George Mason School of Law
Contracts II
Uncertainty/Forseeability
F.H. Buckley
fbuckley@gmu.edu
1
To be covered
1.
2.
3.
4.
5.
2
Uncertainty
Foreseeability
Emotional Distress
Mitigation
Liquidated Damages and Penalty
Clauses
Uncertainty:
Restatement §352
 Damages are not recoverable for loss
beyond an amount that the evidence
permits to be established with
reasonable certainty.
3
Uncertainty: Freund at 95
 Royalties too uncertain to provide a
basis for expectation damages
4
Uncertainty
Drews at 915
5
Uncertainty
Drews
 How to calculate lost profits?
 Suppose the business is an existing one.
Can we assume that the future will
resemble the past?
6
Uncertainty
Drews
 How to calculate lost profits?
 Gross profits less cost of obtaining them
 Is there a “new business rule” of nonrecovery?
7
Uncertainty
Drews
 How to calculate lost profits?
 Gross profits less cost of obtaining them
 Is there a “new business rule” of nonrecovery?
 An evidentiary rule, not an absolute bar
8
Uncertainty
Drews
 How to calculate lost profits?
 Gross profits less cost of obtaining them
 Is there a “new business rule” of nonrecovery?
 What was the evidence here?
9
Uncertainty
Drews
 How to calculate lost profits?
 Gross profits less cost of obtaining them
 Is there a “new business rule” of nonrecovery?
 How would you satisfy the “establish with
reasonable certainty” standard for a resto?
10
Uncertainty
Drews
 How to calculate lost profits?
 Gross profits less cost of obtaining them
 Is there a “new business rule” of nonrecovery?
 How would you satisfy the “establish with
reasonable certainty” standard for a resto?
 Marketing forecast: Upjohn
 Comps: Petty
 AM/PM Franchise 919 on goodwill
11
Uncertainty
Smith v. Penbridge 918
It’s an
acquired
taste…
12
Uncertainty
Redgrave v. BSO 920
13
Uncertainty
Redgrave v. BSO
 What was the basis for the claim?
14
Uncertainty
Redgrave v. BSO
 At a Los Angeles movie theater, in 1978, there was a
bombing and protests. The furor was sparked by a
documentary called "The Palestinian," a film produced
and bankrolled by Vanessa Redgrave.
"Many people were outraged. You remember what your
reaction was?" Mike Wallace asked.
"I didn't know why people were outraged to see a film
about the Palestinians," she replied.
Perhaps it was a scene where she danced, wielding a
Kalashnikov rifle.

15
60 Minutes
Foreseeability
16
Foreseeability
Restatement § 351
 (1) Damages are not recoverable for
loss that the party in breach did not
have reason to foresee as a probable
result of the breach when the
contract was made.
17
Forseeability
Restatement § 351
 (2) Loss may be foreseeable as a
probable result of a breach because it
follows from the breach (a) in the
ordinary course of events, or (b) as a
result of special circumstances,
beyond the ordinary course of events,
that the party in breach had reason
to know.
18
Foreseeability
Restatement § 351
 (3) A court may limit damages for
foreseeable loss by excluding
recovery for loss of profits, by
allowing recovery only for loss
incurred in reliance, or otherwise if it
concludes that in the circumstances
justice so requires in order to avoid
disproportionate compensation.
19
Foreseeability
Hadley v. Baxendale at 116
The Hadley Mill, Gloucester UK
20
Hadley v. Baxendale
Gloucester to Greenwich
2.5 hrs, according to Mapquest
21
Foreseeability
Hadley v. Baxendale
 What does the Π seek to recover?
22
Foreseeability
Hadley v. Baxendale
 Just what was the Δ told?
 Cf Victoria Laundry at 118
23
Foreseeability
Hadley v. Baxendale
 Just what was the Δs told?
 What if the headnote had been
correct?
24
Foreseeability
Hadley v. Baxendale
 Just what was the Δs told?
 What if the headnote had been
correct?
 Why might Alderson’s judgment be a
rule of efficiency?
25
Foreseeability
Hadley v. Baxendale
 Why might recovery of lost profits if
the headnote had been correct NOT
amount to a rule of efficiency?
26
Foreseeability
Hadley v. Baxendale
Tel: 011-44-203-188-2100
27
Foreseeability
Hadley v. Baxendale
Why do you think
Pickfords (Baxendale)
refuses commercial
deliveries?
28
Foreseeability: Lost Profits
 And what would the parties have wanted
in Hadley v. Baxendale?
 Baxendale is in the best position to cure the
late delivery problem
 Hadley is in the best position to calculate
damages
29
Foreseeability: Lost Profits
 Where the damages are astronomical,
are you sure who the least cost risk
avoider is?
 Qu. Milgard Tempering at 120
 Damage cap of repair and replacement
unenforceable!?!?
30
Foreseeability
Spang Industries at 921
Battenkill
Brudge
31
Foreseeability
Spang Industries at 921
 Fort Pitt breached by delivering late,
with the result that Torrington
incurred extra labor expenses
 Could Torrington recover for these?
32
Foreseeability
Spang Industries
 Fort Pitt breached by delivering late,
with the result that Torrington
incurred extra damages
 Victoria Ldy at 924
 Was the loss on the cards (?)
33
Foreseeability: Increased labor costs
Cricket Alley 925
34
Foreseeability: Increased labor costs
Cricket Alley
 What was the promise?
 DTS cash registers would be compatible
with Wang computers
35
Cricket Alley
Wang and DTS ca. 1980
What could go wrong?
36
Cricket Alley
Wang and DTS ca. 1980
37
Foreseeability: Increased labor costs
Cricket Alley
 What was the promise?
 What expenses do you think Cricket
Alley incurred as a consequence of
the breach?
38
Foreseeability: Increased labor costs
Cricket Alley
 If increased labor costs are
foreseeable, why not lost profits?
Same diff…
 Cook v. Warnick 926
 More liberal than Drews?
39
Emotional Distress
 Restatement §353
 Recovery for emotional disturbance will
be excluded unless the breach also
caused bodily harm or the contract or
the breach is of such a kind that serious
emotional disturbance was a particularly
likely result
40
Emotional Distress
 Restatement §353
 There are already barriers if damages
are uncertain or unforeseeable. Why do
we need more than this?
41
Emotional Distress
 Valentine at 927
 Is it foreseeable that one might suffer
emotional distress on being fired?
42
Emotional Distress
 Valentine at 927
 Is it foreseeable that one might suffer
emotional distress on being fired?
 So why no recovery?
 Can you think of a justification for
Restatement § 353—apart from
uncertainty?
43
Emotional Distress
 Exogenous preferences are prior to
the legal regime
 Endogenous preferences are shaped
by the legal regime
44
Emotional Distress and
Endogenous preferences
Ron Hunt in 1971:
Notice anything
unusual about his
batting stance?
45
Emotional Distress and
Endogenous preferences
Ron Hunt in 1971:
Hit by pitcher
50 times in 1971
46
Emotional Distress and
Endogenous preferences
Reward
something
and you get
more of it
47
Emotional Distress
 Restatement §353
 Recovery for emotional disturbance will
be excluded unless the breach also
caused bodily harm or the contract or
the breach is of such a kind that serious
emotional disturbance was a particularly
likely result
48
Emotional Distress
Allen v Jones at 928
Jules
Jim
49
Katherine
Mitigation: Restatement § 350
 (1) Except as stated in Subsection
(2), damages are not recoverable for
loss that the injured party could have
avoided without undue risk, burden,
or humiliation.
50
Mitigation: Luten Bridge at 929
Building bridges to nowhere
51
Mitigation: Luten Bridge at 929
Building bridges to nowhere
52
Mitigation:
Is UCC 2-704(2) a problem?
 Where the goods are unfinished an aggrieved
seller may in the exercise of reasonable
commercial judgment for the purposes of
avoiding loss and of effective realization either
complete the manufacture and wholly identify
the goods to the contractor cease manufacture
and resell for scrap or salvage value or proceed
in any other reasonable manner.
53
Mitigation
Shirley MacLaine at 931
54
Mitigation:
Shirley MacLaine
 Which film was the biggest turkey?
55
Mitigation:
Shirley MacLaine
 Does it matter that Amelia Bloomer
was very progressive in her views?
56
Mitigation:
Shirley MacLaine
 Does it matter that the breacher
offers to provide an opportunity to
mitigate?
 Henrici at 937
57
Mitigation
 What if the injured party is a business
that gets new clients after the
breach?
 Kersage Computer at 939
 But personal services? Stanchfield at 940
58
Liquidated damages vs. penalty
clauses
59
Liquidated damages:
When permitted
 Restatement § 356
 (1) Damages for breach by either party may
be liquidated in the agreement but only at
an amount that is reasonable in the light of
the anticipated or actual loss caused by the
breach and the difficulties of proof or loss. A
term fixing unreasonably large liquidated
damages is unenforceable on grounds of
public policy as a penalty.
60
Liquidated damages:
When permitted
 Restatement § 356
 (1) Damages for breach by either party may
be liquidated in the agreement but only at
an amount that is reasonable in the light of
the anticipated or actual loss caused by the
breach and the difficulties of proof or loss. A
term fixing unreasonably large liquidated
damages is unenforceable on grounds of
public policy as a penalty.
61
Liquidated damages:
When permitted
 Restatement § 356
 (1) Damages for breach by either party may
be liquidated in the agreement but only at
an amount that is reasonable in the light of
the anticipated or actual loss caused by the
breach and the difficulties of proof or loss. A
term fixing unreasonably large liquidated
damages is unenforceable on grounds of
public policy as a penalty.
62
Liquidated Damages
 How to distinguish an effective
liquidated damages clause from a
penalty?
63
Lake River v. Carborundum 941
64
Lake River v. Carborundum
 Lake River to bag Carborundum’s
Ferro Carbo and serve as distribution
center
 Why did LR insist on a liquidated
damages clause?
65
Lake River v. Carborundum
 Lake River to bag Carborundum’s
Ferro Carbo and serve as distribution
center
 Why did LR insist on a liquidated
damages clause?
 How did it work?
66
Lake River v. Carborundum
 And why was this a penalty?
 What wouldn’t have been a penalty?
67
Lake River v. Carborundum
 And why was this a penalty?
 What wouldn’t have been a penalty?
 Gross profits from time to time less
expenses over the course of the entire
contract
68
Lake River v. Carborundum
 And why was this a penalty?
 So what’s wrong with penalties?
69
Lake River v. Carborundum
 And why was this a penalty?
 So what’s wrong with penalties?
 The efficient breach argument?
70
Lake River v. Carborundum
 And why was this a penalty?
 So what’s wrong with penalties?
 A suitable case for paternalism?
71
Lake River v. Carborundum
 And why was this a penalty?
 So what’s wrong with penalties?
 Signalling?
72
C and H Sugar at 988
MV Moku Pahu
73
C and H Sugar
 Sun to provide barge
 Halter to provide tug
74
C and H Sugar
 Sun to pay damages of $17K/day after
delivery date of June 30, 1981
 Sun completed the barge on March 16,
1982
 Halter supplies the catamaran tug boat
on July 15, 1982
 Sun assembles tug to barge in July ‘82
75
C and H Sugar
 Sun to pay damages of $17K/day after
delivery date of June 30, 1981, or
$4.4M
 Was this in excess of the damages
actually suffered?
76
C and H Sugar
 Sun to pay damages of $17K/day after
delivery date of June 30, 1981, or
$4.4M
 Was this in excess of the damages
actually suffered?
 If Sun succeeded with this argument,
would Halter also have succeeded?
77
C and H Sugar
 UCC 2-718(1) Damages for breach by either party
may be liquidated in the agreement but only at an
amount which is reasonable in the light of the
anticipated or actual harm caused by the breach,
the difficulties of proof of loss, and the
inconvenience or nonfeasibility of otherwise
obtaining an adequate remedy.
 Is this consistent with Carborundum?
78
So what’s changed from last
summer?
79
Recognize this?
80
Commentaries 1765
 Pure and proper slavery does not, nay cannot, subsist in
England; such I mean, whereby an absolute and
unlimited power is given to the master over the life and
fortune of the slave. And indeed it is repugnant to
reason, and the principles of natural law, that such a
state should subsist anywhere.
81
Commentaries 1765

82
Upon these principles the law of England abhors, and will not
endure the existence of, slavery within this nation: so that
when an attempt was made to introduce it, by statute 1 Edw.
VI. c. 3. which ordained, that all idle vagabonds should be
made slaves, and fed upon bread, water, or small drink, and
refuse meat; should wear a ring of iron round their necks,
arms, or legs; and should be compelled by beating, chaining,
or otherwise, to perform the work assigned them, were it
never so vile; the spirit of the nation could not brook this
condition, even in the most abandoned rogues; and therefore
this statute was repealed in two years afterwards . And now it
is laid downd, that a slave or negro, the instant he lands in
England, becomes a freeman; that is, the law will protect him
in the enjoyment of his person, his liberty, and his property.
Seven years later…
Granville Sharp
83
Seven years later…
84
It comes to court:
R v Knowles, ex parte Somersett, 20 State Tr. 1 (1772).
Wm Murray, Earl Of Mansfield
85
Mansfield’s judgement
The state of slavery is of such a
nature, that it is incapable of being
introduced on any reasons, moral or
political, but only by positive law,
which preserves its force long after
the reasons, occasion, and time itself
from whence it was created, is erased
from memory. It is so odious, that
nothing can be suffered to support it,
but positive law. Whatever
inconveniences, therefore, may follow
from the decision, I cannot say this
case is allowed or approved by the
law of England; and therefore the
black must be discharged.
86
Good luck!
87