No. Illinois Gas – Liquidated Damages Clauses and UNDERliquidated Damages
In N.I.G., the LD clause provided only 4% of P’s actual damages so P wants out
from under the clause. It doesn’t really work to argue that the clause is a PENALTY
under traditional LD analysis because it is not unreasonably large. So P tries to
make to arguments:
1. That the LD clause is not the exclusive remedy because the clause is silent.
Court appears to reject this reasoning as to LD clauses generally –
even if governed by 2-718. More on this later.
2. That the clause is governed by 2-719, which requires the clause to be
expressly exclusive.
Court rejects that 2-719 governs LD clauses.
Is the court’s bright line distinction between clauses covered by 2-718 and 2-719
sensible?
Consider the following clause – is it a liquidated damages
clause or a limited remedies clause.
“ALARM CO. IS NOT LIABLE FOR LOSSES WHICH MAY OCCUR IN
CASE OF MALFUNCTION OR NONFUNCTION OF ANY ALARM
SYSTEM. ALARM CO.’s EXCLUSIVE LIABILITY IN CASE OF
MALFUNCTION OR NONFUNCTION (EVEN IF DUE TO ALARM
CO.’s NEGLIGENCE OR FAILURE OF PERFORMANCE) IS LIMITED
TO THE AMOUNT OF THE ANNUAL SERVICE CHARGE ($10,000).”
Service charge = cost charged for maintaining alarm
Why does it matter?
Situations like N.I. Gas often turn on whether the LD clause is exclusive
(evenassuming governed by 2-718) - How do courts handle?
If clause is expressly “exclusive:” Courts will enforce it as the exclusive
remedy.
If clause is expressly “non-exclusive:” Courts usually treat the liquidated
damages as an optional remedy and allow P to pursue actual damages.
If clause is silent as to exclusivity: Courts are split.
• Some will enforce it as the exclusive remedy
• Others will allow P to pursue actual damages instead
Doctrine of Avoidable Consequences
General Rule: Judicially imposed doctrine holding that D is not liable for the
consequences of his/her wrongdoing that the P reasonably could have avoided.
Similar to comparative fault - both doctrines are concerned w/ causal
responsibility at loss. But avoidable consequences is concerned with P’s
actions AFTER loss not before.
Some particulars:
• Applies to general and consequential damages
But P need not take reasonable measures to avoid general damages that
are SET at the time of injury
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Applies in both contract and tort situations
Burden of proof is on D to show P could have avoided the consequences for
which P is seeking redress
S.J. Groves & Sons– the facts
• Groves (P) gets subcontract to place concrete decks for bridges
• Groves Ks with Warner (D) to provide ready mix concrete in the mornings at bridge site
• As early as 1971, D’s delivery is erratic – P incurs overtime labor costs as a result
• In 1971 P considers and rejects getting an alternative source of supply of ready mix
concrete – Trap Rock presents special problems
• D continues to be erratic – On 6/14/72, P approaches Trap Rock who refuses to come
down to Warner’s price.
• On 6/21/72 DOT halts construction on bridge until they figure out what to do about D. D
gives assurances and work resumes on 6/26/72. D’s performance improves but is uneven
until the project finishes in 10/72.
• On 7/11/72, Trap Rock is certified to do work for the state and agrees to provide cement
at D’s price but P decides not to use them (and continues to incur overtime costs as a
result).
• DCT refuses to award damages incurred after 7/11/72
• 3rd Circuit says P is entitled to all overtime costs even after 7/11/72
S.J. Groves & Sons – the results
•Why should Groves be able to recover all damages for overtime, even those
post-7/11/72, when there is perfectly good cement available next door from
Trap Rock (at the same price)?
•What would court award if it knew with certainty that Groves had suffered
$100,000 in damage but could have avoided $65,000 of those damages if it had
acted reasonably? What facts would create such a scenario?
What are “reasonable efforts to avoid” the consequences of
D’s wrongdoing?
Gerda is a high school math teacher with Master’s degrees in math and
physics. She was recently unlawfully fired from her job at which her monthly
contract wages were $3,000 (assume breach of contract). She was fired 1
month into her annual contract. What kind of job must she take in order for
her to meet the “reasonable efforts” requirement? Must she:
•
•
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Take a job as a bus driver for the remainder of the year for $1,500/month?
Take a job as a math/physics teacher in a town 50 miles away? 15 miles away?
Take a job as a substitute teacher in another district that will require her to
commit to her new employer for the remainder of the year and allow her to
teach math BUT only guarantee her teaching 2 days a week @ $15/hour.
General Formulation of “Reasonableness” Requirement
Employment context:
• P must use “reasonable diligence in finding other suitable
employment. Although the un- or underemployed claimant need not
go into another line of work, accept a demotion, or take a demeaning
position, he forfeits his right to back pay if he refuses a job substantially
equivalent to the one he was denied.”
•
Lower courts suggest you can’t keep looking forever though
Bodily Injury Claims
• “A person injured by another’s wrong is obliged to exercise “ordinary
care” to seek medical or surgical treatment so as to effect a cure and
minimize damages.” . . . However the injured person is regarded as
having a right to avoid if she chooses peril to life, however slight, and
undue risks to health and anguish that goes beyond the bounds of
reason.”
Offsetting Benefits
The requirement of offsetting benefits is a judicially imposed
requirement that P’s damages should be reduced by the amount of any
benefit that D conferred upon P as a result of D’s wrong.
• The notion of offsetting benefits is related to the concept of
avoidable consequences in that judges use it to reduce P’s
damages. But that reduction comes as a result of D’s actions
rather than P’s (at least theoretically).
OffsettingBenefits – SomeExamples in both Tort & Contract
Tort: Defamation P alleges lost income. D may show that P has large lecture fees as a
result of the defamation that essentially replace lost income.
•
But offset applies only to “benefits to the interest of P that was harmed”
Ex – P sues D for defamation alleging lost income. D can reduce P’s damages by showing
defamatory statements made P in demand on the paid lecture circuit. BUT if P also sues
for intentional infliction of emotional distress, D cannot use the paid lecture fees to
offset emotional distress damages as the benefit does not go to the interest that was
harmed.
Contract: P/Seller contracts with D/Buyer for sale of goods that will bring in a certain
profit. D/Buyer breaches. P resells and realizes higher profits on resale than under
the original contract. P/Seller must credit D/Buyer’s damages with net gain of
additional profit on resale.
Note there is no similar requirement of “benefit to P’s interest” here
Collateral Source Rule - Torts
P may recover damages that include amounts for which plaintiff has
already received compensation from sources independent of and
collateral to D.
D is not entitled to admit as evidence or reduce P’s damages with the
compensation P receives from independent sources.
Classic examples of collateral sources:
Insurance payouts
Benefits programs (Medicare, SS, Disability, etc.) – tricky?
Sick leave plans
Charitable donations
Compare to offsetting benefits What is the reason for this rule?