STUDENT ANSWER 1: 1. The issue is whether the trial court erred in awarding the Rancher, an aggrieved party in a breach of contract claim, a $500,000 award for restoration of the Ranch when the breaching party showed by expert testimony a diminution of value of only $20,000 in the Ranch’s current condition? The trial court had already determined that an enforceable contract existed between the Rancher and Gasco, and that the contract was breached by Gasco when it failed to restore the Ranch to its pre-exploration condition by March 31. The sole issue here is the issue of damages. Specifically, whether the award of $500,000 to restore the ranch was grossly and unfairly out of proportion to the benefit to be achieved? Remedies for breach of contract seek to compensate an aggrieved party for profits that were prevented and losses sustained due to the breach of contract. Typically, three (3) types of damages are available to an aggrieved party under Common Law contract law (UCC Article 2 does not apply here since the contract does not involve the sale of good but rather a lease for real property): (1) restitution damages, (2) reliance damages, and (3) expectation damages. The first two types of damages help an aggrieved party recover the benefit bestowed upon a breaching party to prevent its unjust enrichment, which includes the recovery of out-of-pocket expenses, if foreseeable and ascertainable at the time of the breach, that were wasted by the aggrieved party in getting ready to perform. The third type of damages, expectation damages, aims to place an aggrieved party in the same financial position as if the contract had been fully performed and not breached. This type of damages seeks to award the plaintiff in a breach of contract claim the benefit of the bargain, which are often the lost profits resulting from the breach. Contract law does not punish breaching parties. In fact, pain and suffering and punitive damages are not recoverable in breach of contracts claims. The general formula to calculate expectation damages (measured at the time the contract is breached) is as follows: The value of what was received + expectation damages + foreseeable consequential damages – expenses that an aggrieved would have incurred by performing under the contract. The Common Law recognizes the Doctrine of Substantial Performance. Substantial performance occurs when a party performs a contract almost fully, leaving minor, non-essential deficiencies that could be easily remedied (i.e. performance that is at least 90% complete). The majority of states hold that when a party “substantially performs” a contract, the remaining deficiencies constitute immaterial breach that does not relieve the non-breaching party from performing or paying under the contract. The minority of states allow a non-breaching party to assert a separate claim for unjust enrichment. However, under the New York Court of Appeals decision in Jacobs & Young v. Kent, the measure of damages in a situation such as this one is different. When the cost to correctly complete a contract is grossly and unfairly out of proportion to the benefit to be achieved, then to prevent economic waste, the measure of damages is the difference in value between the value of the substantial performance and the value of what would have been tendered if there had been full performance. Here, Gasco vacated the Ranch by March 31 but failed to return the Ranch to its pre-exploration condition. The majority of states may hold that Gasco substantially performed under the contract. However, the cost of restoration is $500,000 when the Ranch is only devalued by $20,000 in its current condition. The benefit to be bestowed upon the Rancher is grossly out of proportion compared to the damages Gasco must pay, which could even be considered “punitive.” The measure of damages under Kent is therefore directly applicable here. The proper measure of damages here is probably $120,000, which includes $40,000 of savings per year in holding the clinics on the Ranch for that 3-year period in. In conclusion, the court erred in awarding the Rancher $500,000 for the Ranch’s restoration. 2) The issue is whether the court erred in awarding the Rancher $300,000 for lost profits when the measure of damages was speculative. Lost profit damages compensate a plaintiff for profits the plaintiff could have made if the contract was not breached. Lost profits are part of “expectation damages,” as explained above, and seek to provide the aggrieved party with the benefit of the bargain. However, damages must be pleaded with reasonable certainty, and damages are measured at the time of the breach. Thus, a court is reluctant to award speculative damages, especially to new business ventures where the absence of prior years’ financial records and revenues makes the calculation of lost profits too speculative. Here, the Rancher expected to use the Ranch he recently purchased to conduct cattle roping clinics on its pasture. The Rancher would have incurred an expense of $10,000 per summer for the business use of his new Ranch, instead of $50,000 per summer while traveling to conduct his business. Furthermore, the Rancher anticipated 50 people to enroll in his classes for the next three years. According to the Rancher’s estimates, each person would have paid $2,000 per year, thereby providing the Rancher with annual revenues of $100,000. However, since the Rancher has no way of predicting 50 people would enroll each year and that each would pay $2,000 per year, this estimate is too speculative to serve the basis for award of lost profits. Further, it is unknown what the Rancher’s revenues had been in prior years when he traveled in order to conduct business. Thus, since lost profit damages seeks to give the aggrieved the benefit of the bargain, the question is what did the Rancher expect to receive and what did he actually receive? At a minimum, the Rancher expected to spend $10,000 per year by using his own Ranch, and even if the Rancher indeed grossed $100,000 per year, his lost profits would have been only $90,000 per year, or $270,000 for three years. Moreover, since the Gasco executives were apprised of the Rancher’s expenses before they entered into the contract (at the drive-through), the Rancher could possibly recover $40,000 per year for the 3-year period as consequential damages, since such expenses were foreseeable and in contemplation by the parties when they entered into the contract. Thus, even if the court’s award of $300,000 for lost profits is set aside on appeal as too speculative, the Rancher might still be able to recover $120,000 in consequential damages for the 3-year period during which the Ranch will undergo restoration. In conclusion, the court erred in awarding the Rancher $300,000 for damages resulting from the Rancher’s inability to conduct roping clinics on his Ranch for 3 years. STUDENT ANSWER 2: The first issue in this case is whether the trial court erred in award the Rancher the cost of restoring the Ranch to its pre-exploration condition. The rules regarding the awarding of damages are as follows. Damages are awarded in most circumstances where there has been a breach of contract. However, damages will not be awarded for a breach of contract if one of the four situations arises. First, consequential damages will not be awarded unless those damages were within the contemplation of both parties at the time the contract was executed. Second, damages will not be awarded where the damages could have been avoided. Third, damages will not be awarded for pain and suffering – emotional distress. Lastly, damages will not be awarded when they are too speculative. Speculative damages most commonly arise surrounding new business and anticipated lost profits, but courts are reluctant to award such damages without actual proof of the lost profits. Here, the damages the Rancher was awarded were for the cost of restoring the Ranch to its pre-exploration condition. The Rancher was awarded these damages because they were neither consequential nor avoidable. The damages were not consequential because they were not contemplated by both the Rancher and Gasco when the contract was executed. The signed writing does not show any evidence that either party expected the Ranch was not going to be restored to its pre-exploration condition. In fact, the facts state the contract specifically stated that the Ranch would be restored to its pre-exploration condition by March 31 of the following year. Additionally, these damages could not have been avoided by the Rancher because there was no evidence Gasco was not going to perform the restoration. Gasco had performed the exploration according to the terms of the contract and the facts do not indicate anything to suggest a potential anticipatory breach by Gasco before the date the restoration was to be completed. Thus, the court did not err in awarding the Rancher the cost of restoring the Ranch to its pre-exploration condition. The second issue in this case is whether the trial court erred in awarding the Rancher $300,000 as a result of his inability to conduct roping clinics on the Ranch for the next three years. The rules regarding the awarding of damages are as follows. Damages are awarded in most circumstances where there has been a breach of contract. However, damages will not be awarded for a breach of contract if one of the four situations arises. First, consequential damages will not be awarded unless those damages were within the contemplation of both parties at the time the contract was executed.