Week Fourteen, Part 1 - Contracts: Psychological Crisis

Due to the Thanksgiving holidays, we only have three days of class, Monday through Wednesday. Rather than ease up, however, the profs go full bore. Final exams are approaching and we all sense the urgency.

Contracts class is the worst. We lag 100 pages behind the other two sections, and there are only four periods remaining.

Professor Cathy Kaveny starts class by telling us, “The one thing harder than taking an exam is drafting it.”

No, I think. Try being a 1L with a rookie prof and new casebook!

We motor through five appellate cases under the broad topic of expectation damages, one of the basic theories of recovery.

In Evergreen Amusement, a 1955 Maryland case, a contractor named Milstead was slow in completing his work. As a result, the theater opened in August instead a June, over six weeks late. Evergreen Amusement sued for lost profits based on the rental value of the theater property plus out-of-pocket costs.

We discuss whether lost profits from a business not yet in operation are too speculative to permit recovery.

Some of us agree with the appellate court. It held that lost profits are “incapable of being ascertained with the requisite degree of certainty.”

The elevated language amuses me. I imagine myself using it when my wife Terri asks, “What time will you be home from the library?”

Professor Kaveny says, “The clash here goes to the heart of contract law. As a general rule, calculating expectation damages is an exercise in speculation. You’re always guessing to some degree when you figure how to put the non-breaching back where he or she would've been. But in Evergreen, the basic point is that you can't get damages because it's too speculative. We call this the New Business Rule.”

She asks for a volunteer to make the case for Evergreen Amusement Corp.

Silence.

“John Cerone,” Kaveny says. She looks his direction. He’s a student from New York, undergrad at Cooper Union, heavy to the point of obesity.

“Well,” he says, “Evergreen wanted to bring in an expert who had opened up similar movie theaters.” John scans his brief. “He had all this cool data about weather patterns and population growth which correlated with likely profits. The expert would have showed a way to figure how much money Evergreen lost. It wasn’t speculative at all!”

John’s making the argument like he’s litigated a dozen of these cases.

“Even though we have a new business?” Kaveny asks.

“Absolutely!” says John. “Not giving expectation damages here undermines everybody’s right to recovery. There will always be variable data. You just deal with it!”

Kaveny smiles.

John adds. “I see this case as contract law hitting the wall. For some reason it’s unable to push on any farther.”

We laugh.

“You’re right, Mr. Cerone. It’s almost a psychological crisis! And if you look at the squib following Evergreen, you see the New Business Rule is in decline. In short, it’s just not fair.”

I’ve never seen a student go “big picture” and make an original argument. Wow! I want to do that. But when? It’s incapable of being ascertained with a requisite degree of certainty. Right now I’m still swimming in the primordial soup, while mutant Cerone has sprouted legs and crawled onto dry land.

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