shortened formula Damages = expected profit + un-reimbursed expenditures Damages must be reasonable and foreseeable / “within reasonable contemplation” of both parties at the time of contract formation. — “a normal and foreseeable result of the breach and within the contemplation of the parties.” Consequential damages are subject to certain requirements and limitations, including: a.
The Hadley rule– damages are recoverable only if they were reasonably foreseeable at the time of the contract; b.
The prohibition on speculative damages– damages must be proven with reasonable certainty; and c.
The duty to mitigate damages– damages may not be recovered to the extent that they could have been avoided or minimized by reasonable efforts. Damages are measured in terms of what was expected at contract formation– not in terms of objective value of goods or services bargained for.
Example: school board contracts for 1 year with teacher for $10,000.
Teacher breaches contract and board is forced to higher another teacher at $12000 because replacement teacher is more experienced.
Damages are present because board bargained for $10K teacher and was forced to take $12K teacher– added value of teachers experience were not part of original bargain.
If school “selected” a more experienced teacher out of a field of qualified teachers that included teachers that would be paid only $10K, then there would be no damages. Sale of real estate: expectation damages = contract price – market value at time of breach Building contract: expectation damages = expected net profit on entire contract + un-reimbursed expenses at time of breach Consequential Loss Hadley v.
Baxendale 1854 The Hadley rule places limitation on damages that would otherwise be recoverable under an unrestricted “expectation rule” “Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.”
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