Note §1-106: neither consequential nor special nor penal damages. Just put people back where they would have been. So Hadley had lost time (and money as a result of that time). There's no getting it back: you can't paste the days back on the calendar. And the complaint is about the EXTRA time incurred as a result of shipping by barge.
So we have first a problem of causation. But it's easy: the delay was caused by the carrier.
Next problem is proof of the damages: how do we know what the mill's profits would have been? This problem is pretty much stipulated as well.
So, some artifacts of the old case style. The headnote is written by a court official who listened to the proceedings. Interesting that the facts look different between the headnote and Baron Alderson's opinion. Now, in Baron Alderson's opinion (he is a "Law Lord"), no note is made of the mill being closed, whereas the headnote says they were told of this fact. The Baron is way more important than the guy who writes the headnotes. Oh, also "corn" means "wheat."
Lawyers have problems with alcohol: this is because the court gets the facts all mixed up, and writes an opinion about a totally different lawsuit than the one you meant to bring. The purpose of trials in the US is to deter other trials. Suing someone is like the H-Bomb: it's much better if the threat works and you don't have to drop it. If you need brain surgery, you undergo it reluctantly, but few of us would do it just for the experience.
So, the rule is that if the damages don't conform to standards of natural causation and reasonable contemplation, you get no damages. Same with §1-106 (above). Even if you jump this hurdle, you still have to prove damages with reasonable certainty (see the next class). So consequential damages are sort of hard to get.
The court is basically legislating here. They just state a new rule; they analogize it to some continental European rules, and some older English cases, but they are really just stating a new principle.
So when we say someone has breached a contract, we don't worry about fault. Torts are different: they have fault (so does some warranty stuff, but that's later). Anyway, the point is that breach deterrence is not something we're concerned about. It's not criminal. It's not harshly penalized.
Zany judicial notice: it's obvious (?!?!) that most of the time when millers send shafts, the mill isn't out of service. Basically, here's a fact that we don't have to prove.
Macaulay clerked for Judge Denman: an admiralty lawyer. Had lots of admiralty experience, and liked to act out cases on his desk with ship props (paperweights, etc.).
Note that very few former criminal defense attorneys become federal judges, and lots of former prosecutors do. What do they bring with them to the case? Ideas about how the case should be tried, etc. Secret, unspoken, knowledge: it matters who the judges are. Magna Carta is more about the rights of nobility than the rights of men.
Personae dramatis:
So the new rule allows the court to limit the damages and also keep the case from going to the jury, if the proper circumstances don't pertain. This is also a workload measure: just like plea bargains. America promises due process, but offers you a deal. And if, as a defense lawyer, you don't take the deal, there might be penalties (e.g., you somehow always get the last case of the day, but you have to be present in court, so you can't be back at your office billing).
Danzig, contra Oldham, argues that NO law cases work as intended.
Are contracts just a mask for power? In 1968, the class would have applauded this question. In the Reagan years, not so: the market is pure and holy.
The matter of agency: does telling Pickford's agent count as making Baxendale aware of risk? Nowadays we have corporations (but back then it was pretty much just the East India Company), whereing shareholders stand to lose only the value of their shares. This is different from a partnership. Corporations limit liability. In order to have mass production/communication, you need agents all over the place. But it is hard to control them, or know what they are doing. So the court here worries about opening the door to "vicarious liability" (when you are liable for the deeds of an agent). Limited liability had not been invented in these days.
J Willard Hearst: concepts like Hadley are about release of energy, and American law is designed to foster business (as opposed to British law, which was about static property, and holding on to existing wealth). The principle here works to facilitate getting stuff done, without clobbering people with liability. All policies have costs: a lot of political wrangling is about trying to figure out which costs we want to pay.
Degrees of seller's knowledge about buyer's purpose and expectations.
Decide when Hadley applies, based on the descriptions.
All rules work like this: there are clear "yes" answers, clear "no" answers, but mostly maybes.
The "tacit agreement" test: means very few consequential damages. Actually more restrictive than §2-216(2) ("had reason to know"). Also note that if you could have avoided consequential damages by covering, you get none.
Note also that precedent from the 1800's should put you on notice that things may have shifted (the interpretation, at least, if not the statement itself). So Hadley gets applied differently over time. Also, different states may apply it differently, even though they appear to have the same rule. And sometimes there are surprising cases of first impression, where a given problem simply has not yet happened in a given jurisdiction.
Lawyers are in the "winning lawsuits business:" if you can't find what you need in one part of the statutes, you need to look elsewhere.
The difference between consequential and incidental damages is sometimes fuzzy.
What are we trying to do by limiting consequential damages? Maybe several inconsistent things. Making sure people still feel safe enough to contract (i.e., not over-penalizing breach)
It makes a difference that Reagan appointed judges who have different points of views from Carter's. See the little grid in part (C) of the handout. "The business of America is business:" Calvin Coolidge. Am I my brother's keeper? Also a good question.
There was not a time when the government did nothing, and then the wicked socialists came along. We will not enforce an unconscionable contract, but we do not define "unconscionable." We can approach our task on a rule basis, or a case-by-case basis.
So we need predictability in order for people to trust the law. But we also need free choice for contracts. We want enforcement, but we also want a social safety net.
What we're trying to do may have something to do with Hadley. The "tacit agreement" rule worked to enable this: avoided overpenalization for failed transactions. We want reliance, but not too much. We want our services to be priced at a level we can afford. The loss won't go away, so we want to spread it around, in some cases.
Trivia: the Eagle Diamond was big, and also the only diamond ever found in WI.
Do we all want to bear the cost of a fool who ships the Eagle Diamond via FedEx? No. We chop those cases out of our consideration, and decide that they need to have their own insurance.
We do different things in differenct cases. There are political cycles, and there are motion and movements. There are regional variations.
A default rule: if you don't say anything in your contract, the law fills in XYZ (used to be called "Gap Filling"). Basically this reduces transaction costs. Default rules: if you have unforeseeable consequential damages, you get nothing. This is a PENALTY default rule: it incents you to disclose risk, so that people can deal with it up front.
For example, if you don't specify a time (deadline), the UCC specifies a "reasonable" time. If you agree to pay in dollars, the UCC specifies US dollars. It makes it so you don't have to spell every last little thing out.
How far is contract law just a set of arbitrary rules, just to make things predictable (like driving rules)?
Disclaimers of liability. If the seller drafts the contract, and they have even a half- competent lawyer, they'll disclaim all lost profits/consequential damages, etc. And generally sellers write the contracts.
Note that there's an expert in drive-in theaters. That's a cool job.
What was the big difference here between the second year's operations and the hypothetical first year? Business don't just spring into existence: stuff in the later time can't be used as a projection for a startup. You could use it as information about a business in progress, but not as a startup.
Note that the expectation interest involves a hypothetical state ("where you would have been [but never actually were]").
If we really want people not to breach contracts, isn't this the wrong kind of decision? It's pretty clear that there would have been some profits, not zero. Are we actually protecting the expectation interest, then? Could we say that it's not so bad to breach a contract, and if there is a breach, you shouldn't even sue? The risks are that we can undercompensate or overcompensate. Why do we choose to undercompensate, rather than overcompensate?
So we turn to damages: what, in this case, is the rental value of the property? Is it a theater, or a corn field? Note how often we read a case and sit trying to figure out what it means. Maybe we could find something out by looking behind the decision.
So how sure do we need to be? What are the burdens of proof here? Consider, for example the criminal and civil prosecutions of OJ. Failed on the criminal side (note that because there's no double jeopardy, he could be compelled to testify there). So the same case that fails at criminal court wins in civil, because the standards are different. So we could use this same "burden of proof" standard with juries, but how would that work: juries are not accountants, generally. Maybe we don't trust the jury to make this kind of determination.
Prosecutors, note, try to minimize what "beyond a reasonable doubt" means. Sometimes, also, jury verdicts are the result of compromises, and don't make much sense. Legal rules are the product of a system-- we might have people who are 50% convinced.
So we have the estimate, some comparable data from other places. All of this can be impeached. Also the United Way, and the traitor expert. You can almost always pick apart "would-have-happened" testimony.
And yet the Girl Scouts win. How did the jury decide this case? This is where the handout comes in...
So basically the jury just gave them their money back. Was this a big victory? It certainly didn't put the Girl Scouts where they would have been had the contract been performed.
Note that the court is talking about negligence and carelessness... are we smuggling torts into contracts? Should be irrelevant, but we've got the nice Girl Scouts on the one side, and the evil fundraisers on the other side...
What's this expert witness jazz? A regular person can testify as to facts (not hearsay, but knowledge), but not opinion. An expert is someone who can testify about opinion (and be impeached); they have to be accepted as qualified. Note that bias goes to the credibility, but not the admissibility of evidence.
Anyway, see §2-715, Official Comment 4. How loss is determined (note that unreasonable methods are prohibited).
The problem is given to us by the nature of expectation damages: there will always be assumptions, and always room for debate.
Still, note that "wickedness" has made its way into here. This is foreign to the purely bloodless world of contract law.
So how certain is "reasonably certain?" This is pretty certain.
Note, once again, that this is a Federal case: they need to decide if the WI courts would do this (diversity/Erie). Law Review note says WI would probably not have done this. The 7th Circuit plays a little fast and loose with Erie.
So is this one wild fantasy, or is it a new rule?
Who is doing the arbitration? Often the seller's chosen company. The National Arbitration folks market their services to businesses. Cut costs: keep from having to go to court in all sorts of different towns. Basically, it's a Wizard of Oz thing: if people believe in contracts, they work. [the villain in the Wizard of Oz is Toto, because he knocks down the curtain].
Somehow most contracts get performed acceptably. Not literally, but acceptably. So we grubmle, and take our business elsewhere, but generally don't sue.