery of damages for wrongful discharge. (Hussey v. Holloway, 217 Mass. 100 [104 N.E. 471, 472]; Squire v. Wright, 1 Mo.App. 172, 175; Ryan v. Mineral etc. Dist., 27 Colo.App. 63 [146 P. 792, 795]; Dary v. The Caroline Miller (D.C.Ala.), 36 F. 507, 509.) An offer of reemployment may be couched in such terms as to save the rights of the employee, as where it is expressly understood that the employment will not cure the breach of the contract. (Robinson v. Walker, 7 Cal.App.2d 268, 269 [46 P.2d 174].)

      21

      One who has been prevented from performing a contract of service should not be required to accept a new employment under circumstances which permit the claim that he consents to a modification of the original contract and an abandonment of his right of action under it. (Farmers' Co-op. Ass'n v. Shaw, 171 Okla. 358 [42 P.2d 887, 889]; Levy v. Tharrington, 178 Okla. 276 [62 P.2d 641, 642]; Chisholm v. Preferred Bankers' etc. Co., 112 Mich. 50 [70 N.W. 415, 417]; People's Co- op. Ass'n v. Lloyd, 77 Ala. 387, 390.)

      22

      In the instant action defendants' offer of reemployment was not coupled with any protective condition and was not made without prejudice to plaintiff's right of recovery under the original contract. Had she remained in defendants' employ and accepted their offer of $60 per week she would have been precluded from recovering any additional amount since such arrangement would have signified her consent either to a new contract or to a modification of the old one. In either case she would have waived and abandoned any right to claim under her former contract. (Miller v. Abraham, 159 Ark. 493 [252 S.W. 15, 16]; People's Co-op. Ass'n v. Lloyd, supra; Trawick v. Peoria etc. Ry. Co., 68 Ill.App. 156, 159; Whitmarsh v. Littlefield, 46 Hun. (N.Y.) 418, 420.) A discharged employee is not required to accept reemployment from his employer if acceptance would sacrifice his right to claim damages to which he is entitled by reason of the violation of the contract by the employer. (Morris Shoe Co. v. Coleman, 187 Ky. 837 [221 S.W. 242, 245]; Hussey v. Holloway, supra; Wachs v. Friedmann, 11 Mo.App. 602.)

      23

      Since defendants' offer to continue plaintiff in their employ at a lower salary than that agreed upon was not so qualified as to preserve her rights under the contract and since if she [863] had accepted the offer she would have modified her employment contract and waived any right to recovery thereunder, defendants are not entitled to the credit claimed.

      24

      Judgment affirmed.

      25

      Moore, P. J., concurred.

      26

      McComb, J., dissented.

    • 2.5 Restatement of Contracts, Second, § 350

  • 3 III. A. 3. c. Consequential Damages

    • 3.1 Hadley v. Baxendale

      1

      IN THE COURTS OF EXCHEQUER

      2
           
          23 February 1854
      3

      Before:

      Alderson, B.
      ____________________

      Between:
        HADLEY & ANOR  
        -v-  
        BAXENDALE & ORS  
      ____________________
      4

       

      5

      The first count of the declaration stated, that, before and at the time of the making by the defendants of the promises hereinafter mentioned, the plaintiffs carried on the business of millers and mealmen in copartnership, and were proprietors and occupiers of the City Steam-Mills, in the city of Gloucester, and were possessed of a steam-engine, by means of which they worked the said mills, and therein cleaned corn, and ground the same into meal, and dressed the same into flour, sharps, and bran, and a certain portion of the said steam-engine, to wit, the crank shaft of the said steam-engine, was broken and out of repair, whereby the said steam-engine was prevented from working, and the plaintiffs were desirous of having a new crank shaft made for the said mill, and had ordered the same of certain persons trading under the name of W. Joyce & Co., at Greenwich, in the country of Kent, who had contracted to make the said new shaft for the plaintiffs; but before they could complete the said new shaft it was necessary that the said broken shaft should be forwarded to their works at Greenwich, in order that the said new shaft might be made so as to fit the other parts of the said engine which were not injured, and so that it might be substituted for the said broken shaft; and the plaintiffs were desirous of sending the said broken shaft to the said W. Joyce & Co. for the purpose aforesaid; and the defendants, before and at the time of the making of the said promises, were common carriers of business of common carriers, under the name of "Pickford & Co."; and the plaintiffs, at the request of the defendants, delivered to them as such carriers the said broken shaft, to be conveyed by the defendants as such carriers from Gloucester to the said W. Joyce & Co., at Greenwich, and there to be delivered for the plaintiffs on the second day after the day of such delivery, for reward to the defendants; and in consideration thereof the defendants then promised the plaintiffs to convey the said broken shaft from Gloucester to Greenwich, and there on the said second day to deliver the same to the said W. Joyce & Co. for the plaintiffs. And although such second day elapsed before the commencement of this suit, yet the defendants did not nor would deliver the said broken shaft at Greenwich on the said second day, but wholly neglected and refused so to do for the space of seven days after the said shaft was so delivered to them as aforesaid.

      6

      The second count stated, that, the defendants being such carriers as aforesaid, the plaintiffs, at the request of the defendants, caused to be delivered to them as such carriers the said broken shaft, to be conveyed by the defendants from Gloucester aforesaid to the said W. Joyce & Co., at Greenwich, and there to be delivered by the defendants for the plaintiffs, within a reasonable time in that behalf, for reward to the defendants; and in consideration of the premises in this count mentioned, the defendants promised the plaintiffs to use due and proper care and diligence in and about the carrying and conveying the said broken shaft from Gloucester aforesaid to the said W. Joyce & Co., at Greenwich, and there delivering the same for the plaintiffs in a reasonable time then following for the carriage, conveyance, and delivery of the said broken shaft as aforesaid; and although such reasonable time elapsed long before the commencement of this suit, yet the defendants did not nor would use due or proper care or diligence in or about the carrying or conveying or delivering the said broken shaft as aforesaid, within such reasonable time as aforesaid, but wholly neglected and refused so to do; and by reason of the carelessness, negligence, and improper conduct of the defendants, the said broken shaft was not delivered for the plaintiffs to the said W. Joyce & Co., or at Greenwich, until the expiration of a long and unreasonable time after the defendants received the same as aforesaid, and after the time when the same should have been delivered for the plaintiffs; and by reason of the several premises, the completing of the said new shaft was delayed for five days, and the plaintiffs were prevented form working their said steam-mills, and from cleaning corn, and grinding the same into meal, and dressing the meal into flour, sharps, or bran, and from carrying on their said business as millers and mealmen for the space of five days beyond the time that they otherwise would have been prevented from so doing, and they thereby were unable to supply many of their customers with flour, sharps, and bran during that period, and were obliged to buy flour to supply some of their other customers, and lost the mans and opportunity of selling flour, sharps, and bran, and were deprived of gains and profits which otherwise would have accrued to them, and were unable to employ their workmen, to whom they were compelled to pay wages during that period, and were otherwise injured, and the plaintiffs claim 300l.

      7

      The defendants pleaded non assumpserunt to the first count; and to the second payment of 25l. into Court in satisfaction of the plaintiffs' claim under that count. The plaintiffs entered a nolle prosequi as to the first count; and as to the second plea, they replied that the sum paid into the Court was not enough to satisfy the plaintiffs' claim in respect thereof; upon which replication issue was joined.

      8

      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 11th 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 12th, and on the 13ththe 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 an 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 2l. 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 e 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.

      9

      On the part of the defendants, it was objected that these damages were too remote, and that the defendants were not liable with respect to them. The learned Judge left the case generally to the jury, who found a verdict with 25l. damages beyond the amount paid into Court.

      10

      Whateley, in last Michaelmas Term, obtained a rule nisi for a new trial, on the ground of misdirection.

      11

      Keating and Dowdeswell (Feb. 1) shewed cause. The plaintiffs are entitled to the amount awarded by the jury as damages. These damages are not too remote, for they are not only the natural and necessary consequence of the defendants' default, but they are the only loss which the plaintiffs have actually sustained. The principle upon which damages are assessed is founded upon that of rendering compensation to the injured party. The important subject is ably treated in Sedgwick on the Measure of Damages. And this particular branch of it is discussed in the third chapter, where, after pointing out the distinction between the civil and the French law, he says (page 64), "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, and this appears to be the rule adopted by the writers upon the civil law." In a subsequent passage he says, "In cases of fraud the civil law made a broad distinction" (page 66); and he adds, that "in such cases the debtor was liable for all consequences." It is difficult, however, to see what the ground of such principle is, and how the ingredient of fraud can affect the question. For instance, if the defendants had maliciously and fraudulently kept the shaft, it is not easy to see why they should have been liable for these damages, if they are not to be held so where the delay is occasioned by their negligence only. In speaking of the rule respecting the breach of a contract to transport goods to a particular place, and in actions brought on agreements for the sale and delivery of chattels, the learned author lays it down, that, "In the former case, the difference in value between the price at the point where the goods are and the place where they were to be delivered, is taken as the measure of damages, which, in fact, amounts to an allowance of profits; and in the latter case, a similar result is had by the application of the rule, which gives the vendee the benefit of the rise of the market price" (page 80). The several cases, English as well as American, are there collected and reviewed. If that rule is to be adopted, there was ample evidence in the present case of the defendants' knowledge of such a state of things as would necessarily result in the damage the plaintiffs suffered through the defendants' default. The authorities are in the plaintiffs' favour upon the general ground. In Nurse v. Barns (1 Sir T. Raym. 77) which was an action for breach of an agreement for the letting of certain iron mills, the plaintiff was held entitled to a sum of 500l., awarded by reason of loss of stock laid in, although he had only paid 10l. by way of consideration. InBorradaile v. Brunton (8 Taunt. 535, 2 B. Moo. 582), which was an action for the breach of the warranty of a chain cable that it should last two years as a substitute for a rope cable of sixteen inches, the plaintiff was held entitled to recover for the loss of the anchor, which was occasioned by the breaking of the cable within the specified time. These extreme cases, and the difficulty which consequently exists in the estimation of the true amount of damages, supports the view for which the plaintiffs contend, that the question is properly for the decision of a jury, and therefore that this matter could not properly have been withdrawn from their consideration. In Ingram v. Lawson (6 Bing. N.C. 212) the true principle was acted upon. That was an action for a libel upon the plaintiff, who was the owner and master of a ship, which he advertised to take passengers to the East Indies; and the libel imputed that the vessel was not seaworthy, and that Jews had purchased her to take out convicts. The Court held, that evidence shewing that the plaintiff's profits after the publication of the libel were 1500l below the usual average, was admissible, to enable the jury to form an opinion as to the nature of the plaintiff's business, and of his general rate of profit. Here, also, the plaintiffs have not sustained any loss beyond that which was submitted to the jury. Bodley v. Reynolds (8 Q. B. 779) and Kettle v. Hunt (Bull. N. P. 77) are similar in principle. In the latter, it was held that the loss of the benefit of trade, which a man suffers by the detention of his tools, is recoverable as special damage. The loss they had sustained during the time they were so deprived of their shaft, or until they could have obtained a new one. In Black v. Baxendale (1 Exch. 410), by reason of the defendant's omission to deliver the goods within a reasonable time at Bedford, the plaintiff's agent, who had been sent there to meet the goods, was put to certain additional expenses, and this Court held that such expenses might be given by the jury as damages. In Brandt v. Bowlby (2 B. & Ald. 932), which was an action of assumpsit against the defendants, as owners of a certain vessel, for not delivering a cargo of wheat shipped to the plaintiffs, the cargo reached the port of destination was held to be the true rule of damages." As between the parties in this cause," said Parke, J., "the plaintiffs are entitled to be put in the same situation as they would have been in, if the cargo had been delivered to their order at the time when it was delivered to the wrong party; and the sum it would have fetched at the time is the amount of the loss sustained by the non-performance of the defendants' contract." The recent decision of this Court, in Waters v. Towers (8 Ex. 401), seems to be strongly in the plaintiffs' favour. The defendants there had agreed to fit up the plaintiffs' mill within a reasonable time, but had not completed their contract within such time; and it was held that the plaintiffs were entitled to recover, by way of damages, the loss of profit upon a contract they had entered into with third parties, and which they were unable to fulfil by reason of the defendants' breach of contract. There was ample evidence that the defendants knew the purpose for which this shaft was sent, and that the result of its nondelivery in due time would be the stoppage of the mill; for the defendants' agent, at their place of business, was told that the mill was then stopped, that the shaft must be delivered immediately, and that if a special entry was necessary and natural result of their wrongful act. They also cited Ward v. Smith (11 Price, 19); and Parke, B., referred to Levy v. Langridge (4 M. & W. 337).

      12

      Whateley, Willes, and Phipson, in support of the rule (Feb. 2). It has been contended, on the part of the plaintiffs, that the damages found by the jury are a matter fit for their consideration; but still the question remains, in what way ought the jury to have been directed? It has been also urged, that, in awarding damages, the law gives compensation to the injured individual. But it is clear that complete compensation is not to be awarded; for instance, the non-payment of a bill of exchange might lead to the utter ruin of the holder, and yet such damage could not be considered as necessarily resulting from the breach of contract, so as to entitle the party aggrieved to recover in respect of it. Take the case of the breach of a contract to supply a rick-cloth, whereby and in consequence of bad weather the hay, being unprotected, is spoiled, that damage could not be recoverable. Many similar cases might be added. The true principle to be deduced form the authorities upon this subject is that which is embodied in the maxim: "In jure non remota cause sed proxima spectatur." Sedgwick says (page 38), "In regard to the quantum of damages, instead of adhering to the term compensation, it would be far more accurate to say, in the language of Domat, which we have cited above, 'that the object is discriminate between that portion of the loss which must be borne by the offending party and that which must be borne by the sufferer'. The law in fact aims not at the satisfaction but at a division of the loss." And the learned author also cites the following passage from Broom's Legal Maxims: "Every defendant," says Mr. Broom, "against whom an action is brought experiences some injury or inconvenience beyond what the costs will compensate him for."[1] Again, at page 78, after referring to the case of Flureau v. Thornhill (2 W. Blac. 1078), he says, "Both the English and American Courts have generally adhered to this denial of profits as any part of the damages to be compensated and that whether in cases of contract or of tort. So, in a case of illegal capture, Mr. Justice Story rejected the item of profits on the voyage, and held this general language: 'Independent, however, of all authority, I am satisfied upon principle, that an allowance of damages upon the basis of a calculation of profits is inadmissible. The rule would be in the highest degree unfavourable to the interests of the community. The subject would be involved in utter uncertainty. The calculation would proceed upon contingencies, and would require acknowledge of foreign markets to an exactness, in point of time and value, which would sometimes present embarrassing obstacles; much would depend upon the length of the voyage, and the season of arrival, much upon the vigilance and activity of the master, and much upon the momentary demand. After all, it would be a calculation upon conjectures, and not upon facts; such a rule therefore has been rejected by Courts of law in ordinary cases, and instead of deciding upon the gains or losses of parties in particular cases, a uniform interest has been applied as the measure of damages for the detention of property." There is much force in that admirably constructed passage. We ought to pay all due homage in this country to the decisions of the American Courts upon this important subject, to which they appear to have given much careful consideration. The damages here are too remote. Several of the cases which were principally relied upon by the plaintiffs are distinguishable. In Waters v. Towers (1 Exch. 401) there was a special contract to do the work in a particular time, and the damage occasioned by the non-completion of the contract was that to which the plaintiffs were held to be entitled. In Borradale v. Brunton (8 Taunt. 535) there was a direct engagement that the cable should hold the anchor. So, in the case of taking away a workman's tools, the natural and necessary consequence is the loss of employment: Bodley v. Reynolds (8 Q. B. 779). The following cases may be referred to as decisions upon the principle within which the defendants contend that the present case falls: Jones v. Gooday (8 M. & W. 146), Walton v. Fothergill (7 Car. & P. 392), Boyce v. Bayliffe (1 Camp. 58) and Archer v. Williams (2. C. & K. 26). The rule, therefore, that the immediate cause is to be regarded in considering the loss, is applicable here. There was no special contract between these parties. A carrier has a certain duty cast upon him by law, and that duty is not to be enlarged to an indefinite extent in the absence of a special contract, or of fraud or malice. The maxim "dolus circuitu non purgatur", does not apply. The question as to how far liability may be affected by reason of malice forming one of the elements to be taken into consideration, was treated of by the Court of Queen's Bench in Lumley v. Gye (2 E. & B. 216). Here the declaration is founded upon the defendants' duty as common carriers, and indeed there is no pretence for saying that they entered into a special contract to bear all the consequences of the non-delivery of the article in question. They were merely bound to carry it safely, and to deliver it within a reasonable time. The duty of the clerk, who was in attendance at the defendants' office, was to enter the article, and to take the amount of the carriage; but a mere notice to him, such as was here given, could not make the defendants, as carriers, liable as upon a special contract. Such matters, therefore, must be rejected from the consideration of the question. If carriers are to be liable in such a case as this, the exercise of a sound judgment would not suffice, but they ought to be gifted also with a spirit of prophecy. "I have always understood," said Patterson, J., in Kelly v. Partington (5 B. & Ad. 651), "that the special damage must be the natural result of the thing done." That sentence presents the true test. The Court of Queen's Bench acted upon that rule in Foxall v. Barnett (2 E. & B. 928). This therefore is a question of law, and the jury ought to have been told that these damages were too remote; and that, in the absence of the proof of any other damage, the plaintiffs were entitled to nominal damages only: Tindall v. Bell (11 M. & W. 232). Siordet v. Hall (4 Bing. 607) and De Vaux v. Salvador (4 A. & E. 420) are instances of cases where the Courts appear to have gone into the opposite extremes: in the one case of unduly favouring the carrier, in the other of holding them liable for results which would appear too remote. If the defendants should be held responsible for the damages awarded by the jury, they would be in a better position if they confined their business to the conveyance of gold. They cannot be responsible for results which, at the time the goods are delivered for carriage, and beyond all human foresight. Suppose a manufacturer were to contract with a coal merchant or min owner for the delivery of a boat load of coals, no intimation being given that the coals were required for immediate use, the vendor in that case would not be liable for the stoppage of the vendee's business for want of the article which he had failed to deliver: for the vendor has no knowledge that the goods are not to go to the vendee's general stock. Where the contracting party is shewn to be acquainted with all the consequences that must of necessity follow from a breach on his part of the contract, it may be reasonable to say that he takes the risk of such consequences. If, as between vendor and vendee, this species of liability has no existence, a fortiori, the carrier is not to be burthened with it. In cases of personal injury to passengers, the damage to which the sufferer has been held entitled is the direct and immediate consequence of the wrongful act.

      13

      Cur. adv. vult.

      14

      The judgment of the Court was now delivered by

      15

      ALDERSON, B. We think that there ought to be a new trial in this case; but, in so doing, we deem it to be expedient and necessary to state explicitly the rule which the Judge, at the next trial, ought, in our opinion, to direct the jury to be governed by when they estimate the damages.

      16

      It is. Indeed, of the last importance that we should do this; for, if the jury are left without any definite rule to guide them, it will, in such cases as these, manifestly lead to the greatest injustice. The Courts have done this on several occasions; and in Blake v. Midland Railway Company (18 Q. B. 93), the Court granted a new trial on this very ground, that the rule had not been definitely laid down to the jury by the learned Judge at Nisi Prius.

      17

      "There are certain establishing rules", this Court says, in Alder v. Keighley (15 M. & W. 117), "according to which the jury ought to find". And the Court, in that case, adds: "and here there is a clear rule, that the amount which would have been received if the contract had been kept, is the measure of damages if the contract is broken."

      18

      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 were 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, had the special circumstances been known, the parties might have specially provided for the breach of contract by special terms as to the damages in that case; and of this advantage it would be very unjust to deprive them. Now the above principles are those by which we think the jury ought to be guided in estimating the damages arising out of any breach of contract. It is said, that other cases such as breaches of contract in the nonpayment of money, or in the not making a good title of land, are to be treated as exceptions from this, and as governed by a conventional rule. But as, in such cases, both parties must be supposed to be cognizant of that well-known rule, these cases may, we think, be more properly classed under the rule above enunciated as to cases under known special circumstances, because there both parties may reasonably be presumed to contemplate the estimation of the amount of damages according to the conventional rule. Now, in the present case, if we are to apply the principles above laid down, we find that the only circumstances here communicated by the plaintiffs to the defendants at the time of the contract was made, were, that the article to be carried was the broken shaft of a mill, and that the plaintiffs were the millers of the mill.

      But how do these circumstances shew reasonably that the profits of the mill must be stopped by an unreasonable delay in the delivery of the broken shaft by the carrier to the third person? Suppose the plaintiffs had another shaft in their possession put up or putting up at the time, and that they only wished to send back the broken shaft to the engineer who made it; it is clear that this would be quite consistent with the above circumstances, and yet the unreasonable delay in the delivery would have no effect upon the intermediate profits of the mill. Or, again, suppose that, at the time of the delivery to the carrier, the machinery of the mill had been in other respects defective, then, also, the same results would follow. Here it is true that the shaft was actually sent back to serve as a model for the new one, and that the want of a new one was the only cause of the stoppage of the mill, and that the loss of profits really arose from not sending down the new shaft in proper time, and that this arose from the delay in delivering the broken one to serve as a model. But it is obvious that, in the great multitude of cases of millers sending off broken shafts to third persons by a carrier under ordinary circumstances, such consequences would not, in all probability, have occurred; and these special circumstances were here never communicated by the plaintiffs to the defendants. It follows therefore, that the loss of profits here cannot reasonably be considered such a consequence of the breach of contract as could have been fairly and reasonably contemplated by both the parties when they made this 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.

      19

      Rule absolute.

    • 3.2 Lamkins v. International Harvester Co.

      1
      182 S.W.2d 203
      2
      LAMKINS
      v.
      INTERNATIONAL HARVESTER CO. et al.
      3
      No. 7382.
      4
      Supreme Court of Arkansas.
      5
      July 10, 1944.
      6
      Rehearing Denied October 2, 1944.
      7

      Appeal from Circuit Court, Jackson County; S. M. Bone, Judge.

      8

      Action in replevin by the International Harvester Company against Grover Lamkins to recover a tractor sold to defendant, wherein defendant filed a cross-complaint against plaintiff and Gay Lacy to recover special damages allegedly resulting from defendant's inability to use tractor at night for cultivation of crops. The trial court dismissed defendant's cross-complaint and directed a verdict against him and, from the judgment entered thereon, defendant appeals.

      9

      Judgment affirmed.

      10

      Ras Priest, of Newport, for appellant.

      11

      Kaneaster Hodges and Pickens & Pickens, all of Newport, for appellees.

      12
      KNOX, Justice.
      13

      The question presented by this appeal is whether in view of the special facts and circumstances connected with the sale of a tractor, the seller thereof could be held liable for special damages resulting from the loss of crops, occasioned by inability to cultivate the same because the tractor could not be used at night, the seller having failed to furnish starter and lighting equipment for the tractor within the time contemplated by contract.

      14

      On or about December 4, 1941, appellant verbally contracted with appellee, Gay Lacy, dealer for International Tractors, for the purchase of one H. Tractor, one H. M. 221 Cultivator, two cylinders, and one 9 A. Disc Harrow, for a total price of $1485. The parties agreed that buyer would deliver and seller accept a pair of horses and an old tractor for a credit of $642, and that the balance of the purchase price, $843, together with a finance charge of $53.71, a total of $896.71, should be represented by a title retaining note, payable in three installments as follows: 10/1/42 — $404.84, 4/1/43 — $162.72, and 10/1/43 — $329.15.

      15

      Because of the limited number of tractors available, it was agreed that delivery [204] of the new equipment might be postponed until about March 1, 1942, and as a matter of fact delivery was actually delayed until after May 1, 1942. In the meantime appellant had surrendered to dealer the horses and old tractor.

      16

      The new equipment was finally delivered to appellant's home at a time when he was absent therefrom, but a few days thereafter the dealer returned and requested appellant to execute the note and the sales contract. Appellant testified that he at first refused to execute the papers, because the tractor was not equipped with lights and starter, but upon the express promise by dealer that such equipment would be supplied within three weeks he finally did sign the papers. On account of governmental priority regulations this equipment was not supplied within the three weeks period. In November 1942, the dealer obtained this equipment, and requested that appellant bring the tractor to his shop so that it might be installed. Fearing that the tractor would be held for past due installment on note, appellant refused to deliver it to dealer, but insisted that equipment be installed at his home and while tractor was in his possession. This equipment was actually installed on the tractor after this action was begun.

      17

      When the equipment, without starter and lighting equipment, was delivered in May of 1942, appellant did sign the note, and, also, a document designated "Order for Farm Equipment". These instruments were introduced in evidence at the trial. No words appear in these written instruments indicating that any part of the equipment had not been delivered, nor that the dealer was charged with notice that the tractor was to be used in cultivating a crop at night, nor that the parties were contracting with respect to special damage which might accrue to appellant by reason of loss of crops resulting from his inability to use tractor at night for want of lights thereon. The note and contract each lists one article of equipment included in the sale and price thereof as follows: "Two Cylinders $20". Appellee Lacy, the dealer, in his brief says that this item "constituted the lighting equipment for this tractor".

      18

      The note was endorsed and negotiated to appellee International Harvester Company on June 4, 1942, which company began this action in replevin on January 16, 1943. Appellant filed answer and also filed cross-complaint against Lacy, the dealer, and the International Harvester Company. His cross-action was based upon the failure to deliver the starter and lighting equipment, and the resultant loss occasioned by inability to use the tractor at night. At the time the original cross-complaint was filed the equipment had not been placed on the tractor. He alleged: "That by reason of the failure of the cross-defendant, Gay Lacy, and the International Harvester Company, to equip said tractor with lights and a starter as he agreed to do, the defendant was denied the use of said tractor at nights over a period of forty-five days; and by reason of such deprivation, the defendant was unable to plant, cultivate and harvest a part of his crop, namely, twenty-five acres of land which he could and would have planted and cultivated in soy beans if he had had the lights and starter on said tractor, and by reason of such loss, the defendant has been damaged in the sum of $10 per night, for each and every night he was unable to use said tractor, or a total sum of $450, in which amount he is entitled to a set off against the indebtedness of $896.71 mentioned in the note sued on."

      19

      The prayer was for said sum of $450, and the "additional sum of $100.00, the value of the lights and starter which were not delivered".

      20

      The starter and lighting equipment was later delivered and thereafter appellant, in an amendment to his cross-complaint, stated: "Defendant further says that the starter and lights in question were in fact delivered about April 1, 1943, and installed, and, while they were second-hand, or appeared to be so, and have never been satisfactory, they have been retained by the defendant, and the demand for their value is therefore waived." His amended prayer is "for $450.00 by way of special damages as a set off against the note sued on * * * or * * * judgment * * * against Lacy for said sum."

      21

      Other facts reflected by the record, which relate directly to the question of special damages, will be stated in the course of the opinion.

      22

      Both here and in the court below, appellant limited his defense solely to his right to recover special damages. The trial court held that the facts presented by the record were not sufficient to justify submission of the question to the jury and directed a verdict against appellant.

      23

      Ordinarily when a seller fails to deliver goods within the time agreed upon [205] the buyer is entitled to recover as damages the difference between the contract price and the market price at the time of the breach. Under some circumstances, however, a buyer may recover special or consequential damages resulting from failure to deliver, or delay in delivery. The rules applicable in such cases are fully discussed in the case of Hooks Smelting Co. v. Planters' Compress Co., 72 Ark. 275, 79 S.W. 1052; which case has been consistently cited and adhered to. Long v. Chas. T. Abeles Co., 77 Ark. 150, 91 S.W. 29; Pine Bluff Iron Works v. Boling & Bro., 75 Ark. 469, 88 S.W. 306, 308; Sager v. Jung & Sons Co., 143 Ark. 506, 220 S.W. 801, Southwestern Bell Tel. Co. v. Carter, 181 Ark. 209, 25 S.W.2d 448; Interstate Grocery Co v. Namour, 201 Ark. 1095, 148 S. W.2d 175.

      24

      In Hooks Smelting Co. v. Planters' Compress Co., supra, Mr. Justice Riddick points out that the rule of law relating to special or consequential damages was first announced in the English case of Hadley v. Baxley, 9 Exch. 341.

      25

      After reviewing and criticising the interpretation given to the English case by certain text writers, the learned Justice declared what this court had determined was the correct rules of law for the assessment of special damages. A complete restatement of these rules, as set forth in that opinion, is unnecessary. For the purpose of this opinion it is necessary to point out only that in order to render a seller liable to the buyer for special or consequential damages arising from delay in delivering the article of sale it is necessary that at or before the time of the making of the contract of sale he knew of the special circumstances which would expose the buyer to special damages by reason of the delay in delivery, and that such seller at least tacitly consented to assume the particular risks arising from such delay. The seller cannot be charged with special damages, where his knowledge respecting the special circumstances which would cause such special damage is acquired after the purchase price of the article of sale is fixed. But notice of such circumstances is not alone sufficient to make the seller liable, for as was said in Hooks, etc., v. Planters', etc., supra [72 Ark. 275, 79 S.W. 1056]: "where the damages arise from special circumstances, and are so large as to be out of proportion to the consideration agreed to be paid for the services to be rendered under the contract, it raises a doubt at once as to whether the party would have assented to such a liability, had it been called to his attention at the making of the contract, unless the consideration to be paid was also raised so as to correspond in some respect to the liability assumed. To make him liable for the special damages in such a case, there must not only be knowledge of the special circumstances, but such knowledge `must be brought home to the party sought to be charged under such circumstances that he must know that the person he contracts with reasonably believes that he accepts the contract with the special condition attached to it.' In other words, the facts and circumstances in proof must be such as to make it reasonable for the judge or jury trying the case to believe that the party at the time of the contract tacitly consented to be bound to more than ordinary damages in case of default on his part."

      26

      Evidence relating to notice and, also, relating to circumstances indicating an implied agreement by seller to be liable for special damages is meager, vague and indefinite. Responding to a general question from his counsel, appellant testified in detail as to the original sales agreement made on December 4th, but failed to recount that in such agreement there was any mention of the starter or lighting equipment, the necessity therefor, or special understanding with respect thereto. Referring to the conversation had between himself and Lacy relative to these items after the tractor was delivered, he testified as follows: "I says `Mr. Lacy I can't use this tractor * * * I don't want it without a starter or lights'. And I told him that when we traded." "I had been operated on and didn't want the tractor that had no starter." Asked what reason he had given to the dealer as to why he "wanted the lights", appellant replied "so that I could operate it at night, I had nearly 200 acres of land to work." To the leading question, "Did you tell Mr. Lacy that you required the starter and lights and the reason why at the time you made the original trade with him?" appellant answered, "Yes, sir."

      27

      The above quotations reflect the entire evidence contained in the record relative to special damages. Conceding that such evidence is sufficient to show that appellant communicated notice to the dealer on or before December 4, 1941, that he desired lighting equipment so that he might [206] work at night, there is nothing in the testimony showing circumstances surrounding and connected with the transaction which were calculated to bring home to the dealer knowledge that appellant expected him to assume liability for a crop loss, which might amount to several hundreds of dollars, if he should fail to deliver a $20 lighting accessory. There was, of course, no such express contract on the dealer's part, and the facts and circumstances are not such as to make it reasonable for the trier of facts to believe that the dealer at the time tacitly consented to be bound for more than ordinary damages in case of default on his part.

      28

      Furthermore, appellant's claim for damages, asserted in his cross-complaint, is based upon allegations that he was prevented from planting and growing a twenty-five acre crop of soy beans. The measure of damages for preventing planting of a crop is the rental value of the land. Dilday v. David, 178 Ark. 898, 12 S.W.2d 899; St. Louis, I. M. & S. R. Co. v. Saunders, 85 Ark. 111, 107 S.W. 194. Proof of the rental value of this twenty-five acres is absent from the record.

      29

      We are convinced that the trial court did not err in dismissing appellant's cross-complaint and directing a verdict against him for the full amount of the note and interest. The judgment is affirmed.

    • 3.3 Victoria Laundry (Windsor) LD. v. Newman Industries LD.

      1
      [1949] 2 K.B. 528
      2
      Victoria Laundry (Windsor) LD.
      v.
      Newman Industries LD.;
      3

      Court of Appeal

      4
      12 April 1949
      5

      Tucker, Asquith and Singleton L.JJ.

      6

      1949 Mar. 21, 22, 23; Apr. 12.

      7

      [528] Sale of goods—Purchase of boiler by laundry company—Part of profit—making plant—Delay in delivery—Measure of damages—Loss of business profits.

      8

      The plaintiffs, launderers and dyers, wishing to extend their business, and having in view (inter alia) the prospect of certain profitable dyeing contracts, required a larger boiler. They therefore on April 26, 1946 concluded a contract with the defendants an [529] engineering firm, to purchase a boiler, then installed on the defendants' premises, for 2,150l., and delivery was arranged to be taken on June 5. Owing to a mishap while the boiler was being dismantled by the third parties, under contract with the defendants, it rolled over and sustained damage, and delivery to the plaintiffs was delayed until November 8, 1946. The defendants were aware of the nature of the plaintiffs' business, and by letter had been informed that the plaintiffs intended to put the boiler in use in the shortest possible space of time. In an action for breach of contract the plaintiffs claimed to include in their damages their loss of business profits. The trial judge allowed the plaintiffs a sum for damages under certain minor heads but disallowed the claim for loss of profits on the ground that it was based on special circumstances which had not been drawn to the attention of the defendants, and therefore came within the second rule in Hadley v. Baxendale (1854) 9 Exch. 341. On appeal:-

      9

      Held, that the defendants, an engineering company, with knowledge of the nature of the plaintiffs' business, having promised delivery by a particular date of a large and expensive plant, could not reasonably contend that they could not foresee that loss of business profit would be liable to result to the purchaser from a long delay in delivery; that although the defendants had no knowledge of the dyeing contracts which the plaintiffs had in prospect, it did not follow that the plaintiffs were precluded from recovering some general, and perhaps conjectural, sum for loss of business in respect of contracts reasonably to be expected; and therefore the appeal must be allowed and the damages referred to an Official Referee for assessment in consonance with those findings of the court.

      10

      Decision of Streatfeild J. [1948] W. N. 397, reversed.

      11

      Accuracy of the headnote in Hadley v. Baxendale questioned.

      12

      APPEAL from Streatfeild J.

      13

      The plaintiffs, a limited company, carrying on a business as launderers and dyers at Windsor, were in January, 1946, minded to expand their business, and to that end required a boiler of much greater capacity than the one they then possessed, which was of a capacity of 1,500-1,600 lbs. evaporation per hour. Seeing an advertisement by the defendants on January 17, 1946, of two "vertical Cochran boilers of 8,000 lb. per hour capacity heavy steaming," the plaintiffs negotiated for the purchase of one of them, and by April 26 had concluded a contract for its purchase at a price of 2,150l., loaded free on transport at Harpenden, where it was installed in the premises of the defendants. The defendants knew that the plaintiffs were launderers and dyers, and wanted the boiler for use in their business. Also, during the negotiations [530 the plaintiffs by letter expressed their intention to "put it into use in the shortest possible space of time." Arrangements were made by the plaintiffs with the defendants to take delivery at Harpenden on June 5, and the plaintiffs on that date sent a lorry to Harpenden to take delivery, but it was then ascertained that four days earlier the third parties, who had been employed by the defendants to dismantle the boiler, had allowed it to fall on its side and sustain damage. The plaintiffs refused to take delivery unless the damage was made good and ultimately the defendants agreed to arrange for the necessary repairs. The plaintiffs did not receive delivery of the boiler until November 8, 1946, and in the present action they claimed damages for breach of contract and sought to include in the damages loss of business profits during the period from June 5 to November 8, 1946.

      14

      Streatfeild J. gave judgment for the plaintiffs against the defendants for 110l. damages under certain minor heads, but held that they were not entitled to include in their measure of damages loss of business profits during the period of delay. The boiler, he said, was not a whole plant capable of being used by itself as a profit-making machine. Only the entire plant, including the vats, was a profit-making machine. The defendants were supplying the plaintiffs with only a part, the function of which they did not know, of that plant. The case fell, in his opinion, within the second rule in Hadley v. Baxendale [1] and the defendants were not liable for the loss of profits because the special object for which the plaintiffs were acquiring the boiler had not been drawn to the defendants' attention.

      15

      The plaintiffs appealed.

      16

      Beney K.C. and John Davidson for plaintiffs: The learned judge it is submitted came to a wrong decision. The speeches of their Lordships in A/B. Karlshamns Oljefabriker v. Monarch Steamship Co. Ld. [2] contain the latest pronouncement on the meaning of the rules in Hadley v. Baxendale [3]. Lord Wright said: "The ruling of Baron Alderson has consistently been followed, and the only difficulty, as Lord Sankey observed in Banco de Portugal v. Waterlow & Sons [4], has been in applying it. The distinction there drawn is between damages arising naturally (which means in the normal course of things) [531] and cases where there are special and extraordinary circumstances beyond the reasonable prevision of the parties. The distinction between these types is usually described in English law as that between general and special damages; the latter are such that if they are not communicated it would not be fair or reasonable to hold the defendant responsible for losses which he could not be taken to contemplate as likely to result from the breach of contract." He continued: "It appears that if the respondents had been claiming special and peculiar loss due to interference with their business such damages might, prima facie, be too remote and not proper to be recovered in the absence of notice when the contract was entered into .... But the respondents are claiming only for their loss directly due to the failure of the appellants to fulfil their promise to deliver the beans at Karlshamn. Their claim is not based on any extraordinary or peculiar matter, but is only what might be claimed by any party which suffers injury in the general circumstances of that business and at that time and place." If the defendants in this case had considered in April, 1946, the probable effects of a delay of five months, with due regard to what might reasonably be expected to occur, they could not have failed to foresee that some financial loss to the plaintiffs was a serious possibility. That, however, is not the test which the learned judge below appears to have applied. The defendants describe themselves as electrical engineers and manufacturers, and from the fact that they were asked if they would do the erection and fitting of the boiler they must have known that the boiler was to be put into operation and was not being purchased merely as a spare. Also the fact that by letter the plaintiffs had intimated their intention to put the boiler into use as speedily as possible justified the inference being drawn that speed was necessary. It must have been reasonably conveyed to the defendants that the boiler was wanted for use promptly. Although the facts in Cory v. Thames Ironworks Co. [5] were different from those in the present case, the test laid down to see into what category the case fell is of assistance in this case. The dividing line is not between a whole profit-earning plant and a part. It is a matter of degree. The test is what a reasonable hypothetical man would contemplate was the profitable use to which the article was to be put. It does not depend on actual knowledge, [532] but on what a reasonable person would contemplate. The appeal should be allowed and the matter referred to an official referee for the assessment of damages.

      17

      Paull K.C. and A. J. Hodgson for defendants. The measure of damages recoverable in any case of breach of contract must depend upon the inferences which the court is entitled to draw from the facts. The defendants here were selling a secondhand boiler. They had no special knowledge of the use of boilers generally and no knowledge of how laundries were run. There may be a great difference between a sale such as this and the sale of a chattel by manufacturers of and experts in the use of a particular chattel. The seller having no special knowledge or information that this part of machinery was essential for immediate profit-making, he is not liable for that loss of profit: Hadley v. Baxendale [6]. To saddle the defendant with liability where the loss of profit is due to special circumstances the court must be able to draw the inference that those circumstances have been brought to the notice of the defendant. The authorities draw a distinction between the supply of part of a profit-making machine and the supply of the machine itself: see Portman v. Middleton [7]. The fact that what is being supplied is only part of a plant negatives the idea that it is wanted for immediate use. Gee v. Lancashire and Yorkshire Railway [8] and British Columbia Sawmills v. Nettleship [9] are decisions strongly in favour of the present defendants. In the latter case it was expressly held that it was not sufficient that the defendant knew the thing supplied was going to be used in the plaintiffs' business. It must be found that the defendant had that knowledge at the time he entered into the contract and expressly or impliedly accepted liability for a breach. Special circumstances must have been brought to the knowledge of the other contracting party or else the claim comes under the second rule in Hadley v. Baxendale [10]. The defendants did not know that the boiler they were supplying was a bigger boiler than the one already possessed by the plaintiffs and therefore they must not be assumed to know that delay in delivery would cause loss of profits. They did not know that everything was ready for putting the boiler in place. So far as they knew it might be required as a spare. Mere knowledge that the boiler was to be [533] used in the plaintiffs' business is not sufficient to fix the defendants with liability.

      18

      Caplan for third parties.

      19

      Cur. adv. vult.

      20
      April 12. ASQUITH L.J. delivered the judgment of the court:
      21

      This is an appeal by the plaintiffs against a judgment of Streatfeild J. in so far as that judgment limited the damages to 110l. in respect of an alleged breach of contract by the defendants, which is now uncontested. The breach of contract consisted in the delivery of a boiler sold by the defendants to the plaintiffs some twenty odd weeks after the time fixed by the contract for delivery. The short point is whether, in addition to the 110l. awarded, the plaintiffs were entitled to claim in respect of loss of profits which they say they would have made if the boiler had been delivered punctually. Seeing that the issue is as to the measure of recoverable damage and the application of the rules in Hadley v. Baxendale [11], it is important to inquire what information the defendants possessed at the time when the contract was made, as to such matters as the time at which, and the purpose for which, the plaintiffs required the boiler. The defendants knew before, and at the time of the contract, that the plaintiffs were laundrymen and dyers, and required the boiler for purposes of their business as such. They also knew that the plaintiffs wanted the boiler for immediate use. On the latter point the correspondence is important. The contract was concluded by, and is contained in, a series of letters. In the earliest phases of the correspondence - that is, in letters of January 31 and February 1, 1946 - (which letters, as appears from their terms, followed a telephone call on the earlier date) - the defendants undertook to make the earliest possible arrangements for the dismantling and removal of the boiler. The natural inference from this is that in the telephone conversation referred to the plaintiffs had conveyed to the defendants that they required the boiler urgently. Again, on February 7 the plaintiffs write to the defendants: "We should appreciate your letting us know how quickly your people can dismantle it"; and finally, on April 26, in the concluding letter of the series by which the contract was made: "We are most anxious that this" (that is, the boiler) "should be put into use in the shortest possible space of time." Hence, up to and at the very moment [534] when a concluded contract emerged, the plaintiffs were pressing upon the defendants the need for expedition; and the last letter was a plain intimation that the boiler was wanted for immediate use. This is none the less so because when, later, the plaintiffs encountered delays in getting the necessary permits and licences, the exhortations to speed come from the other side, who wanted their money, which in fact they were paid in advance of delivery. The defendants knew the plaintiffs needed the boiler as soon as the delays should be overcome, and they knew by the beginning of June that such delays had by then in fact been overcome. The defendants did not know at the material time the precise role for which the boiler was cast in the plaintiffs' economy, e.g. whether (as the fact was) it was to function in substitution for an existing boiler of inferior capacity, or in replacement of an existing boiler of equal capacity, or as an extra unit to be operated side by side with and in addition to any existing boiler. It has indeed been argued strenuously that, for all they knew, it might have been wanted as a "spare" or "standby," provided in advance to replace an existing boiler when, perhaps some time hence, the latter should wear out; but such an intention to reserve it for future use seems quite inconsistent with the intention expressed in the letter of April 26, to "put it into use in the shortest possible space of time."

      22

      In this connexion, certain admissions made in the course of the hearing are of vital importance. The defendants formally admitted what in their defence they had originally traversed, namely, the facts alleged in para. 2 of the statement of claim. That paragraph reads as follows: "At the date of the contract hereinafter mentioned the defendants well knew as the fact was that the plaintiffs were launderers and dyers carrying on business at Windsor and required the said boiler for use in their said business and the said contract was made upon the basis that the said boiler was required for the said purpose."

      23

      On June 5 the plaintiffs, having heard that the boiler was ready, sent a lorry to Harpenden to take delivery. Mr. Lennard, a director of the plaintiff company, preceded the lorry in a car. He discovered on arrival that four days earlier the contractors employed by the defendants to dismantle the boiler had allowed it to fall on its side, sustaining injuries. Mr. Lennard declined to take delivery of the damaged [535] boiler in its existing condition and insisted that the damage must be made good. He was, we think, justified in this attitude, since no similar article could be bought in the market. After a long wrangle, the defendants agreed to perform the necessary repairs and, after further delay through the difficulty of finding a contractor who was free and able to perform them, completed the repairs by October 28. Delivery was taken by the plaintiffs on November 8 and the boiler was erected and working by early December. The plaintiffs claim, as part - the disputed part - of the damages, loss of the profits they would have earned if the machine had been delivered in early June instead of November. Evidence was led for the plaintiffs with the object of establishing that if the boiler had been punctually delivered, then, during the twenty odd weeks between then and the time of actual delivery, (1.) they could have taken on a very large number of new customers in the course of their laundry business, the demand for laundry services at that time being insatiable - they did in fact take on extra staff in the expectation of its delivery - and (2.) that they could and would have accepted a number of highly lucrative dyeing contracts for the Ministry of Supply. In the statement of claim, para. 10, the loss of profits under the first of these heads was quantified at 16l. a week and under the second at 262l. a week.

      24

      The evidence, however, which promised to be voluminous, had not gone very far when Mr. Paull, for the defendants, submitted that in law no loss of profits was recoverable at all, and that to continue to hear evidence as to its quantum was merely waste of time. He suggested that the question of remoteness of damage under this head should be decided on the existing materials, including the admissions to which we have referred. The learned judge accepted Mr. Paull's submission, and on that basis awarded 110l. damages under certain minor heads, but nothing in respect of loss of profits, which he held to be too remote. It is from that decision that the plaintiffs now appeal. It was a necessary consequence of the course which the case took that no evidence was given on behalf of the defendants, and only part of the evidence available to the plaintiffs. It should be observed parenthetically that the defendants had added as third parties the contractors who, by dropping the boiler, and causing the injuries to it, prevented its delivery in early June and caused the defendants to break their contract. Those third-party proceedings have been [536] adjourned pending the hearing of the present appeal as between the plaintiffs and the defendants. The third parties, nevertheless, were served with notice of appeal by the defendants and argument was heard for them at the hearing of the appeal.

      25

      The ground of the learned judge's decision, which we consider more fully later, may be summarized as follows: He took the view that the loss of profit claimed was due to special circumstances and therefore recoverable, if at all, only under the second rule in Hadley v. Baxendale and not recoverable in this case because such special circumstances were not at the time of the contract communicated to the defendants. He also attached much significance to the fact that the object supplied was not a self-sufficient profit-making article, but part of a larger profit-making whole, and cited in this connexion the cases of Portman v. Middleton [12] and British Columbia Sawmills v. Nettleship [13]. Before commenting on the learned judge's reasoning, we must refer to some of the authorities.

      26

      The authorities on recovery of loss of profits as a head of damage are not easy to reconcile. At one end of the scale stand cases where there has been non-delivery or delayed delivery of what is on the face of it obviously a profit-earning chattel; for instance, a merchant or passenger ship: see Fletcher v. Tayleur [14], In re Trent and Humber Company, ex parte Cambrian Steam Packet Company [15]; or some essential part of such a ship; for instance, a propeller, in Wilson v. General Ironscrew Company [16], or engines, Saint Line v. Richardson [17]. In such cases loss of profit has rarely been refused. A second and intermediate class of case in which loss of profit has often been awarded is where ordinary mercantile goods have been sold to a merchant with knowledge by the vendor that the purchaser wanted them for resale; at all events, where there was no market in which the purchaser could buy similar goods against the contract on the seller's default, see, for instance, Borries v. Hutchinson [18]. At the other end of the scale are cases where the defendant is not a vendor of the goods, but a carrier, see, for instance, Hadley v. Baxendale [19] and Gee v. Lancashire and Yorkshire Railway [20]. In such cases the courts have been slow to allow loss of [537] profit as an item of damage. This was not, it would seem, because a different principle applies in such cases, but because the application of the same principle leads to different results. A carrier commonly knows less than a seller about the purposes for which the buyer or consignee needs the goods, or about other "special circumstances" which may cause exceptional loss if due delivery is withheld.

      27

      Three of the authorities call for more detailed examination. First comes Hadley v. Baxendale [21] itself. Familiar though it is, we should first recall the memorable sentence in which the main principles laid down in this case are enshrined: "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 as 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." The limb of this sentence prefaced by "either" embodies the so-called "first" rule; that prefaced by "or" the "second." In considering the meaning and application of these rules, it is essential to bear clearly in mind the facts on which Hadley v. Baxendale [22] proceeded. The head-note is definitely misleading in so far as it says that the defendant's clerk, who attended at the office, was told that the mill was stopped and that the shaft must be delivered immediately. The same allegation figures in the statement of facts which are said on page 344 to have "appeared" at the trial before Crompton J. If the Court of Exchequer had accepted these facts as established, the court must, one would suppose, have decided the case the other way round; must, that is, have held the damage claimed was recoverable under the second rule. But it is reasonably plain from Alderson B's judgment that the court rejected this evidence, for on page 355 he says: "We find that the only circumstances here communicated by the plaintiffs to the defendants at the time when the contract was made were that the article to be carried was the broken shaft of a mill and that the plaintiffs were the millers of that mill," and it is on this basis of fact that he proceeds to ask, "How do these circumstances show reasonably that the profits of the mill [538] must be stopped by an unreasonable delay in the delivery of the broken shaft by the carrier to the third person?"

      28

      British Columbia Sawmills v. Nettleship [23] annexes to the principle laid down in Hadley v. Baxendale [24] a rider to the effect that where knowledge of special circumstances is relied on as enhancing the damage recoverable that knowledge must have been brought home to the defendant at the time of the contract and in such circumstances that the defendant impliedly undertook to bear any special loss referable to a breach in those special circumstances. The knowledge which was lacking in that case on the part of the defendant was knowledge that the particular box of machinery negligently lost by the defendants was one without which the rest of the machinery could not be put together and would therefore be useless.

      29

      Cory v. Thames Ironworks Company [25]- a case strongly relied on by the plaintiffs - presented the peculiarity that the parties contemplated respectively different profit-making uses of the chattel sold by the defendant to the plaintiff. It was the hull of a boom derrick, and was delivered late. The plaintiffs were coal merchants, and the obvious use, and that to which the defendants believed it was to be put, was that of a coal store. The plaintiffs, on the other hand, the buyers, in fact intended to use it for transhipping coals from colliers to barges, a quite unprecedented use for a chattel of this kind, one quite unsuspected by the sellers and one calculated to yield much higher profits. The case accordingly decides, inter alia, what is the measure of damage recoverable when the parties are not ad idem in their contemplation of the use for which the article is needed. It was decided that in such a case no loss was recoverable beyond what would have resulted if the intended use had been that reasonably within the contemplation of the defendants, which in that case was the "obvious" use. This special complicating factor, the divergence between the knowledge and contemplation of the parties respectively, has somewhat obscured the general importance of the decision, which is in effect that the facts of the case brought it within the first rule of Hadley v. Baxendale [26] and enabled the plaintiff to recover loss of such profits as would have arisen from the normal and obvious use of the article. The "natural consequence," said Blackburn J., of not delivering the derrick was that 420l. representing those [539] normal profits was lost. Cockburn C.J., interposing during the argument, made the significant observation: "No doubt in order to recover damage arising from a special purpose the buyer must have communicated the special purpose to the seller; but there is one thing which must always be in the knowledge of both parties, which is that the thing is bought for the purpose of being in some way or other profitably applied." This observation is apposite to the present case. These three cases have on many occasions been approved by the House of Lords without any material qualification.

      30

      What propositions applicable to the present case emerge from the authorities as a whole, including those analysed above? We think they include the following:-

      31

      (1.) It is well settled that the governing purpose of damages is to put the party whose rights have been violated in the same position, so far as money can do so, as if his rights had been observed: (Sally Wertheim v. Chicoutimi Pulp Company [27]). This purpose, if relentlessly pursued, would provide him with a complete indemnity for all loss de facto resulting from a particular breach, however improbable, however unpredictable. This, in contract at least, is recognized as too harsh a rule. Hence,

      32

      (2.) In cases of breach of contract the aggrieved party is only entitled to recover such part of the loss actually resulting as was at the time of the contract reasonably forseeable as liable to result from the breach.

      33

      (3.) What was at that time reasonably so foreseeable depends on the knowledge then possessed by the parties or, at all events, by the party who later commits the breach.

      34

      (4.) For this purpose, knowledge "possessed" is of two kinds; one imputed, the other actual. Everyone, as a reasonable person, is taken to know the "ordinary course of things" and consequently what loss is liable to result from a breach of contract in that ordinary course. This is the subject matter of the "first rule" in Hadley v. Baxendale [28]. But to this knowledge, which a contract-breaker is assumed to possess whether he actually possesses it or not, there may have to be added in a particular case knowledge which he actually possesses, of special circumstances outside the "ordinary course of things," of such a kind that a breach in those special circumstances would be liable to cause more loss. Such a case attracts the operation of the "second rule" so as to make additional loss also recoverable.

      35

      [540] (5.) In order to make the contract-breaker liable under either rule it is not necessary that he should actually have asked himself what loss is liable to result from a breach. As has often been pointed out, parties at the time of contracting contemplate not the breach of the contract, but its performance. It suffices that, if he had considered the question, he would as a reasonable man have concluded that the loss in question was liable to result (see certain observations of Lord du Parcq in the recent case of A/B Karlshamns Oljefabriker v. Monarch Steamship Company Limited [29].)

      36

      (6.) Nor, finally, to make a particular loss recoverable, need it be proved that upon a given state of knowledge the defendant could, as a reasonable man, foresee that a breach must necessarily result in that loss. It is enough if he could foresee it was likely so to result. It is indeed enough, to borrow from the language of Lord du Parcq in the same case, at page 158, if the loss (or some factor without which it would not have occurred) is a "serious possibility" or a "real danger." For short, we have used the word "liable" to result. Possibly the colloquialism "on the cards" indicates the shade of meaning with some approach to accuracy.

      37

      If these, indeed, are the principles applicable, what is the effect of their application to the facts of this case? We have, at the beginning of this judgment, summarized the main relevant facts. The defendants were an engineering company supplying a boiler to a laundry. We reject the submission for the defendants that an engineering company knows no more than the plain man about boilers or the purposes to which they are commonly put by different classes of purchasers, including laundries. The defendant company were not, it is true, manufacturers of this boiler or dealers in boilers, but they gave a highly technical and comprehensive description of this boiler to the plaintiffs by letter of January 19, 1946, and offered both to dismantle the boiler at Harpenden and to re-erect it on the plaintiffs' premises. Of the uses or purposes to which boilers are put, they would clearly know more than the uninstructed layman. Again, they knew they were supplying the boiler to a company carrying on the business of laundrymen and dyers, for use in that business. The obvious use of a boiler, in such a business, is surely to boil water for the purpose of washing or dyeing. A laundry might conceivably buy a boiler for some other purpose; for instance, to [541] work radiators or warm bath water for the comfort of its employees or directors, or to use for research, or to exhibit in a museum. All these purposes are possible, but the first is the obvious purpose which, in the case of a laundry, leaps to the average eye. If the purpose then be to wash or dye, why does the company want to wash or dye, unless for purposes of business advantage, in which term we, for the purposes of the rest of this judgment, include maintenance or increase of profit, or reduction of loss? (We shall speak henceforward not of loss of profit, but of "loss of business.") No commercial concern commonly purchases for the purposes of its business a very large and expensive structure like this - a boiler 19 feet high and costing over 2,000l. - with any other motive, and no supplier, let alone an engineering company, which has promised delivery of such an article by a particular date, with knowledge that it was to be put into use immediately on delivery, can reasonably contend that it could not foresee that loss of business (in the sense indicated above) would be liable to result to the purchaser from a long delay in the delivery thereof. The suggestion that, for all the supplier knew, the boiler might have been needed simply as a "standby," to be used in a possibly distant future, is gratuitous and was plainly negatived by the terms of the letter of April 26, 1946.

      38

      Since we are differing from a carefully reasoned judgment, we think it due to the learned judge to indicate the grounds of our dissent. In that judgment, after stressing the fact that the defendants were not manufacturers of this boiler or of any boilers (a fact which is indisputable), nor (what is disputable) people possessing any special knowledge not common to the general public of boilers or laundries as possible users thereof, he goes on to say: "That is the general principle and I think that the principle running through the cases is this - and to this extent I agree with Mr. Beney - that if there is nothing unusual, if it is a normal user of the plant, then it may well be that the parties must be taken to contemplate that the loss of profits may result from non-delivery, or the delay in delivery, of the particular article. On the other hand, if there are, as I think there are here, special circumstances, I do not think that the defendants are liable for loss of profits unless these special circumstances were drawn to their notice. In looking at the cases, I think there is a distinction as Mr. Paull has pointed out and insists upon, between the [542] supply of the part of the profit-making machine, as against the profit-making machine itself." Then, after referring to Portman v. Middleton [30], he continues: "It is to be observed that not only must the circumstances be known to the supplier, but they must be such that the object must be taken to have been within the contemplation of both parties. I do not think that on the facts of the case as I have heard them, and upon the admissions, it can be said that it was within the contemplation of the supplier, namely, the defendants, that any delay in the delivery of this boiler was going to lead necessarily to loss of profits. There was nothing that I know of in the evidence to indicate how it was to be used or whether delivery of it by a particular day would necessarily be vital to the earning of these profits. I agree with the propositions of Mr. Paull that it was no part of the contract, and it cannot be taken to have been the basis of the contract, that the laundry would be unable to work if there was a delay in the delivery of the boiler, or that the laundry was extending its business, or that it had any special contracts which they could fulfil only by getting delivery of this boiler. In my view, therefore, this case falls within the second rule of Hadley v. Baxendale [31] under which they are not liable for the payment of damages for loss of profits unless there is evidence before the court - which there is not - that the special object of this boiler was drawn to their attention and that they contracted upon the basis that delay in the delivery of the boiler would make them liable to payment of loss of profits."

      39

      The answer to this reasoning has largely been anticipated in what has been said above, but we would wish to add: First, that the learned judge appears to infer that because certain "special circumstances" were, in his view, not "drawn to the notice of" the defendants and therefore, in his view, the operation of the "second rule" was excluded, ergo nothing in respect of loss of business can be recovered under the "first rule." This inference is, in our view, no more justified in the present case than it was in the case of Cory v. Thames Ironworks Company [32]. Secondly, that while it is not wholly clear what were the "special circumstances" on the non-communication of which the learned judge relied, it would seem that they were, or included, the following:- (a) the [543] "circumstance" that delay in delivering the boiler was going to lead "necessarily" to loss of profits. But the true criterion is surely not what was bound "necessarily" to result, but what was likely or liable to do so, and we think that it was amply conveyed to the defendants by what was communicated to them (plus what was patent without express communication) that delay in delivery was likely to lead to "loss of business"; (b) the "circumstance" that the plaintiffs needed the boiler "to extend their business." It was surely not necessary for the defendants to be specifically informed of this, as a precondition of being liable for loss of business. Reasonable, persons in the shoes of the defendants must be taken to foresee without any express intimation, that a laundry which, at a time when there was a famine of laundry facilities, was paying 2,000l. odd for plant and intended at such a time to put such plant "into use" immediately, would be likely to suffer in pocket from five months' delay in delivery of the plant in question, whether they intended by means of it to extend their business, or merely to maintain it, or to reduce a loss; (c) the "circumstance" that the plaintiffs had the assured expectation of special contracts, which they could only fulfil by securing punctual delivery of the boiler. Here, no doubt, the learned judge had in mind the particularly lucrative dyeing contracts to which the plaintiffs looked forward and which they mention in para. 10 of the statement of claim. We agree that in order that the plaintiffs should recover specifically and as such the profits expected on these contracts, the defendants would have had to know, at the time of their agreement with the plaintiffs, of the prospect and terms of such contracts. We also agree that they did not in fact know these things. It does not, however, follow that the plaintiffs are precluded from recovering some general (and perhaps conjectural) sum for loss of business in respect of dyeing contracts to be reasonably expected, any more than in respect of laundering contracts to be reasonably expected.

      40

      Thirdly, the other point on which Streatfeild J. largely based his judgment was that there is a critical difference between the measure of damages applicable when the defendant defaults in supplying a self-contained profit-earning whole and when he defaults in supplying a part of that whole. In our view, there is no intrinsic magic, in this connexion, in the whole as against a part. The fact that a part only is involved is only significant in so far as it bears on the capacity of the [544] supplier to foresee the consequences of non-delivery. If it is clear from the nature of the part (or the supplier of it is informed) that its non-delivery will have the same effect as non-delivery of the whole, his liability will be the same as if he had defaulted in delivering the whole. The cases of Hadley v. Baxendale [33], British Columbia Sawmills v. Nettleship [34] and Portman v. Middleton [35], which were so strongly relied on for the defence and by the learned judge, were all cases in which, through want of a part, catastrophic results ensued, in that a whole concern was paralysed or sterilized; a mill stopped, a complex of machinery unable to be assembled, a threshing machine unable to be delivered in time for the harvest and therefore useless. In all three cases the defendants were absolved from liability to compensate the plaintiffs for the resulting loss of business, not because what they had failed to deliver was a part, but because there had been nothing to convey to them that want of that part would stultify the whole business of the person for whose benefit the part was contracted for. There is no resemblance between these cases and the present, in which, while there was no question of a total stoppage resulting from non-delivery, yet there was ample means of knowledge on the part of the defendants that business loss of some sort would be likely to result to the plaintiffs from the defendants' default in performing their contract.

      41

      We are therefore of opinion that the appeal should be allowed and the issue referred to an official referee as to what damage, if any, is recoverable in addition to the 110l. awarded by the learned trial judge. The official referee would assess those damages in consonance with the findings in this judgment as to what the defendants knew or must be taken to have known at the material time, either party to be at liberty to call evidence as to the quantum of the damage in dispute.

      42

      Appeal allowed.

      43

      Solicitors for plaintiffs: Kenneth Brown, Baker, Baker.

      44

      Solicitors for defendants: Braikenridge & Edwards for Veale & Co., Bristol.

      45

      Solicitors for third parties: Bosman, Robinson & Co.

      46

      A. W. G.

      47

      [1] (1854) 9 Exch. 341.

      48

      [2] [1948] A. C. 196.

      49

      [3] (1854) 9 Exch. 341.

      50

      [4] [1932] A. C. 452.

      51

      [5] (1868) L. R. 3 Q. B. 181.

      52

      [6] 9 Exch. 341.

      53

      [7] (1858) 4 C. B. (N. S.) 322.

      54

      [8] (1860) 6 H. &. N. 211.

      55

      [9] (1868) L. R. 3 C. P. 499.

      56

      [10] 9 Exch. 341.

      57

      [11] 9 Exch. 341.

      58

      [12] 4 C. B. (N. S.) 322.

      59

      [13] L. R. 3 C. P. 499.

      60

      [14] (1855) 17 C. B. 21.

      61

      [15] (1868) L. R. 6 Eq. 396.

      62

      [16] (1878) 47 L. J. (Q. B.) 23.

      63

      [17] [1940] 2 K. B. 99.

      64

      [18] (1865) 18 C. B. (N. S.) 445.

      65

      [19] 9 Exch. 341.

      66

      [20] 6 H. & N. 211.

      67

      [21] 9 Exch. 341.

      68

      [22] 9 Exch. 341.

      69

      [23] L. R. 3 C. P. 409.

      70

      [24] 9 Exch. 341.

      71

      [25] L. R. 3 Q. B. 181, 187.

      72

      [26] 9 Exch. 341.

      73

      [27] [1911] A. C. 301.

      74

      [28] 9 Exch. 341.

      75

      [29] [1949] A. C. 196.

      76

      [30] 4 C. B. (N. S.) 322.

      77

      [31] 9 Exch. 341.

      78

      [32] L. R. 3 Q. B. 181.

      79

      [33] 9 Exch. 341.

      80

      [34] L. R. 3 C. P. 499.

      81

      [35] 4 C. B. (N. S.) 322.

    • 3.4 Hector Martinez & Co. v. Southern Pacific Transp.

      1
      606 F.2d 106 (1979)
      2
      HECTOR MARTINEZ AND COMPANY, Plaintiff-Appellant,
      v.
      SOUTHERN PACIFIC TRANSPORTATION CO., Defendant-Appellee.
      3
      No. 77-2793.
      4

      United States Court of Appeals, Fifth Circuit.

      5
      November 8, 1979.
      6
      Rehearing and Rehearing Denied December 20, 1979.
      7

      [107] Paul J. Chitwood, Dallas, Tex., for plaintiff-appellant.

      8

      Howard P. Newton, San Antonio, Tex., for defendant-appellee.

      9

      Before WISDOM, HILL and VANCE, Circuit Judges.

      10

      Rehearing and Rehearing En Banc Denied December 20, 1979.

      11
      VANCE, Circuit Judge:
      12

      Martinez appeals the trial court's dismissal of his claim under 49 U.S.C. § 20(11) (Carmack Amendment to the Interstate Commerce Act) for losses resulting from delay and damage in transportation by carrier Southern Pacific. The district court granted Southern Pacific's motion under Rule 12(b)(6) to dismiss the claim for delay damages. It held that such damages are special and Martinez failed to allege that the carrier had any notice of the possibility that such damages would accrue upon a breach of the contract between the parties. We reverse and remand for trial on the claim for some but not all of the damages sought.

      13

      Martinez's agent delivered a 2400 Lima Dragline, Model 66, to the Penn Central Railroad, the origin carrier, on February 11, 1974, for shipment from New Philadelphia, Ohio to Eagle Pass, Texas. The dragline was loaded onto five separate railroad cars. A single uniform bill of lading, which described the dragline as "used strip mining machinery and parts," was issued by Penn Central, listing Martinez's agent in Eagle Pass as the consignee.

      14

      The last of the five cars, which were shipped separately, arrived in Eagle Pass on April 2, 1974. Martinez had to make reasonable repairs in the amount of $14,467.00 because the dragline was damaged in transit. These repairs were not completed until June 20, 1974. Martinez also alleges delay damages in the amount of $117,600.00 because the dragline could not be used from March 1, when he contends that the last of the cars should have arrived, until June 20. The claimed sum represents the dragline's fair rental value during this period.

      15

      After filing a claim as prescribed by the bill of lading, Martinez sued Southern Pacific, which as delivering carrier is liable for all recoverable damages. Martinez framed his original complaint to allege three separate claims under the Carmack Amendment. First, Martinez sought recovery of the cost of repairing the damage to the [108] dragline. Second, he sought the refund of certain demurrage or storage charges assessed by Southern Pacific and paid at the time of delivery. Third, Martinez sought compensation for wrongful deprivation of the dragline's use during the periods of delay in transit and of repair.

      16

      Martinez and Southern Pacific had already settled the first two of these claims, when Southern Pacific filed its Rule 12(b)(6) motion to dismiss the third claim for loss of use. Southern Pacific argues that, because such damages are special, they are not recoverable under the Carmack Amendment absent notice of the possibility of such damages. The trial court denied this motion upon condition that Martinez amend his complaint to allege such notice. When Martinez refused, the district court granted Southern Pacific's motion under Rule 12(b)(6). This ruling, which had the effect of dismissing all that remained of Martinez's suit, is the basis of this appeal.

      17

      Martinez's delay claim involves two very different items. Lost use during the period of March 1 until April 2 resulted from a delay in transit. Lost use from April 2 until June 20 resulted from repair of the damaged goods. Neither the parties nor the district court have focused on the full import of this distinction. Martinez's claimed loss during repair is not severable from the physical damage to the dragline but is a part of the same legal claim. Thus Martinez necessarily settled his claim regarding damages for the repair period when he settled his first claim for damages to the dragline. The surviving issue is the appropriate measure of damages for the claimed loss resulting from Southern Pacific's unreasonable delay in transportation.

      18

      The Carmack Amendment[1] governs Martinez's claim for damages resulting from the delay in transit. That amendment incorporates common law principles for damages. F. J. McCarty Co. v. Southern Pacific Co., 428 F.2d 690, 693 (9th Cir. 1970); L. E. Whitlock Truck Service, Inc. v. Regal Drilling Co., 333 F.2d 488, 491 (10th Cir. 1964); J & H Flyer Inc. v. Pennsylvania Rr., 316 F.2d 203, 205 (2d Cir. 1963). In applying that statute, we first examine the extent to which the innocent party actually has been injured by the alleged breach. This inquiry assists in determining how the innocent party can be restored to the position in which he would have been had the contract been fully performed. See Liberty Navigation & Trading Co. v. Kinoshita & Co., 285 F.2d 343, 350 (2d Cir. 1960) (Lumbard, C. J., concurring in relevant part), cert. denied, 366 U.S. 949, 81 S.Ct. 1904, 6 L.Ed.2d 1242 (1961); 11 Williston on Contracts § 1338, at 198 (3d ed. W. Jaeger 1968).

      19

      Normally, the remedy is an award of money damages to the aggrieved party as compensation for his economic injury.[2] This rule in effect protects the innocent party's expectation interest, giving him the "benefit of the bargain."[3] Martinez's alleged injury in this case was deprivation of the dragline's use between March 1, when it should have been delivered, and April 2. [109] Besides compensating the injured plaintiff, the common law also seeks to protect the defendant from unforeseeable large losses to the plaintiff.[4] This limitation makes good sense. An award of full compensation for all of the plaintiff's losses due to the breach, no matter how unforeseeable or bizarre these losses are, would simply be unfair to the defendant as well as possibly paralyzing to commerce.

      20

      We next assess the reasonable foreseeability of the plaintiff's actual injury at the time of entry into the contract—here the bill of lading. Globe Refining Co. v. Landa Cotton Oil Co., 190 U.S. 540, 544, 23 S.Ct. 754, 47 L.Ed. 1171 (1903); De Fore v. United States, 145 F.Supp. 484, 491 (M.D. Ga.1956), aff'd sub nom. Georgia Kaolin Co. v. United States, 249 F.2d 148 (5th Cir. 1957). Our analysis on this point begins with Hadley v. Baxendale, 9 Ex. 341, 156 Eng.Rep. 145 (1854). There, mill operators were forced to close operations to ship a broken shaft for repairs, and the carrier negligently delayed shipment. The carrier, however, had not been informed of the situation at the mill. The court refused to award profits lost during the period of delay because such damages were not in the contemplation of the parties. The court articulated the rules, still almost universally followed,[5] that general damages are awarded only if injury were foreseeable to a reasonable man and that special damages are awarded only if actual notice were given the carrier of the possibility of injury.[6] Damage is foreseeable by the carrier if it is the proximate and usual consequence of the carrier's action. 11 Williston on Contracts, supra § 1344, at 226.

      21

      Martinez asserts that his loss resulting from the delay in shipment was reasonably foreseeable when he entered the contract to transport his dragline. Hadley held that the damages arising from an inoperative mill were not foreseeable results of delayed shipment of a shaft, without specific notice. It was not obvious that the shaft in Hadley was an indispensable element of a mill. In the instant case, however, it was obvious that the dragline is a machine which of itself has a use value. Some cases after Hadley have suggested that the injury resulting from loss of a machine's use are not foreseeable results of delayed transport, because it is not a usual consequence although it is a proximate consequence. See 11 Williston on Contracts, supra § 1344, at 226-27. These decisions are unwarranted extensions of Hadley and employ arbitrary and inflexible definitions of foreseeability. Capital goods such as machinery have a use value, which may equal the rental value of the equipment or may be an interest value. The latter is ordinarily interest at the market rate on the value of the machine. It might be quite foreseeable that deprivation of the machine's use because of a carriage delay will cause a loss of rental value or interest value during the delay period.[7] [110] See generally F. Kessler & G. Gilmore, Contracts 1042 (2d ed. 1970). We must not lose sight of the basic common law rule, enunciated in Hadley, of damages for foreseeable loss. The amount of damages that was reasonably foreseeable involves a fact question that Martinez is entitled to present to a jury.

      22

      Southern Pacific replies that it was as foreseeable that the goods were to be sold as that they were to be used. This contention proves too much because Hadley allows recovery for harms that should have been foreseen. The general rule does not require the plaintiff to show that the actual harm suffered was the most foreseeable of possible harms. He need only demonstrate that his harm was not so remote as to make it unforeseeable to a reasonable man at the time of contracting. Even if the dragline were being shipped for sale it does not follow that delay in shipment would cause no recoverable loss.

      23

      Southern Pacific argues that, because only market value damages are foreseeable under common law, damages for lost rental value must be special and therefore require notice by Martinez. This argument confuses one common law method for computing damages with the underlying common law rule of awarding reasonable compensation for foreseeable injury from a contract's breach.

      24

      The common law employs a number of methods for computing damages recoverable for unreasonable delay in shipment. One of these is the market value test that measures damages by the diminution in the goods' value between the time of dispatch and the time of actual delivery. See 11 Williston on Contracts, supra § 1342, at 223. That test, however, "is merely a method," and it "is not applied in cases where . . . another rule will better compute actual damages." Great Atlantic & Pacific Tea Co. v. Atchison, T. & Ste. F. Ry., 333 F.2d 705, 708 (7th Cir. 1964), cert. denied, 379 U.S. 967, 85 S.Ct. 661, 13 L.Ed.2d 560 (1965). Accord, Olsen v. Railway Express Agency, Inc., 295 F.2d 358, 359 (10th Cir. 1961). Cf. Illinois Cent. Ry. v. Crail, 281 U.S. 57, 64-65, 50 S.Ct. 180, 74 L.Ed. 699 (1930) (Cummins Amendment). Lost rental value is frequently an appropriate measure of damages from a delay in shipment of machinery.[8] See Resolute Ins. Co. v. Percy Jones, Inc., 198 F.2d 309, 312 (10th Cir. 1952). E. g., Burlington Northern Inc. v. United States, 462 F.2d 526, 529-30, 199 Ct.Cl. 143 (1972); New Orleans & N. E. R. v. J. H. Miner Saw Mfg. Co., 117 Miss. 646, 78 So. 577, 578 (1918). In deciding which measure of damage to apply, courts look to the actual loss suffered by the plaintiff and the common law rule of compensating that loss.

      25
      There is only one rule, of universal application, . . . and that is to give compensation for the loss suffered. Frequently, this ideal is found impossible of complete attainment; perhaps generally the market value rule is found to be the nearest approach to reaching the actual loss. But the market value rule is inapplicable when, on the facts, it is not the nearest practicable approach to an ascertainment of the actual loss. Each case must be governed by its own facts. [111] United States v. Palmer & Parker Co., 61 F.2d 455, 459 (1st Cir. 1932). The Carmack Amendment, in compensating the aggrieved party's "full actual loss," does not restrict the measure of damages solely to the diminution in value of the goods involved. Great Atlantic & Pacific Tea Co. v. Atchison, T. & Ste. F. Ry., 333 F.2d at 708-09.[9]
      26

      Martinez has stated a claim for damages resulting from the delay in shipment. We reverse the district court's order of dismissal on this point, and remand for trial. We affirm, however, the district court's decision to dismiss Martinez's claim for damages resulting from the delay during repair.

      27
      REVERSED AND REMANDED IN PART; AFFIRMED IN PART.
      28

      [1] The Carmack Amendment, 49 U.S.C. § 20(11), provides that any common carrier subject to the provisions of the Interstate Commerce Act, such as Southern Pacific, who receives property for transportation in interstate commerce shall be liable for damages it causes in the amount of "the full actual loss, damage or injury" suffered. Federal law controls our determination of liability and the measure of damages, Dublin Co. v. Ryder Truck Lines, Inc., 417 F.2d 777, 778 (5th Cir. 1969), although it adopts common law principles.

      29

      [2] In some situations in which money damages cannot adequately compensate the innocent party, the court may order specific performance of the contract.

      30

      [3] Damages may be awarded for the expectation interest, the reliance interest, or the restitution interest of the aggrieved party. Fuller & Perdue, The Reliance Interest in Contract Damages (pts. 1-2), 46 Yale L.J. 52, 373 (1936-1937); J. Calamari & J. Perillo, Contracts § 205, at 328-29 (1970). If it is impossible to calculate a plaintiff's expectation interest, courts award damages to protect his reliance interest, to restore him to his position before the contract was entered. If reliance damages do not represent a fair measure of recovery, courts calculate damages on the basis of the restitution interest, to restore the benefit received from the plaintiff's performance.

      31

      [4] In addition to the foreseeability limitation, damages may also be limited because of uncertainty, e. g., United States v. Huff, 175 F.2d 678, 680 (5th Cir. 1949), or because of failure to mitigate damages, e. g., De Fore v. United States, 145 F.Supp. 484, 493 (M.D.Ga.1956), aff'd sub nom. Georgia Kaolin Co. v. United States, 249 F.2d 148 (5th Cir. 1957).

      32

      [5] J. Calamari & J. Perillo, supra note 3, at 329. As Professor Gilmore admonished, Hadley "has meant all things to all men." G. Gilmore, The Death of Contract 50 (1974).

      33

      [6] There are two tests for determining special damages. The more restrictive test requires proof both that notice was given of special circumstances and that the defendant impliedly or expressly assented to bearing the risk of these damages. Globe Refining Co. v. Landa Cotton Oil Co., 190 U.S. 540, 23 S.Ct. 754, 47 L.Ed. 1171 (1903). The more common test rejects the added showing of a tacit agreement for special damages. E. g., L. E. Whitlock Truck Svc., Inc. v. Regal Drilling Co., 333 F.2d at 492; U.C.C. § 2-715, Comment 2.

      34

      [7] Unlike loss of use, Martinez would have had to plead notice had he sought to recover for a variety of damages that could not have been foreseeable here such as lost profits, the cost of idle labor hired to operate the dragline, the cost of idle equipment that had been rented to be used with the dragline, or the daily royalties Martinez was paying for the land on which he planned to run his dragline. Cf. Texas Instruments, Inc. v. Branch Motor Express Co., 308 F.Supp. 1228, 1230 (D.Mass.), aff'd, 432 F.2d 564 (1st Cir. 1970) (unforeseeable consequences of delay due to total destruction of machinery in transit). Thus Martinez may recover for lost use of the machine but not for the costs of the mining operations in which the machine was to be involved. Similarly, Hadley held that one cannot equate a shaft with the operation of an entire mill unless notice of the shaft's use had been given to the carrier. The result in Hadley might have been different had the plaintiff sought to recover solely for the loss of use of the shaft.

      35

      [8] Diminution in market value is a proper measure of damages from a delay in carriage of food and other non-rentable goods. E. g., Gulf, C., & Ste. F. Ry. v. Texas Packing Co., 244 U.S. 31, 37, 37 S.Ct. 487, 61 L.Ed. 970 (1917) (poultry); Fort Worth & D. Ry. v. United States, 242 F.2d 702, 705 (5th Cir. 1957) (livestock feed); Reider v. Thompson, 197 F.2d 158, 160 (5th Cir. 1952) (sheepskins). However, this test is generally not as accurate a measure of injury from a delay in transport of capital goods, with an ascertainable rental value for the machinery or interest value of the invested sum. Otherwise, a carrier could breach its contractual duties with impunity as long as the market value of the equipment did not drop, even though the shipper might lose a substantial use value or pay high installment purchase costs.

      36

      [9] This holding should hardly surprise Southern Pacific. F. J. McCarty Co. v. Southern Pacific Co., 428 F.2d 690 (9th Cir. 1970) (rejecting Southern Pacific's arguments for market value test and against "special damages").

    • 3.5 U.C.C. s 2-715 (27 (b))

You've reached the bottom of your content preview.
To view the rest in your browser, click here.
To export the complete content in DOC format, click the blue export button in the upper right corner of this page.

(Note: If you view the entire playlist, any changes you've made to export settings will be lost. Large playlists may temporarily freeze your browser while loading, as well.)