Facts

A shaft in Hadleys (P) mill broke rendering the mill inoperable. Hadley hired Baxendale (D) to transport the broken mill shaft to an engineer in Greenwich so that he could make a duplicate. Hadley told Baxendale that the shaft must be sent immediately and Baxendale promised to deliver it the next day. Baxendale did not know that the mill would be inoperable until the new shaft arrived.

Baxendale was negligent and did not transport the shaft as promised, causing the mill to remain shut down for an additional five days. Hadley had paid 2 pounds four shillings to ship the shaft and sued for 300 pounds in damages due to lost profits and wages. The jury awarded Hadley 25 pounds beyond the amount already paid to the court and Baxendale appealed.

Issue

What is the amount of damages to which an injured party is entitled for breach of contract?

Holding and Rule

An injured party may recover those damages reasonably considered to arise naturally from a breach of contract, or those damages within the reasonable contemplation of the parties at the time of contracting.

The court held that the usual rule was that the claimant is entitled to the amount he or she would have received if the breaching party had performed; i.e. the plaintiff is placed in the same position she would have been in had the breaching party performed. Under this rule, Hadley would have been entitled to recover lost profits from the five extra days the mill was inoperable.

The court held that in this case however the rule should be that the damages were those fairly and reasonably considered to have arisen naturally from the breach itself, or such as may be reasonably supposed to have been in the contemplation of both parties at the time the contract was made.

The court held that if there were special circumstances under which the contract had been made, and these circumstances were known to both parties at the time they made the contract, then any breach of the contract would result in damages that would naturally flow from those special circumstances.

Damages for special circumstances are assessed against a party only when they were reasonably within the contemplation of both parties as a probable consequence of a breach. The court held that in this case Baxendale did not know that the mill was shut down and would remain closed until the new shaft arrived. Loss of profits could not fairly or reasonably have been contemplated by both parties in case of a breach of this contract without Hadley having communicated the special circumstances to Baxendale. The court ruled that the jury should not have taken the loss of profits into consideration.

Disposition

Vacated and remanded for new trial.

Notes

Consequential damages are linked to knowledge and foreseeability at the time of contracting and deal with the recovery of damages for loss other than those arising naturally. Modern courts do not look at the implied tacit agreement discussed in this case, and instead use foreseeability as the cornerstone to determine consequential damages. The object of damages as a remedy in a contract is to make the parties finish in a position they would have been in had the contract been properly performed. What is reasonably foreseeable at the time of contracting requires evidence of the circumstances under which the parties entered into the contract and the knowledge that they possess. Such knowledge can be imputed to the parties from customary trade practice and other sources.

Peevyhouse v. Garland Coal & Mining Co., 382 P.2d 109 (Okla. 1962).

Facts:Garland Coal (D) contracted for the right to strip mine coal on Peevyhouses (P) property for five years. The contract provided that Garland would perform restoration work on the property at the end of the lease period. Peevyhouse sued for $25,000 when Garland refused to perform the restoration. The judge instructed the jury that it could consider the diminution of value of the land as well as the cost of restoration in awarding damages.

The jury awarded Peevyhouse $5,000, which was much less than the cost of restoring the property, but greater than the reduction in value of the land if not restored. Peevyhouse appealed, arguing that it should be entitled to the cost of obtaining performance of the restoration. Garland Coal argued that damages should be limited to the difference in market value between the land as it was at the time, and the land as it would be if the restoration were performed.

Issue:If breach pertains to a matter only incidental to the main purpose of the contract, and performance would be disproportionately costly, what is the proper measure of damages?

Holding and Rule (Jackson):If breach pertains to a matter only incidental to the main purpose of the contract, and performance would be disproportionately costly, the proper measure of damages is the diminution in value measure.

Garland Coal argued that the work would add only a few hundred dollars to the value of Peevyhouses land and that damages should be limited to that amount because that was all Peevyhouse had lost. The court noted that the majority followed the diminution in value rule when the cost of performance greatly exceeded the diminution in value.

The court looked to the purpose of the contract and concluded that it was for the mining of coal and the restoration was incidental. Even in building and construction contracts there is consideration of unreasonable economic waste when determining damages. The Restatement and other authorities consider waste and relative economic benefit when assessing damages. The measure of damages in a contract involving land is: the cost of performance limited to the total difference in the market value of the land before and after the work was performed, if that contract provision is merely incidental to the main purpose of the contract, and the cost of full performance is grossly disproportionate to the increase in value.

Where such a result is in fact contemplated by the parties and is a main or principal purpose of the contract, however, the measure of the breach would be the cost of performance.

Disposition:Award reduced to $300.

Dissent (Irwin):Garland Coal has received all of the benefits of the contract. The element of remedial work was an essential part of this agreement and it was a condition to the right for Garland to use Peevyhouses land. If the value of the performance should be considered in determining damages, the value of the benefits received should also be considered. The law cannot make a better contract for the parties than they have made for themselves and should not alter it for the benefit of one party and to the detriment of the others. The judicial function of a court of law is to enforce a contract as it is written.

American Standard, Inc. v. Schectman, 80 A.D.2d 318, 439 N.Y.S.2d 529, 427 N.E. 2d 512 (N.Y. 1981).

Facts:American Standard, Inc. (P) operated a pig iron manufacturing plant on 26 acres of land abutting the Niagara River in Tonawanda. On the property were several buildings, a 60-ton blast furnace, railroad tracks and locomotives, and other heavy machinery. American Standard decided to close the plant and contracted with Schectman (D) to convey the buildings and equipment, in exchange for $275,000 and his promise to remove everything. Schectman promised to remove all foundations etc., including those beneath the surface and not visible, and grade the property as specified. D failed to perform and P brought suit and was awarded $90,000. D appealed.

Issue:What is the measure of damages for breach of a construction contract?

Holding and Rule:The general rule of damages for breach of a construction contract is that the injured party may recover those damages which are the direct, natural, and immediate consequence of the breach and which can reasonably be said to have been in the contemplation of the parties when the contract was made. The diminution in value measure of damages is only applied when the defects are irremediable or may not be repaired without substantial tearing down; however courts have applied the diminution of value measure even where no substantial tearing down is necessary if the breach is only incidental to the main purpose of the contract, and completion would be disproportionately costly.

It is also a general rule in building and construction cases, that a contractor who would ask the court to apply the diminution of value measure must not have breached the contract intentionally, and must show substantial performance made in good faith. In this case the court held that Ds completed performance would not have involved undoing what in good faith was done improperly, but only doing what was promised and left undone. D, instead of attempting in good faith to complete the removal of the underground structures, contended that he was not obliged by the contract to do so and, thus, cannot claim to be a transgressor whose default is unintentional and trivial.

That the fulfillment of defendants promise would add little or nothing to the sale value of the property does not excuse the default. The rule that the measure of Ps damage is the cost of completion is not altered by the mere fact that the burden of performance was heavier than anticipated, and the cost of completion disproportionate to the end to be obtained.

Disposition:Affirmed.

Notes:One of the key features of this case that distinguishes it from other construction contracts cases is that the court deemed that Ds breach was intentional.

Summary ofFletcher v. Peck, 10 U.S. 87, 6 Cranch 87, 3 L. Ed. 162 (1810).

Facts

In 1795, nearly every member of the Georgia state legislature was bribed to permit the sale of 30 million acres of land at less than two cents per acre for a total of $500,000. Only one member of the legislature voted against the legislation. The land was known as the Yazoo lands and eventually became the states of Alabama and Mississippi.

As a result of public outrage, most of the legislators lost the following election and the new legislature passed a statute in 1796 essentially nullifying the transactions. Those who had purchased the land refused to accept the return of their purchase price and much of the land was resold to bona fide purchasers at great profit.

Robert Fletcher (P) purchased 15,000 acres from John Peck (D) in 1803 for $3,000. Peck, in spite of the 1796 statute, had placed a covenant in the deed that stated that the title to the land had not been constitutionally impaired by any subsequent act of the state of Georgia. Fletcher sued Peck to establish the constitutionality of the 1796 act; either the act was constitutional and the contract was void, or the act was unconstitutional and Fletcher had clear title to the land.

Issue

Is a law that negates all property rights established under an earlier law unconstitutional?

Holding and Rule (Marshall)

Yes. A law that negates all property rights established under an earlier law is unconstitutional for violating the Contract Clause (Article I, Section 10) of the United States Constitution.

The court, while deploring the extensive corruption in the earlier state legislature, held that contracts signed under the original law must be accepted as valid. The motives of the legislators could not be considered by the Court and were not the responsibility of bona fide purchasers who were following the law. The court acknowledged that a legislature can repeal any act of a former legislature, but that this principle did not apply where the legislature sought to undo actions taken under the previous act while it was still valid.

The court held that the land grant was a type of contract, and therefore the Contract Clause (Art. I, sec. 10 of the U.S. Constitution) applied. The Contract Clause states: No State shall pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

The court held that the 1796 law was an unconstitutional ex post facto law that sought to penalize bona fide purchasers for wrongs committed by those from whom they were purchasing.

Disposition

Judgment for Peck. The 1796 statute was unconstitutional and the sale to Fletcher conveyed clear title.

Concurrence (Johnson)

While states may not abrogate contracts, they may pass legislation that affects contracts.

Summary ofMartin v. Hunters Lessee, 14 U.S. 304, 4 L. Ed. 97, 1 Wheat. 304, 1816 U.S. LEXIS 333 (1816).

Facts

The state of Virginia enacted legislation during the Revolutionary War that gave the State the power to confiscate the property of British Loyalists. Hunter was given a grant of land by the State. Denny Martin held the land under devise from Lord Thomas Fairfax.

In an action in ejectment, the trial court found in favor of Martin and the court of appeals (the highest Virginia state court) reversed. The Supreme Court of the United States reversed in favor of Martin, holding that the treaty with England superseded the state statute, and remanded the case to the Virginia court of appeals to enter judgment for Martin. The Virginia court refused, asserting that the appellate power of the U.S. Supreme Court did not extend to judgments from the Virginia court of appeals.

Issue

Does the U.S. Supreme Court have appellate jurisdiction over state court decisions involving federal law?

Holding and Rule

Yes. The U.S. Supreme Court has appellate jurisdiction over state court decisions involving federal law.

The federal power was given directly by the people and not by the States. Article III, Section 2, Clause 2 of the U.S. Constitution states that in all other cases before mentioned the Supreme Court shall have appellate jurisdiction. This demonstrates a textual commitment to allow Supreme Court review of state decisions.

If the Supreme Court could not review decisions from the highest State courts, the state courts necessarily would be excluded from hearing cases involving questions of federal law. It had already been established that state courts have the power to rule on issues of federal law, and therefore the Supreme Court must be able to review those decisions. The Court also held that the Supremacy Clause states that the federal interpretation trumps the states interpretation.

The Court rejected concerns regarding state judicial sovereignty. The Supreme Court could already review state executive and legislative decisions and this case was no different. Story then confronted the arguments that state judges were bound to uphold the Constitution just as federal judges were, and so denying state interpretations presumed that the state judges would less than faithfully interpret the Constitution. The Court stated that the issue did not concern bias; rather, it concerned the need for uniformity in federal law. The Supreme Court concluded that the decision by the Virginia court of appeals was in error.

Disposition

Judgment reversed.

Fifty years after the Supreme Court handed down this opinion, it held inEx parte McCardlethat while the Courts appellate jurisdiction is subject to exceptions and regulations imposed by Congress, it is derived from the Constitution itself and not from acts of Congress.

Question:Problem question: Mary, a frail but mentally sound 87-year old woman, is in the front garden of her old weatherboard home. Duncan, a big man who was heavily tattooed and wearing leathers, parks his motorbike outside her garden and strikes up a conversation with Mary. He told Mary that: I am a licensed painter and I could paint the exterior of your house for a good price $8000. Mary obviously felt intimidated by Duncan and hastily agreed. The next day Duncan arrived and over the next two days painted her house. During this time Mary discovered from her daughters inquiries that had Mary received competitive quotes for the painting work, the going rate for painting her house was about $4000. Her daughter also discovered that Duncans registration as a licensed painter had lapsed two weeks agobecause he had forgotten to pay the renewal fee. The job is now complete and Duncan has asked Mary for $8000.

Is Mary contractually obligated to pay Duncan the $8000?

In your answer, refer to the general law of contract only. Do not refer to any statute law.

Administrators comment: This coursework was completed as part of an LLB Law degree programme outside of the UK. (Australia - Masters year 1) It has been added to the lawcoursework.com database due to its high quality. Generally speaking only work completed within UK Law courses is accepted.

Answer:ISSUE The issue to be resolved in this case is whether or not Mary is contractually obliged to pay $8,000 to Duncan for painting her house. Specifically, are there circumstances which may cause the contract between them to be vitiated? RULE, PRINCIPLES and RELEVANT CONDUCTS The plaintiff is allowed to vitiate contracts based on law and equity on several grounds. The grounds that pave the way to exercise the right to recover damages, rescind or annul a contract are mistake, misrepresentation, duress, undue influence, unconscionable conduct and illegality. As held in Barton v Armstrong, a pre-contractual representation that has the probability to influence the mind of an ordinary person, and actually affects that persons mind leading him to enter into the agreement, entitles the ......(short extract)

Question:Problem question (Part 2): Adam says to his work colleague Colin: if you drive my pet Doberman, Brutus, to Sydney I will pay you $3000. Colin says nothing. Three days later he drove Brutus to Sydney. Brutus became very car sick during the trip because of Colins erratic driving. (Brutus had never been car sick before on long drives.) On arrival in Sydney Brutus was so dehydrated from car sickness that he had to be taken to an animal hospital. This required Adam to pay $1000 in veterinary expenses. Adam refuses to pay Colin $3000.

(ii) Assuming that a contract has been formed, has it been breached? If so, what remedies arise? (5 marks)

Administrators comment: This coursework was completed as part of an LLB Law degree programme outside of the UK. (Australia) It has been added to the lawcoursework.com database due to its high quality. Generally speaking only work completed within UK Law courses is accepted.

Answer:BREACH OF CONTRACT ISSUE Given that the contract is valid between Adam and Colin, has the contract been breached? Specifically, are there implied terms in their contract and has it been breached? RULES, PRINCIPLES AND RELEVANT CONDUCT As a general rule, the obligations arising from a contract are determined by its terms (Radan & Gooley, 2009). In this case, the terms and conditions in the contract despite not being expressly provided in writing, has been resolved to be valid and enforceable. According to Gillies (2012), terms in a contract may be expressed or implied and the violation of the implied terms and conditions gives rise to liabilities as much as expressed terms do. A decided case (Donoghue v Stevenson ) similarly stated that an implied term in contracts to render service......(short extract)

Question:Outline the development of the Law of Evidence with reference to the evidence of spouses.

Answer:To be compellable, a witness must first be competent. A witness is competent where he can be lawfully called to give evidence, and is compellable if he has a legal obligation to do so . As a general rule, all witnesses are compellable for all parties. In civil proceedings, the only exception to this is the non-compellability of the former spouse of a deceased person . Therefore, the discussion will focus on the more contentious area of spouse compellability within the criminal law. A spouse refers to a person who is lawfully married . Until 1984, the common law ruled that a spouse was not competent, and thus non-compellable, to testify against her husband. The rationale behind this was the fundamental objection to the potential disruption of marital harmony and the risk of perjur......(short extract)