Proving Damages
How are we to put a dollar value on damages?
Freund v. Washington Square Press
What was the breach? Failure to publish a book. Is it clear that there
was a promise to publish the book? Publisher could cancel if it thought the
manuscript was unsuitable. Not much of a promise to publish [typical, by
the way of book contracts]. One catch: the publisher had to decide in 60
days whether to publish; if it did not cancel in 60 days, then it had to publish
the book. The publisher failed to decide against publication in 60 days, so
there really is a breach here.
So the question is: how much is Prof. Freund damaged?
Cost of completion in Freund
What position would the professor be in if the contract had been
completed? He would have: the advance, the royalties, promotion, prestige.
But the book is not published, so the question is: what is the best way for
him to mitigate his losses?
One possibility: publish the book himself. [Remember: this is 1972: no
desk top publishing]. Suppose he would get just about the same money,
prestige, etc. from publishing the book himself; probably not true, but we
want to focus on the fact that he would still be out the cost of completion-the cost of publishing.
Mitigation in Freund
The professor asked for cost of completion; also, on another theory of
his damages, he asked for the lost benefits--royalties etc.
These are two theories: if the book had been self-published, then he would
get benefits but he would need to be given cost of completion.
If the book is not published, the professor doesn=t get the benefits,
but don't spend money on completion.
If the best way to mitigate is not to publish the book himself, then he
has: the advance, the promotion, but not the royalties and prestige.
Proof of damages
Assume the best way to mitigate is not to publish. Then we need to
give the professor the value of the benefits he would have received. How
much does the court give him? Six cents.
Why? Value of the benefits is too speculative, no evidence of value
given. Take prestige first: hard to value, professor did not even ask for
this. Royalties: court says it can't determine those damages; who knows
how many copies would have been sold.
The rule: you must prove damages with reasonable certainty.
Is this a good rule?
Doesn't this under-compensate the plaintiff? We don't know how many
copies he would have sold, but it is certainly more than one. His mother etc.
would have bought copies.
But what if court picks a figure of copies sold? Wouldn't that risk overcompensating the plaintiff?
It might--this is usual rationale for the "reasonable certainty" rule. But
does this rationale justify awarding zero damages? Hard to see that. The
only argument is this: if not zero, then what? But we know it is not zero;
and if the "might be over-compensatory" argument is good, why isn't the "it
might be under-compensatory" argument a good argument that we should
award something. Why not make an estimate on the low side? If evidence
is that it would have sold 1000 - 3000 copies, use a 1000 as the figure, or
even 500. Or take 2000 on the ground that this is as likely to be too low as
too high. Why not take 3000 on the ground that the plaintiff is the innocent
party and we should err in his favor?
Two theories
Consider two theories about why the courts follow the reasonable certainty
rule for damages.
The lip service theory: the claim here is that the courts only pay lip service
to the expectation principle in damages; they really prefer a measure of
damages that makes a lower award.
The movement toward expectation theory: the theory here is that the cts
are really moving toward the expectation measure, and are starting to
modify the rules about how much evidence you need to prove damages.
The lip service theory
Atty's fees: The treatment of atty's fees is evidence for this theory.
Recall Neri v. Retail Marine; there was no award of atty's fees there; the
client has to pay, so isn't Retail Marine really under-compensated? They are
worse off than if K had been performed.
Pain and suffering: the traditional rule is that on cannot recovery
contract damages for pain and suffering and other psychic losses resulting
from the breach: e. g., funeral home breaches contract by losing
grandfather's casket; telegraph company mis-delivers message; school
reports to your parents by mistake that you have been killed.
Courts usually refuse to award contract damages for such emotional
distress. Why? One reason given is that they are too hard to prove.
But: if we do not compensate for "pain and suffering", then the
plaintiff is not in as good a position as the plaintiff would have been had the
contract been performed.
Hostility toward the expectation measure?
So, there are ways in which cts fall short of awarding full expectation
damages (atty's fees, pain and suffering, reasonable certainty requirement).
One possible explanation, of course, is that the cts do not really have the
goal of awarding expectation damages. This is the lip service theory.
The movement toward expectation theory
The theory is that the cts are moving away from the doctrines that lead to
awarding less than the full expectation measure of damages.
Psychic losses: the law on recovering for psychic losses has changed:
they can be recovered--if the breach of the contract makes such a claim
plausible; Hawkins v. Magee, and the grandfather's casket example. But
you can't get emotional distress claims for ordinary breach of commercial
contract, building a house, etc. Idea: should not fly into emotional distress
here; rather, can mitigate by covering or reselling, avoids loss and emotional
distress; also, idea is that some emotional distress is just part of doing
business.
Reasonable certainty rule: we can let the jury place a value on the
emotional distress. So in grandfather case, you testify about how dear
grandfather was to you, how upset you are, etc.; defense puts on evidence
that you never cared for the "old geezer" --as you used to refer to him, as
they make you admit on cross-examination. We see the trend in the
movement away from the "new business rule". The rule was that lost profits
are not recoverable where the breach of contract prevents a P from
establishing a new business. New rule is that plaintiff can present evidence
of profitability and give issue to the jury.
Rambola v. Cosindas
We see the new approach in Rambola v. Cosindas --this is the horse race
case. court went by the track record (literally).
Also look at UCC 1-106(1) and the comment. Damages are to be
administered liberally.
But then what about Freund v. Washington Square?
This is a relatively recent case--1974. Why doesn't the court allow a
greater recovery?
Answer: the professor did not introduce evidence about the possible
number of sales. He did not make any "track record" available.
Lost profits
Can one prove lost profits with reasonable certainty? Four cases to
distinguish:
(1) New businesses.
(2) Middleman-buyer where the middleman-buyer is
suing for lost resale profit.
(3) Manufacturer-buyer where the manufacturerbuyer is suing for lost profit from a failure to deliver
materials necessary to manufacture.
(4) Loss of goodwill.
(1): the old rule was that lost profits from a new business could not be
proven with reasonable certainty. The modern approach allows evidence of
lost profits to go to the jury.
(2): No special problems here; the lost profits are easy to caluculate.
(3) and (4): the courts are more reluctant to find proof with reasonable
certainty here. Some courts have held that loss of goodwill damages
cannot--as a matter of law--be proven with reasonable certainty.
Black letter law
The black letter law has not changed: you must prove damages with
reasonable certainty. But how much certainty the courts demand under this
label has changed: you need to produce less. This suggests that courts do
have awarding expectation damages as a goal, and that they are adjusting
the rules to achieve this end.