Contracts Cards

8/6/2019 Contracts Cards

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What is a contract?


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A promise or set of promises, the breach of which results in a remedy at law, and the

performance of which the law recognizessomehow as a duty.


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Def in e R emedy


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T he means of enforcing a right or preventing or redressing a wrong; legal or equitable relief.


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What r emed ies ar e availabl e f or courts to us e in contract cas es?


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M oney damages.Equitable relief specific performance and

injunction.


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Whats th e sourc e(s) o f contract law?


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I t depends on the subject matter of the contract.(1) Statues (i.e. the UCC).

(2) Common law.


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What is an exe cutor ycontract ?


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A contract that is not fully performed.


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What is an exe cut ed contract ?


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1 2

A contract that has been fully performed.


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1 3

What is th e m ost co mm on r emedy f or br eachof contract?


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1 4

M oney damages.


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1 7

What is th e goal o f expe ctation dam ag es?


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T o place the non-breacher in the position hewould have been in had the contract been fully

performed.


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1 9

What ar e cons eq uential dam ag es ?


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2 1

What ar e no m inal dam ag es?


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1. What is a li qui dat ed dam ag es claus e?


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Does a vali d liqui dat ed dam ag es claus e barall oth er availabl e r emed ies?


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N o; it only limits the claim for damages. T henonbreaching party may still seek other types

of relief (e.g. specific performance).


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What is m itigation o f dam ag es ?


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3 1

Which part y in a br each o f contract suit has adut y to m itigat e?


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What is antici pator y r ep ud iation ?


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I f a p lainti ff seek s r ecov er y bas ed onpro m issor y esto ppe l, how will th e am ount o f

r ecov er y be de ter m in ed ?


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P romissory estoppel recovery is limited to theamount necessary to :

(a) P revent injustice; or (b) R eplace a partys actual losses as a

result of change in position


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(1) N o contract existed and no attempt was

made to form one; or (2) An attempt was made to form a contract, but the contract is un enf orc eabl e (due tononcompliance with the Stature of Frauds,

illegality, etc.); or (3) T he plaintiff is guilty of material (but

not willful and intentional) br each , and thusshe would not be able to recover contractually.


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4 1

What is a suit on th e contract ?


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W here the parties have formed a legallyenforceable contract, and the defendant (but

not the plaintiff) has breached the contract, the plaintiff will normally sue on the contract.

T hat is, he will bring a suit for damages for breach of contract, and the terms of the

contract will control for purposes of judging

the defendants wrongful conduct, and calculating damages.


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What suit in quasi-contract ?


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W here the plaintiff brings a suit in quasi-contract, the damages will be based oupon the

actual value of the performance he has rendered,irrespective of any price set out in the contract.


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What ar e th e situations in which a quasi-contractual r ecov er y m ay be availabl e?


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(1) T

he contract is un enf orc eabl y vagu e (2) T he contract is illegal .(3) T he parties are d ischarg ed from the

contract because of imp ossibilit y, imp racticabilit y, or f rustration o f

pur pose.

(4) T

he plainti ff has hi m self m at eriall y br each ed the contract.


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What is a quasi-contract ?


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What ar e th e two wa ys th e ter m r estitution is us ed in contract law?


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M any writers refer to a quasi-contract recoveryas r estitution . T he term restitution however

is also used to denote a certain measure of damages that may be awarded in suits on a

contract.


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5 1

What is th e law/ eq uit y d istinction?


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What ar e th e two t ype s o f eq uitabl e r elief ?


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What does an injunction do?


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What does a de cr ee f or s pe cif ic pe r f or m anc e do?


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A decree for specific performance orders the promissory to r ende r th e pro m ised

pe r f or m anc e.


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2 . What ar e th e thr ee p rinci p le p r e-con d itionsto th e granting o f eq uitabl e r elief ?


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(1) M

on ey-dam ag es must be inadequate to protect the injured party.(2) T he contract terms must be def init e

enough to allow the court to frame anadequate order; an d

(3) T he courts task of enf orcing an d

su pe rvising the relief must not be undulydifficult.


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(1) Speculative or hard to calculatedamages.

(2) M oney cannot purchase a substitute.(3) Uniqueness of land.


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I n r egar ds to de ter m ining wh eth er eq uitabl e r elief is availabl e in a cas e, what does it me an

to sa y that th e contract m ust b e def init e enough to allow th e court to f ra me an

adeq uat e or de r?


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T he court will not give equitable relief unlessthe terms are definite enough to enable the court

to frame an adequate order.T

he stakes areespecially high where an equitable order isinvolved, because a party who does not follow

the order is subject to the punishment of cont emp t o f court (which is not the case wherea party fails to pay a damage award). T herefore,

courts require that the rights and obligations of the parties be specified with greater definitenessif there is to be equitable relief than in the

money-damages situation.


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Wh en woul d a court not allow eq uitabl e r elief becaus e of th e diff icult y of enf orc eme nt or

su pe rvision?


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T he court will not grant equitable relief wherethere are likely to be significant difficulties in

enforcing and supervision the order.


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What ar e th e two t ype of contracts f actpatt erns wh er e a court will not allow

eq uitabl e r elief becaus e of d iff icult y inenf orc eme nt an d su pe rvision?


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(1) Construction contracts.(2) P ersonal Service contracts.


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(L an d-sal e contracts) T he most commonsituation in which specific performance is

decreed is that in which the defendant breaches a contract under which he is toconvey a particular piece of land to the

plaintiff. Because a particular parcel of landhas no exact counterpart elsewhere, money

damages will not adequately compensate the plaintiff.


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Will a court or de r s pe cif ic pe r f or m anc e f orpe rsonal s ervic e contracts?


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Almost never.


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Wh en will a court grant an injunction in ape rsonal s ervic e contract?


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W hen the employer can show(a) employee has uni que sk ills

(b) employee has oth er wa y to m ake aliving

(c) emp loyers wilin ess to pe r f or m th e

contract in goo d f aith


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What is th e d iffe r enc e betw een th e stanc e of comm on law an d that o f th e UCC with

r egar ds to or de ring s pe cif ic pe r f or m anc e?


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T he UCC permits a more liberal use of specific performance in sales cases than the

common law does in cases. (see the commentto UCC 2-716)


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What ar e th e thr ee k in ds of int er est, o f th e d isa pp oint ed part y in a contract, which m ay

be worth y of ju d icial p rot ection?


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(1) Expectation interest.(2) R eliance interest

(3) R estitution interest.


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What is th e goal o f expe ctation dam ag es?


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What is th e goal o f r elianc e dam ag es?


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T he goal of restitution damages is to put the bon-breaching party in the same position he was

in before the promise was made.


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What is th e goal o f r estitution dam ag es?


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T he goal of restitution damages is to prevent theunjust enrichment of the breaching party to the

contract.


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Can no m inal dam ag es, no m att er how slight,be awar ded to th e non-br eaching part y of a

contract?


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Any breach, no matter how slight, entitles theaggrieved party to at least nominal damages.

T hus, even of no actual loss can be proved theaggrieved party is entitled to a judgment for

token damages (usually $1). ( R estatement First

328.


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What me asur e of dam ag es is o f ten de scrib ed as b enef it o f th e bargain ?


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Expectation damages.


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What is th e usual f or m ula f or calculatingexpe ctation dam ag es?


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A = the value of the defendants promised

performance (generally the contract price.B = consequential damages.C = whatever benefits, if any, the plaintiff

received from not having to complete his own performance (usually these are expe nd itur es the plaintiff would have had to pay to complete the

contract).Th e usual f or m ula: (A + B ) C = P laintiffsexpectation damages.


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Wh en courts in contracts cas es r efe r to econo m ic wast e what ar e th ey r efe rring

to?


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M oney damages that while putting the non- breaching party where they expected to be at the

full completion of the contract would costsignificantly more that the value of end result of

the promise.


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Wh y is th e achi eveme nt o f th e Plainti ff sexpe ctation s eldom pr ecisely me t through an

awar d of expe ctation dam ag es?


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Since specific performance is available in onlylimited circumstances, the precise attainment f

that expectation is seldom achieved. T he best acourt can do, in most cases, is try to determine,

as closely as possible, what monetary award willapproximate that result. T he court is not

concerned with the psychological

disappointment, and similar things, thus someexpectation will not be met usually.


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What t ype of loss does th e contract law f ocuson?


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Economic loss.


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Th e general t ende nc y of th e courts in contractlaw is vi ew a contract as nothing m or e than a

_____________?


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Commitmenteither to perform or to paycompensation for not performing.


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E xp lain th e conc ep t o f eff icient br each .


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T he concept of an efficient breach is said to beone where if the defendant cost of

performance would exceed the benefit that performance would give to both parties, then it

is more efficient to breach the contract.


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What rol e does m oral obligation to keep on es pro m ise pla y in contract law?


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In general, the law does not is amoral withregards to breach of contract. T he onlyexception is that sometimes a court will

sometimes be more generous to the plaintiff inrewarding damages if the will f ul .


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Does a ju dgme nt that awar ds guarant ee thatth e p lainti ff will b e pai d?


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N o. T he judgment is merely a finding of liability. If the defendant fails to satisfy it, and

no assets can be found to execute upon, the plaintiff may never see her money.


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In a case where the plaintiff can find a substitutefor the breaching defendants transaction the

damages are based on the loss incurred as aresult of having to make the substitute

transaction. (e.g. In a case where P contracts to pay a maid $300, and the maid breaches, and theP

finds a substitute who charges $400.P

can suefor $100.)


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Wh er e a p lainti ff coul d hav e m ade asubstitut e transaction, but d id not or f ail ed to

r easonabl y substitut e, what ar e dam ag esbas ed on?


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Damages are measured by a comparison between the contract price and the market value

of a substitute. e.g. In a case where P contractsto pay a maid $300, and the maid breaches, and

a substitute(s) was available, but P did notattempt to substitute. P can sue if the market

value of the substitute was higher than what themaid charged to perform.


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With r egar ds to expe ctation dam ag es, exp lainth e awar d of comp letion cost vs . th e awar d of

de cr eas e in valu e. (What is th e Peevyhous e Rul e?)


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T he general principle in awarding expectationdamages is that the plaintiff should be put in the

same position he would have been in had thecontract been performed. T his formula leads to

difficulty, however, in those situations where thedifference between the economic value of the

defendants defective performance is less thanth e cost o f r emedy ing defendants defective

performance. M ost courts will award thediminution value only in order to avoid

economic waste.


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I n awar d ing expe ctation dam ag es un de r th e comm on law (not th e UCC), what is th e

r eq uir eme nt f or r easonabl e certaint y ?


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T he plaintiff must not only show that he hadlosses, but must also show the amount of these

losses with reasonable certainty.


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Wh er e th e p lainti ff is s eek ing expe ctationdam ag es bas ed on pro f its f ro m a n ew

busin ess will th e like ly awar d dam ag es?


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T he courts are reluctant to award damages because of their speculative nature, unless the

plaintiff previously ran a similar business (in thislatter case modern courts may allow damages).


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N o. Expectation damages may be too uncertainto be awarded even where the only duty

breached by the defendant was a duty to pay a price for the plaintiffs performance. Unless the

plaintiff can show how much it would cost tocomplete the job he will not recover expectation

damages (contractor cases).


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What will th e courts do if expe ctationdam ag es ar e de ter m in ed to b e too

spe culativ e?


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T he court will frequently adopt some alternativemeasure of damages.


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What is parol e evide nc e?


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Evidence of oral statements.


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What is th e basic diffe r enc e betw een r elianc e an d r estitution?


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T he basic difference between reliance andrestitution is that reliance, like expectation, is

conceived of as a remedy based on aff ir m ationof the contract, but restitution is premised on thetheory of disaffirmance it treats the breach as

having caused the contract to fall away.


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What b enef its do r estitution dam ag es att emp tto r ef un d to th e nonbr eaching part y?


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R estitution seeks to return the to the plaintiff thevalue of any benefit conferred on the defendant

under the breached contract.


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What is th e diffe r enc e betw een r elianc e dam ag es an d r estitution dam ag es awar ded in

a suit on th e contract an d th e eq uival entr emed ies f or suits in quasi-contract?


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T he cause of action that creates them isdifferent. In suits on the contract they are

dealt with as possible remedies for recovery of damages cause by the breach rather than as

remedies where no contract was created.


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I n what contract f act patt ers does A rticl e 2 of th e UCC a pp ly?


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T he UCC governs fact patterns that involve primarily the sale of goods.


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H ow does th e UCC A rticl e 2 def in e goo ds ?


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"G oods" means all things that are movable at

the time of identification to a contract for sale.T he term includes future goods, speciallymanufactured goods, the unborn young of

animals, growing crops, and other identifiedthings attached to realty as described in Section2-107. T he term does not include information,

the money in which the price is to be paid,investment securities under Article 8, the subjectmatter of foreign exchange transactions, or

choses in action.


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Does A rticl e 2 of th e UCC tr eat me rchantsth e sa me as non- me rchants?


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N o. I t distinguishes between the two, and inmost cases holds merchants to a higher standard.


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H ow does th e UCC def in e a bu yer ?


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A buyer is a person who buys or contracts to buygoods. (2-103(1)(a))


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A person who sells or contract to sell goods. (2-103(1)(d))


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Un de r th e UCC, what is th e d iffe r enc e betw een bu ying an d selling an d co ntra c ting t o

buy and sale ?


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Contract and agreement are limited to thoserelating to the present or future sale of goods.Contract for sale includes both a present saleof goods and a contract to sell goods at a future

time. A sale consist in the passing of titlefrom the seller to the buyer for a price. A

present sale means a sale which isaccomplished by the making of the contract.


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H ow does A rt . 2 of th e UCC def in e me rchants ?


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A merchant is one who regularly deals in goodsof that kind.


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Does A rticl e 2 of th e UCC r eq uir e thatdam ag es m ust b e calculabl e with

m ath em atical accurac y?


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N o. I t rejects this common law doctrine.Compensatory damages are often at bestapproximate: they have to be proved with

whatever definiteness and accuracy the facts permit, but no more. (1-305)


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Does th e UCC allow f or punitiv e dam ag es?


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N o.


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What t ype of dam ag es does th e UCC allowf or as a r emedy ?


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Compensatory damages only.


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T he UCC is silent. So you have to check statuesin the jurisdiction and read the contract

carefully.


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Wh en you ar e f ac ed with a br each o f contractun de r th e UCC, what ar e th e questions you

need to as k f irst?


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(1) who is in breach of the contract?(2) who has the goods?


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What ar e th e f our possibl e situations that th e f act patt ern coul d hav e in a UCC br each o f

contract cas e coul d hav e?


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(1) buyer in breach, buyer has goods.(2) Buyer in breach, seller has goods.(3) Seller in breach, seller has goods(4) Seller in breach, buyer has goods.


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Un de r th e UCC, i f th e bu yer has th e goo ds,but has br each ed , what m ust this me an?


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T he buyer has accepted the goods but has not paid for them.


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Un de r th e UCC, i f th e bu yer has acc ep ted th e goo ds, but has br each ed by not m ak ingpayme nt, what is th e sellers r emedy ?


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In this case the is to recover the price of thegoods pursuant to 2-709(1)(a).


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Un de r th e UCC, i f th e bu yer has acc ep ted th e goo ds, but has not pai d f or th e goo ds, how

long does th e bu yer hav e to pay bef or e he isconsi de r ed to hav e br each ed th e contract?


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A reasonable time.


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Un de r th e UCC, i f th e bu yer has not acc ep ted th e goo ds, but has br each ed by not m ak ingpayme nt, what is th e r emedy f or th e seller?


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Un de r th e UCC, wh er e a s eller is abl e tor ecov er th e contract pric e f or a bu yers

br each, wh en th e bu yer does not hav e th e goo ds, what ha ppe ns to th e goo ds?


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T he buyer has a right to the goods (2-709).


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Un de r th e UCC, i f th e bu yer has not acc ep ted th e goo ds, but has br each ed by not m ak ingpayme nt what is th e m ost co mm on r emedy

f or th e seller?


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1 64

(Th e R esal e M easur e)T he seller is to resell thegoods and sue for the difference between thecontract price (+ any incidental damages).and

the resale price:(Con Pric e + I nc Dam ag es) (R esal e Pric e +

savings)


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Un de r th e UCC, i f th e bu yer has acc ep ted th e goo ds, but has br each ed by not m ak ing

payme nt, what is th e p rinci p le alt ernativ e toth e r esal e me asur e as a r emedy f or th e seller?


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(M ar ke t M easur e of dam ag es) T he principlealternative of damages is the market measure of damages found in 2-708(1). I t follows the same

formula as the R esale M easure) except itsubstitutes M arket price with resale price.

(Con Pric e + I nc Dam ag es) (M ar ke t Pric e +

savings)


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(L ost Pro f its R etail Marine -Rul e) W here theseller is a volume-seller of goods, and it can

show that it would have sold more than just thegoods at issue, even if it did in fact sell thegoods at issue to another buyer, under 2-

708(2) is can recover L ost p ro f its p lus expe ns es incurr ed


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Un de r th e UCC, wh er e th e seller br each es,an d th e seller has th e goo ds, what is th e

bu yers r emed ies wh en th e r emedy at law isina deq uat e?


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1 7 0

Equitable remedies may be available,injunction and specific performance.


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1 7 1

Un de r th e UCC, wh er e th e seller br each es,an d th e seller has th e goo ds, an d th e r emedy

at law is ina deq uat e, what m ust th e bu yerprov e f or eq uitabl e r elief ?


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1 72

the goods are unique or other proper circumstances.


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1 73

A lthough s pe cif ic pe r f or m anc e un de r th e UCC is su pp osed to b e app lied lib erall y, wh y

is it rar e?


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1 74

T here usually is often a market in whichreplacement goods can be found.


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1 75

A r e th e section titl es of th e UCC part o f th e enact ed code ?


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Un de r th e UCC, can s ellers obtain s pe cif icpe r f or m anc e?


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1 79

What is a r eason not f oun d in th e UCC, thatit is unli ke ly that a s eller will not b e abl e to

obtain s pe cif ic pe r f or m anc e?


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1 8 0

T he remedy for failing to obey an order of specific performance is cont emp t o f court, andcourts do not like to jail people for failing to pay

money, for that would signify a return of debtors prison.


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Un de r th e UCC, what is th e bu yersr eq uir eme nt to f in d a substitut e seller call ed ?


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1 82

Cover.


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1 83

E xp lain th e bu yers r eq uir eme nt o f cov er un de r th e UCC?


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1 84

Cover is when a buy finds or attempts to find asubstitute seller to buy the goods in question. In

order to obtain expectation damages and/or consequential damages the buyer must attempt

to find a substitute seller.


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Un de r th e UCC, can a bu yer r ecov er f orcons eq uential dam ag es f or a loss that it coul d hav e p r event ed by bu ying goo ds elsewh er e?


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Un de r th e UCC, what is th e cov er f or m ula f orde ter m ining bu yers dam ag es?


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1 88

Cover price contract price + incidental profits + consequential damages - savings


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Un de r th e UCC, wh en th e bu yer does notatt emp t to cov er, is h e comp letely barr ed

f ro m r ecov er y?


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1 9 0

N o. As an alternative to cover damages, the buyer can recover based on the market price, the

price at which the buyer would havetheoretically covered. 2-713

M arket price contract price +incidental

damages + consequential damages - savings


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1 9 1

Un de r th e UCC, wh er e th e seller br each es,an d th e bu yer has th e goo ds, but th e goo ds donot con f or m to th e ter m of th e contract what

is th e bu yers r emedy ?


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1 92

T he buyer could sue for consequential damagesunder 2-715 or in some cases deduct damages

from the purchase price under 2-717 if it notifiedthe seller.


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1 93

H ow m ight parti es p r e-contractuall y ta ke car e of de cide how to gov ern th e dam ag es o f a

br each?


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1 94

T hey can make a liquidated damages clause.


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1 95

H ow does th e UCC li m it a li qui dat ed dam ag es claus e?


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1 96

T he liquidated damages clause must be areasonable estimate of the damages and it cannot be punitive damages. A court will ignore it if

(1) it is found to be punitive, (2)overcompensates the non-breaching party, or (2)

it undercompensates the non-breaching party.


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1 97

Un de r th e UCC, wh er e a bu yer has m ade adep osit, i f th e bu yer r ep ud iat es m ay th e seller

r etain th e dep osit?


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1 98

I t is not automatically liquidated damages. T heseller may keep it only if it only if the depositqualifies under 2-718 as a liquidated damages.

If not the seller must refund it. Unless the seller can prove that it suffered actual damages equalto or greater than the amount of the damages,

then it is also not required to return the deposit.


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What ar e th e basic eleme nts o f vali d consi de ration f or a bilat eral contract?


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2 00

(1) L egal value (detriment to promisee or benefit to promisor)

(2) Bargained-for exchange


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2 01

What is th e consi de ration in a unilat eralcontract?


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2 0 2

T he promisees continued performanceconstitutes consideration in a unilateral contract.


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2 0 3

What ar e th e two t ype s o f legal de tri me nt?


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2 0 4

(1) P romisee does something he is notobligated to do (e.g. paint the promisees

fence)(2) P romisee refrains from doing something

he is entitled to do (e.g. giving up smoking)


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2 0 6

A promise is conditional when the promisorscommitment is triggered by an event or happening thats outside the promisors

unfettered discretion. An illusory promise is onethats cloaked in the language of commitment,

but theres no restriction on the promisors rightto renege on his promise. The difference in

ramifications is that a conditional promise isenforceable, whereas an illusory one isnt.


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2 0 7

H ow do you distinguish a bargain ed -f or l egalde tri me nt f ro m a con d ition on a gi f t?


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2 0 8

The distinction here focuses on whether arequested act is consideration or just a condition

on receiving a gift. If its consideration, the promise is enforceable; if its just a necessarycondition on receiving a gift, it is not. T he way

to tell is to ask whether the defendant was

bargaining for the act in question would it benefit the promisor in any way?


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2 0 9

Can a pro m ise not to ass ert a l egal clai m constitut e vali d consi de ration f or a contract?


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2 10

Y es. Consideration requires detriment to the promisee or benefit to the promisor and

bargained-for-exchange. Because not assertinga legal claim is a detriment and a benefit, if it is

bargained for it will constitute valid

consideration.


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2 11

Does a pro m ise to pe r f or m a pr e-existingdut y some thing on e is alr eady oblig ed to

do constitut e vali d consi de ration at co mm onlaw?


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2 1 2

G enerally not. Consideration requires bargained-for exchange and either detriment tothe promisee or benefit to the promisor. W herethe promise is to perform an act one is alreadyobligated to perform, there is not detriment and

as such no consideration.


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2 1 3

Will courts nor m all y loo k into th e adequa c yof tconsi de ration su pp orting a contract?


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2 1 4

N o. However, where consideration is grosslyinadequate (e.g. price is much too high or low),

it may indicate fraud, duress, or a similar problem, which a court would address.


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2 1 6

Contracts frequently contain a sentence reciting

consideration of $1 (or similarly small sum) asthe basis of the agreement. If the amount wasactually paid, its nominal consideration,designed to make an otherwise gratuitous

promise enforceable. I t doesnt really representa genuine intended bargain, so it is not

consideration.If the token amount wasnt paid,its sham consideration, and most courts view

the contract as unenforceable.


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2 1 7

What ar e r eq uir eme nts an d out put contracts?


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2 1 8

T heyre contracts where the quantity ismeasured by a partys requirements or output of

a stated item. For instance, in a requirementscontract, the buyer expressly agrees to buy all of

his requirements from a seller. In an outputcontract, the seller agrees to sell all of his output

of a certain item to a buyer.


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2 1 9

Wh en ar e r eq uir eme nts an d out put contractsenf orc eabl e?


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22 0

T hey are enforceable as long as the parties act ingood faith and the quatities involved are

reasonably foreseeable at the time the contract isentered into.


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22 1

Def in e th e me aning o f goo d f aith incontracts .


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222

Actual honest and fair dealing, with an absenseof intent to act wrongly. D espite the prevalence

of an objective reasonableness standard incontract law, there are many situations in whichthe honsesty of a party,, measured subjectively by attempting to ascertain his actual state of

mind, is relevant to the case.


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224

I ts a contract thats conditional on thehappening of a fortuitous event (one that may or

may not occur). T he most common example,your car insurance company pays only f you getinto an accident. T he accident is considered a

fortuitous event, triggering the duty to perform.


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225

Does a m oral obligation stan d ing alon e constitut e consi de ration?


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226

N o.


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227

A r e p ro m ises to donat e to chariti esenf orc eabl e?


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228

Y es. Although it is said that other doneesdonations are the consideration for each

donation, the enforceability of such donation isfirmly grounded on public policy.


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23 0

N o. A seal is meaningless under the UCC, aswell as in most states.


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23 1

What does pro m issor y esto ppe l do?


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233

What ar e th e eleme nts o f p ro m issor y esto ppe l?


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235

I s H adley v. Baxendale univ ersall y f ollow ed by A me rican Courts?


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236

Hadley is almost universally followed.


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237

What w er e th e f acts o f H adley v. Baxendale ?


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238

P laintiff operated a mill which was forced tosuspend operations because of a broken shaft.

An employee of the plaintiffs took the shaft tothe defendant carrier for shipment to another cityfor repairs. T he carrier knew that the item to be

carried was a shaft for the plaintiffs mill, butwas not told that the mill was closed because the

shaft was broken. T he carrier negligently

delayed delivery of the shaft, with the result thatthe mill was closed for several more days than itwould have been had the carrier adequately

performed the contract. P laintiffs sued for the profits they lost during these extra days.


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239

What was th e hol ding o f H adely v. Baxendale ?


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24 0

T he court held that plaintiff could not recover for the lost profits. T he loss of profits was not a

consequence which in the usual course of things flows from a delay in the shipment of a

shaft.


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242

T he court in deciding H adley stated that a plaintiff suing for breach of contract may

recover only damage which fall into one of twoclasses. T hese two classes are known today asthe two rules of Hadley v. Baxendale. T he

damages must either:(1) Arise naturally, i.e., according to usual

course of things, from the breach of contract itself or

(2) Arose from the special circumstancesunder which the contract was actually

made if and only if these specialcircumstances were communicated by the

plaintiff to the defendants


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243

What is th e r ef or m ation o f th e rul e of H ad ley?


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244

(1) T

he court will impute foreseeability to thedefendant as to those damages which anyreasonable person should have foreseen,

whether or not the defendant actuallyforesaw them; and

(2) T he court will also award damages as to

remote or unusual consequence, but onlyif the defendant had actual notice of the possibility of these consequence


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