No. Illinois Gas – Liquidated Damages Clauses and UNDER-liquidated Damages

1. No. Illinois Gas – Liquidated Damages Clauses and UNDER-liquidated Damages In N.I.G., the LD clause provided only 4% of P’s actual damages so P wants out from under the clause. It doesn’t really work to argue that the clause is a PENALTY under traditional LD analysis because it is not unreasonably large. So P tries to make to arguments: 1. That the LD clause is not the exclusive remedy because the clause is silent. Court appears to reject this reasoning as to LD clauses generally – even if governed by 2-718. More on this later. 2. That the clause is governed by 2-719, which requires the clause to be expressly exclusive. Court rejects that 2-719 governs LD clauses. Is the court’s bright line distinction between clauses covered by 2-718 and 2-719 sensible?

2. Consider the following clause – is it a liquidated damages clause or a limited remedies clause. • “ALARM CO. IS NOT LIABLE FOR LOSSES WHICH MAY OCCUR IN CASE OF MALFUNCTION OR NONFUNCTION OF ANY ALARM SYSTEM. ALARM CO.’s EXCLUSIVE LIABILITY IN CASE OF MALFUNCTION OR NONFUNCTION (EVEN IF DUE TO ALARM CO.’s NEGLIGENCE OR FAILURE OF PERFORMANCE) IS LIMITED TO THE AMOUNT OF THE ANNUAL SERVICE CHARGE ($10,000).” Service charge = cost charged for maintaining alarm • Why does it matter?

3. Situations like N.I. Gas often turn on whether the LD clause is exclusive (even assuming governed by 2-718) - How do courts handle? If clause is expressly “exclusive:”Courts will enforce it as the exclusive remedy. If clause is expressly “non-exclusive:” Courts usually treat the liquidated damages as an optional remedy and allow P to pursue actual damages. If clause is silent as to exclusivity: Courts are split. • Some will enforce it as the exclusive remedy • Others will allow P to pursue actual damages instead

4. Doctrine of Avoidable Consequences General Rule:Judicially imposed doctrine holding that D is not liable for the consequences of his/her wrongdoing that the P reasonably could have avoided. • Similar to comparative fault - both doctrines are concerned w/ causal responsibility at loss. But avoidable consequences is concerned with P’s actions AFTER loss not before. Some particulars: • Applies to general and consequential damages But P need not take reasonable measures to avoid general damages that are SET at the time of injury • Applies in both contract and tort situations • Burden of proof is on D to show P could have avoided the consequences for which P is seeking redress

5. S.J. Groves & Sons – the facts • Groves (P) gets subcontract to place concrete decks for bridges • Groves Ks with Warner (D) to provide ready mix concrete in the mornings at bridge site • As early as 1971, D’s delivery is erratic – P incurs overtime labor costs as a result • In 1971 P considers and rejects getting an alternative source of supply of ready mix concrete – Trap Rock presents special problems • D continues to be erratic – On 6/14/72, P approaches Trap Rock who refuses to come down to Warner’s price. • On 6/21/72 DOT halts construction on bridge until they figure out what to do about D. D gives assurances and work resumes on 6/26/72. D’s performance improves but is uneven until the project finishes in 10/72. • On 7/11/72, Trap Rock is certified to do work for the state and agrees to provide cement at D’s price but P decides not to use them (and continues to incur overtime costs as a result). • DCT refuses to award damages incurred after 7/11/72 • 3rd Circuit says P is entitled to all overtime costs even after 7/11/72

6. S.J. Groves & Sons – the results • Why should Groves be able to recover all damages for overtime, even those post-7/11/72, when there is perfectly good cement available next door from Trap Rock (at the same price)? • What would court award if it knew with certainty that Groves had suffered $100,000 in damage but could have avoided $65,000 of those damages if it had acted reasonably? What facts would create such a scenario?

7. What are “reasonable efforts to avoid” the consequences of D’s wrongdoing? • Gerda is a high school math teacher with Master’s degrees in math and physics. She was recently unlawfully fired from her job at which her monthly contract wages were $3,000 (assume breach of contract). She was fired 1 month into her annual contract. What kind of job must she take in order for her to meet the “reasonable efforts” requirement? Must she: • Take a job as a bus driver for the remainder of the year for $1,500/month? • Take a job as a math/physics teacher in a town 50 miles away? 15 miles away? • Take a job as a substitute teacher in another district that will require her to commit to her new employer for the remainder of the year and allow her to teach math BUT only guarantee her teaching 2 days a week @ $15/hour.

8. General Formulation of “Reasonableness” Requirement Employment context: • P must use “reasonable diligence in finding other suitable employment. Although the un- or underemployed claimant need not go into another line of work, accept a demotion, or take a demeaning position, he forfeits his right to back pay if he refuses a job substantially equivalent to the one he was denied.” • Lower courts suggest you can’t keep looking forever though Bodily Injury Claims • “A person injured by another’s wrong is obliged to exercise “ordinary care” to seek medical or surgical treatment so as to effect a cure and minimize damages.” . . . However the injured person is regarded as having a right to avoid if she chooses peril to life, however slight, and undue risks to health and anguish that goes beyond the bounds of reason.”

9. Offsetting Benefits The requirement of offsetting benefits is a judicially imposed requirement that P’s damages should be reduced by the amount of any benefit that D conferred upon P as a result of D’s wrong. • The notion of offsetting benefits is related to the concept of avoidable consequences in that judges use it to reduce P’s damages. But that reduction comes as a result of D’s actions rather than P’s (at least theoretically).

10. Offsetting Benefits – Some Examples in both Tort & Contract Tort: Defamation P alleges lost income. D may show that P has large lecture fees as a result of the defamation that essentially replace lost income. • But offset applies only to “benefits to the interest of P that was harmed” Ex – P sues D for defamation alleging lost income. D can reduce P’s damages by showing defamatory statements made P in demand on the paid lecture circuit. BUT if P also sues for intentional infliction of emotional distress, D cannot use the paid lecture fees to offset emotional distress damages as the benefit does not go to the interest that was harmed. Contract: P/Seller contracts with D/Buyer for sale of goods that will bring in a certain profit. D/Buyer breaches. P resells and realizes higher profits on resale than under the original contract. P/Seller must credit D/Buyer’s damages with net gain of additional profit on resale. • Note there is no similar requirement of “benefit to P’s interest” here

11. Collateral Source Rule - Torts P may recover damages that include amounts for which plaintiff has already received compensation from sources independent of and collateral to D. • D is not entitled to admit as evidence or reduce P’s damages with the compensation P receives from independent sources. • Classic examples of collateral sources: • Insurance payouts • Benefits programs (Medicare, SS, Disability, etc.) – tricky? • Sick leave plans • Charitable donations • Compare to offsetting benefits - • What is the reason for this rule?