State Damages Determination Contract Analysis Colorado State Damages Determination Contract Analysis
State Damages Determination Contract Analysis
Colorado State Damages Determination Contract Analysis
Note: This is a two-part assignment that consists of two different contract analysis scenarios. Please answer both scenarios on one document, and upload it to Blackboard.
Contract analysis scenario one—damages determination: Alfred and Barbara own adjoining farms in Dry County, an area where all agriculture requires irrigation. Alfred bought a well-drilling rig and drilled a 400-foot well from which he drew drinking water. Barbara needed no additional irrigation water, but in January 1985, she asked Alfred on what terms he would drill a well near her house to supply better-tasting drinking water than the county water she has been using for years. Alfred said that because he had never before drilled a well for hire, he would charge Barbara only $10 per foot, about one dollar more than his expected cost. Alfred said that he would drill to a maximum depth of 600 feet, which is the deepest his rig could reach. Barbara said, “OK—as long as you can guarantee completion by June 1, we have a deal.” Alfred agreed, and he asked for $3,500 in advance, with any further payment or refund to be made on completion. Barbara said, “OK,” and she paid Alfred $3,500.
Alfred started to drill on May 1. He had reached a depth of 200 feet on May 10 when his drill struck rock and broke, plugging the hole. The accident was unavoidable. It had cost Alfred $12 per foot to drill this 200 feet. Alfred said he would not charge Barbara for drilling the useless hole in the ground, but he would have to start a new well close by and could not promise its completion before July 1.
Barbara, annoyed by Alfred’s failure, refused to let him start another well. On June 1, she contracted with Carl to drill a well. Carl agreed to drill to a maximum depth of 350 feet for $4,500, which Barbara also paid in advance, but Carl could not start drilling until October 1. He completed drilling and struck water at 300 feet on October 30.
In July, Barbara sued Alfred, seeking to recover her $3,500 paid to Alfred, plus the $4,500 paid to Carl.
On August 1, Dry County’s dam failed, thus reducing the amount of water available for irrigation. Barbara lost her apple crop worth $15,000. The loss could have been avoided by pumping from Barbara’s well if it had been operational by August 1. Barbara amended her complaint to add the $15,000 loss.
In a minimum of a 1,000-word contract analysis, discuss Barbara’s suit against Alfred. What are Barbara’s rights, and what damages, if any, will she recover?
Cite any direct quotes or paraphrased material from outside sources. Use APA format.
Contract analysis scenario two—remedies determination: Mundo manufactures printing presses. Extra, a publisher of a local newspaper, had decided to purchase new presses. Rep, a representative of Mundo, met with Boss, the president of Extra, to describe the advantages of Mundo’s new press. Rep also drew rough plans of the alterations that would be required in Extra’s pressroom to accommodate the new presses, including additional floor space and new electrical installations, and Rep left the plans with Boss.
On December 1, Boss received a letter signed by Seller, a member of Mundo’s sales staff, offering to sell the required number of presses at a cost of $2.4 million. The offer contained provisions relating to the delivery schedule, warranties, and payment terms but did not specify a particular mode of acceptance of the offer. Boss immediately decided to accept the offer and telephoned Seller’s office. Seller was out of town, and Boss left the following message: “Looks good. I’m sold. Call me when you get back so we can discuss details.”
Using the rough plans drawn by Rep, Boss also directed that work begin on the necessary pressroom renovations. By December 4, a wall had been demolished in the pressroom, and a contract had been signed for the new electrical installations.
On December 5, the President of the United States announced a ban on foreign imports of computerized heavy equipment. The ban removed—from the American market—a foreign manufacturer that had been the only competitor of Mundo. That afternoon, Boss received an email from Mundo stating, “All outstanding offers are withdrawn.” In a subsequent telephone conversation, Seller told Boss that Mundo would not deliver the presses for less than $2.9 million.
In a minimum of a 1,000-word contract analysis, discuss the following questions: Was Mundo obligated to sell the presses to Extra for $2.4 million? Assume Mundo was so obligated. What are Extra’s rights and remedies against Mundo? CORE SKILL: identifying the CATEGORY of damages and applying the limiting doctrines. Contract damages are governed by a coherent theory, and reciting categories without the theory earns little.
THE GOVERNING PRINCIPLE: contract damages are COMPENSATORY, not punitive. The aim is the EXPECTATION INTEREST — put the non-breaching party in the position they WOULD HAVE OCCUPIED HAD THE CONTRACT BEEN PERFORMED. That single sentence generates most of the doctrine, and stating it up front frames everything you say afterward. (Punitive damages are generally NOT available for breach of contract absent an independent tort — a rule students frequently get wrong.)
THE CATEGORIES:
— EXPECTATION (benefit of the bargain): the default measure. Loss in value + other loss − cost avoided − loss avoided.
— CONSEQUENTIAL (special) damages: losses beyond the contract itself — lost profits from collateral dealings. GOVERNED BY HADLEY v. BAXENDALE: recoverable only if they arise naturally from the breach, OR were within the REASONABLE CONTEMPLATION of both parties at the time of CONTRACTING (i.e., the breaching party had reason to know of the special circumstances). The Hadley foreseeability limit is the most heavily tested doctrine in this area — cite the case by name.
— INCIDENTAL: costs of dealing with the breach (storing rejected goods, arranging cover).
— RELIANCE: expenditures made in reliance on the contract; used when expectation damages are too speculative to prove.
— RESTITUTION: the value of the benefit conferred on the breaching party; prevents unjust enrichment.
— LIQUIDATED DAMAGES: a sum stipulated in the contract. ENFORCEABLE only if (1) actual damages were DIFFICULT TO ESTIMATE at the time of contracting, and (2) the amount is a REASONABLE FORECAST of probable loss. If it functions as a PENALTY designed to coerce performance rather than to compensate, it is UNENFORCEABLE — courts will not enforce in terrorem clauses. The test is applied as of the time of CONTRACT FORMATION, not with hindsight. This distinction (liquidated damages vs. penalty) is almost always the point of a “damages determination” problem.
— NOMINAL damages: breach without provable loss.
THE LIMITING DOCTRINES — apply all four to any damages problem or you have not finished the analysis:
1. FORESEEABILITY (Hadley).
2. CERTAINTY: damages must be proven with reasonable certainty; SPECULATIVE lost profits are not recoverable (which is why new businesses historically struggled to recover lost profits).
3. MITIGATION: the non-breaching party has a DUTY TO MITIGATE — they cannot recover losses they could reasonably have avoided. This is not a duty in the strict sense (no one sues you for failing to mitigate); it simply reduces recovery.
4. CAUSATION.
UCC-SPECIFIC (if goods): buyer’s remedies — COVER (§2-712: buy substitute goods, recover the difference) or MARKET-PRICE damages (§2-713). Seller’s remedies — resale (§2-706), lost volume seller doctrine.
STRUCTURE EACH SCENARIO WITH IRAC: Issue, Rule, Application, Conclusion. State the amount and SHOW THE ARITHMETIC — a damages answer without a number is incomplete.
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