Avoidability – “Duty to Mitigate”

Contracts – Prof. Merges

April 11, 2011

Rockingham County v. Luten Bridge Co.

Rockingham County Comm.

Rockingham County’s Board consists of five members elected at-large for staggered four-year terms. This Board serves as Rockingham County’s general governing body, but shares authority over many governmental functions carried out at the county level with other elected officials. Major responsibilities lie in three functions:Establishment of overall fiscal policy through its budgetary powers, Regulation of private conduct through its ordinance-making powers, and General administration.

Rockingham County v. Luten Bridge Co.

• Facts

• Procedural History

What is an “executory” K?

What is an “executory” K?

• K which has been signed (executed), but not yet (fully) performed

Damages calculation

• How much did Luten spend between 1/7/24 and 2/21/24?

$1900

Damages calculation

• How much did Luten spend between 2/21/24 and 11/3/24?

$16,401.07

(Total, 1/24 – 11/24: $18,301.07)

Rockingham timeline

1/7/24: K signed

2/21/24: County

terminates K

11/3/24: Luten Co. stops

performance

Rockingham timeline

1/7/24: K signed

2/21/24: County

terminates K

Period 1: Damages?

Rockingham timeline2/21/24: County

terminates K

Period 2: Damages?

11/3/24: Luten Co. stops

performance

What is the court’s rationale?

“. . . After plaitntiff had received notice of the breach, it was its duty to do nothing to increase the damages flowing therefrom . . .”

What is the court’s rationale?

Further . . .

• “it is inflicting damage on the defendant without benefit to the plaintiff . . .”

Shades of efficient breach?

• Labor, materials, etc., to be used on bridge

• What is their next most efficient use?

How would you calculate proper damages in Luten Bridge?

How would you calculate proper damages in Luten Bridge?

• Expected profit + amount spent (1900)

Hypothetical construction K

• Building price: 100

• Projected cost: 80

• Expected profit: 20

• Price: 100

• Actual cost so far: 40

Hypothetical (cont’d)

• If actual cost fully salvageable, give 20

• If actual cost completely unsalvageable – eg bridge – give how much?

• 60!

• Always remember the basic principle: expectancy!

Parker v. 20th Century Fox

http://www.shirleymaclaine.com/

The Apartment (1961)

Shirley Maclaine

• 3 Oscar nominations, early 1960s: Irma La Douce (United Artists 1963) in 1964, The Apartment, (United Artists 1960) in 1961, and Some Came Running (Metro- Goldwyn-Mayer 1959) in 1960.

Parker v. 20th Century Fox

• Facts

• Procedural History

Mitigation in employment K’s

• What is the rule?

Mitigation in employment K’s

• What is the rule?

“The general rule is . . .” p. 640, top

Rule

• Salary in K, less –

– Amount employer affirmatively proves

– Employee has earned, OR

– “with reasonable effort might have earned”

Why is Maclaine entitled to damages?

• “Substitute” employment was both –

–“inferior” and

–“different”

What factors support court’s notion of inferior/different?

• Different movie, different location, no director approval, no screenplay approval

Director approval clause

• Why important?

• George Cukor films: My Fair Lady; Born Yesterday; Pat & Mike, Adam’s Rib; Gaslight, Philadelphia Story; Holiday [1938]; Dinner at 8; Tarnished Lady; Lust for Life; some scenes in Gone w/ the wind; Prisoner of Zenda

Dissent

• How much difference is required?

• Personal preferences – important?

Goldberg theory

• “Pay or play” contract

• Option analysis

• 1998 Wis. L. Rev. 1051 (1998)

The contract had a "pay-or-play" provision, common in the motion picture industry. The studio had, in effect, purchased an option on her time; they would pay her to be ready to make a particular film, but they made no promise to actually use her in making the film. When Fox canceled the project, they did not breach; they merely chose not to exercise their option. There was no breach and, therefore, there was no need to mitigate.

“Real Options” Theory

• It is more valuable to have an “opt out” than to have to make only 1, irreversible commitment

• “Discounted cash flow” models vs real options theory

Jacob & Youngs v. Kent

Jacob & Youngs v. Kent

• Facts

• Procedural history

breach issue

• K: pipe of “ . . . Of Reading manufacture . . .”

• Plaintiff supplied some pipe from Cohoes

Damages issue

• What is defendant’s theory?

Damages issue

• What is plaintiff’s theory?

Holding

• “ . . . Not cost of replacement, but difference in value . . .”

• “nominal or nothing” – p. 645

Jacob & Youngs

• Performance issue

• “Substantial performance” and the law of conditions

What is at stake?

• Does the defendant have to complete performance, or is the defendant excused from further performance?

Sequence of facts

1. J&Y Perform; architect cert.; Kent pays

2. Repeat

3. Repeat

4. …..

5. Kent argues J&Y have breached; says this excuses him (Kent) from further performance

• Kent gets to keep the $3500 final payment due to J&Y’s breach

Analyze in terms of conditions

• Your performance is a condition of my performance

• If you don’t perform, I don’t need to

• I am “excused” because a “condition of my contract” did not occur

Holding

• Plaintiff may recover the $3500

Does “substantial performance” mean “plaintiff always gets away

with a breach?

Does “substantial performance” mean “plaintiff always gets away

with a breach?

• Absolutely not!

• Rule: p. : unintentional transgressor must offer “atonement” – “measure of allowance” – i.e., OFFSET against $3500 claimed here