Remedies for Brea §18.13.2 the amount of ketchup that she needed. Unopened boxes of sachets were beginning to pile up in her small storeroom, and it was clear to her that she already had enough ketchup to last her for more than a couple of years. She therefore declined to order or accept delivery of any more ketchup from Sauce Source. When the year-long contract period ended, Sauce Source sent an invoice to Gracie for $1,250, based on the price of the minimum quantity that she had failed to take during the last five months of the contract. Gracie protested to the manager of Sauce Source, She pointed out that ketchup had gone up in price since they made their contract, and she suggested that Sauce Source simply sell the remaining boxes at a better price to someone else. The manager told her that they had enough ketchup to keep all their customers supplied, with plenty over, so her breach actually reduced their volume of sales for the year. In any event, he reminded her that she did agree to this payment in the contract. Gracie feels that the invoice is ridiculous, Should she pay it? EXPLANATIONS 1. Had the town not breached the contract, Percy would have spent $150,000 and carned $250,000, leaving him with a profit of $100,000. This is his expectation interest. Had he incurred no costs, an award of $100,000 would fully compensate for the loss of this expectation, but as he has already made expenditures and commitments in reliance on the contract, these must be returned to him as well. Thus, his full expectation recovery is his reliance losses plus his expected profit. Had Percy stopped work immediately upon the town’s breach, his outlay in reliance on the contract would have been $56,000. (The $50,000 spent on materials, the $4,000 paid in wages, and the $2,000 severance pay for which he was committed.) However, not all his reliance expenditure is wasted, because he can recover $20,000 as salvage for the unused materials; therefore this amount must not be included in his reliance loss, which is reduced to $36,000. This, added to his expected profit, leaves him with expectation damages of $136,000. We get the same answer if we use the formula of awarding him full contract recovery ($250,000) less costs saved as a result of the breach. By not completing the work, he saved $94,000 (total cost of $150,000 less costs already incurred, $56,000) and then recouped a further $20,000 of what he would have spent, making his total savings $114,000. This amount, deducted from $250,000. leaves $136,000 Although $136,000 would have fully compensated Percy had he ceased work when told. it does < give him his full expectation because he continued perfor: 7.000 by es extra two weeks, incurring addi- tional losses of crial and paying more wages 659§18.13.2 660 Contracts: Examples and Explanations to his assistants. He was not justified in obstinately persisting in his perfor- mance following the town’s clear and unequivocal breach. In doing so, he unnecessarily increased his loss, and the mitigation principle precludes him from holding the town responsible for the resulting aggravation of his damages. In Rockingham County». Luten Bridge Co., 38 F.2d 301 (4th Cir, 1929), the county breached its contract for the construction of a bridge by terminating the project and telling the contractor to stop work. The contractor disregarded the instruction and continued to build the bridge. Tt was held entitled to recover its anticipated profit as well as those losses incurred up to the date of breach, but was denied any compensation for expenditures made after the breach. 2. Buddy's acceptance of the offer to star in Hamlet could be seen as a modification of the contract. If it was, there is no issue of breach or damages—the parties have simply changed their terms. However, when one party seeks to substitute a performance different from that originally agreed, the circumstances are also consistent with breach and offer of miti- gation. It is important to distinguish these situations by interpreting the words and conduct of the parties in context; otherwise a party accepting an offer of a mitigating substitute from the breacher could lose his claim for damages to compensate for the difference in value of the original and substitute performances. In Buddy’s case, the facts indicate that Medea breached and then offered a substitute in mitigation. This seems a more appropriate conclusion given Medea’s attitude (she informed Buddy of her decision rather than secking to negotiate a change) and Buddy’s reluctant acquiescen €. Since Medea terminated the contract before performance was due, this is an anticipatory repudiation, It is unequivocal, material, and total. (This issue is discussed in section 17.7.2.) Upon Medea’s total breach, Buddy is entitled to sue for his lost profit under the contract, less any amount recovered in mitigation. (In an employment contract, lost profits are commonly equal to the full salary because employees usually do not have to incur costs to perform, but any earnings from substitute employment must be deducted from damages as mitigation.) Hamlet is surely a substitute contract, because Buddy would not have been able to do both films, since the production dates are the same. (In fact, ‘Medea’s decision to produce the second was apparently based on her deci- sion to cancel the first.) When, as a result of the breach, the plaintiff is released from his performance so that he can undertake other work that could not have been done in the absence of breach, any earnings from that other work must be treated as a gain from the breach and offset against damages. Therefore, his carnings from Hamlet ($5 million) must be deducted from his damages for the breach of the initial contract 3. Buddy has rejected the opportunity to reduce his damages by star- ring in Hamlet for $5 million, Because he could find no other substitute§18.13.2 660 Contracts: Examples and Explanations to his assistants. He was not justified in obstinately persisting in his perfor- mance following the town’s clear and unequivocal breach. In doing so, he unnecessarily increased his loss, and the mitigation principle precludes him from holding the town responsible for the resulting aggravation of his damages. In Rockingham County». Luten Bridge Co., 38 F.2d 301 (4th Cir, 1929), the county breached its contract for the construction of a bridge by terminating the project and telling the contractor to stop work. The contractor disregarded the instruction and continued to build the bridge. Tt was held entitled to recover its anticipated profit as well as those losses incurred up to the date of breach, but was denied any compensation for expenditures made after the breach. 2. Buddy's acceptance of the offer to star in Hamlet could be seen as a modification of the contract. If it was, there is no issue of breach or damages—the parties have simply changed their terms. However, when one party seeks to substitute a performance different from that originally agreed, the circumstances are also consistent with breach and offer of miti- gation. It is important to distinguish these situations by interpreting the words and conduct of the parties in context; otherwise a party accepting an offer of a mitigating substitute from the breacher could lose his claim for damages to compensate for the difference in value of the original and substitute performances. In Buddy’s case, the facts indicate that Medea breached and then offered a substitute in mitigation. This seems a more appropriate conclusion given Medea’s attitude (she informed Buddy of her decision rather than secking to negotiate a change) and Buddy’s reluctant acquiescen €. Since Medea terminated the contract before performance was due, this is an anticipatory repudiation, It is unequivocal, material, and total. (This issue is discussed in section 17.7.2.) Upon Medea’s total breach, Buddy is entitled to sue for his lost profit under the contract, less any amount recovered in mitigation. (In an employment contract, lost profits are commonly equal to the full salary because employees usually do not have to incur costs to perform, but any earnings from substitute employment must be deducted from damages as mitigation.) Hamlet is surely a substitute contract, because Buddy would not have been able to do both films, since the production dates are the same. (In fact, ‘Medea’s decision to produce the second was apparently based on her deci- sion to cancel the first.) When, as a result of the breach, the plaintiff is released from his performance so that he can undertake other work that could not have been done in the absence of breach, any earnings from that other work must be treated as a gain from the breach and offset against damages. Therefore, his carnings from Hamlet ($5 million) must be deducted from his damages for the breach of the initial contract 3. Buddy has rejected the opportunity to reduce his damages by star- ring in Hamlet for $5 million, Because he could find no other substitute