Court Opinion

ID: 9447686
Source: CourtListenerOpinion
Date Created: 2023-08-03 22:41:12.857098+00
Date Added: 2024-06-11T17:31:08.662315
License: Public Domain

LUMBARD, Chief Judge
(concurring-in part and dissenting in part).
I am in full agreement with all of' Judge FRIENDLY’S opinion for the majority except for that section which recomputes the damages to be assessed against the defendants. I would determine the damages by adding to the anticipated profits ($34,955.50) the actual loss incurred during the first 38% days-* of the substitute charter ($33,680.19), allowing damages in the total amount of' $68,635.69. Thus, I differ from the opinion of the majority in two respects.
I.
The majority assumes that the recoverable damages are to be measured' entirely by the freight which would have-been paid on the cancelled charter. It-proceeds to compute the “saving” attributable to the breach by adding together (1) the amount which the plaintiff would', have spent on the cancelled charter in excess of his cost of remaining idle im port and (2) the substitute charter’s-*350contribution towards the amount which would have been spent had the plaintiff stayed in port for the 38% days of the cancelled charter. The latter figure is computed by first subtracting all the expenses in excess of in-port costs from the total freight of the substitute charter and then multiplying the remainder by the ratio that the time to be consumed by the cancelled charter bore to the time taken by the substitute. This sum is then subtracted from the freight that was due on the cancelled charter, and the remainder is awarded as damages.
However, the black-letter rule on contract damages, agreed upon by all authorities, is that they should be so measured as to put the plaintiff where he would have been had the contract been performed. See McCormick, Damages § 137 (1935); 5 Corbin, Contracts § 992 (1951). What should be awarded to the plaintiff is the value of performance, or, in other words, the anticipated benefit plus the negative or “reliance” interest. See 5 Williston, Contracts § 1339 (1937); Fuller & Perdue, The Reliance Interest in Contract Damages, 46 Yale L.J. 52, 373 (1936). The Restatement of Contracts § 329 says: “Where a right of action for breach exists, compensatory damages will be given for the net amount of the losses caused and gains prevented by the defendant’s breach, in excess of savings made possible. * * * ” (Emphasis added.)
Hadley v. Baxendale, 9 Exch. 341 (1854), of course puts a ceiling on the recovery of losses. But if they were reasonably foreseeable at the time of contracting, then the plaintiff is entitled to have “not only assessment of gains prevented by the breach but also of losses ensuing which would not have occurred had the contract been performed.” 5 Williston, Contracts p. 3764 (1937). (Emphasis added.) Had the defendant in this case been told by the plaintiff at the time they entered into the contract, with necessary detail, that a profitable charter awaited the plaintiff in Korea, the defendant could not have avoided liability for the loss of that profit if the breach prevented the plaintiff from reaching Korea.
If, as the majority suggests, damages are determined by matching the receipts of the substitute charter against the anticipated expenses of the cancelled one, damages could not exceed the original freight even if they were foreseeable. Moreover, even if such special foreseeable damages were included in the majority’s formula as special expenses of the substitute charter, they would be only partially restored once the computation was complete.1
The gain that was prevented by the breach was the anticipated net profit— the difference between the freight and the full stipulated cost of performing the cancelled charter. This amount, $34,-955.59, is clearly recoverable in'full under any computation of damages. What I would add to the anticipated profit is the loss incurred as a result of the breach.
In fact, the planned voyage was never made. Thus, the hypothetical allocation of expenses between those which would have been sustained in port and those attributable to travel is not only confusing and uncertain but also totally irrelevant. In addition to the lost profit, the breach caused an out-of-pocket loss insofar as it made necessary a loss charter; the substitute here was found to be reasonable by the district court. Since it was foreseeable that the cost of operating the ship would force the plaintiff to undertake a substitute charter, the de*351fendant should be charged with whatever loss ensued from the substitute.
“A breach of contract may cause loss as well as prevent gain,” Restatement, Contracts § 329, comment g, and the breach in this case prevented a gain of $34,955.50 and caused a loss of the deficit on the substitute which amounted to $71,735. If the loss for all 82 days were added to the anticipated profit, the total recovery would be $106,790.
II.
We have in earlier cases, however, approved a prorating formula for determining profits made on a substitute charter which lasted beyond the period which was to be covered by the original. United Transportation Co. v. BerwindWhite Coal-Mining Co., 2 Cir., 1926, 13 F.2d 282. Whether prorating is proper when it is a loss that is being accounted for is not entirely beyond controversy. However, the reason for crediting a defendant with merely a daily portion of a profit realized on a substitute contract such as that in Berwind-White seems equally persuasive in the case of a loss. Just as it is too speculative to presume that beyond the period of the original charter, had it been performed, the plaintiff could not have made profits in excess of what he realized on the substitute, it is uncertain whether a plaintiff would not, in fact, have suffered greater losses than he did under the substitute if the original charter had been performed. Thus, I conclude that it is equitable to apply the prorating rule to the losses in this case, in view of the record before us.
The majority, however, would prorate only the “overhead” expenses of the type which would have been incurred had the plaintiff stayed in port. I cannot agree with the reasoning which results in such a calculation.
Several unexpressed premises underlie this computation. First, by drawing the line where he does, Judge FRIENDLY as sumes that a shipowner such as the plaintiff ordinarily bears overhead costs in an amount equal to the expenses of maintaining an idle ship. The facts of this very case, however, indicate that this is not true. When notified that the charter could not be performed, the plaintiff accepted a substitute, although it committed him to a daily out-of-pocket loss of over $800. The “overhead” of a ship is not at all like that of a haberdasher; it may be, as the stipulated figures regarding the cancelled charter indicate, the major portion of the cost to the shipowner of performing the service for which he is hired. Apparently, a shipowner whose vessel is unemployed in port for any substantial length of time suffers prohibitive losses, and it is more desirable for the owner to accept a losing charter which defrays some of the overhead costs than to wait idly in port. It is, therefore, erroneous to distinguish between the expenses incurred in port and the costs attributable to travel. To compute “savings” by hypothesizing expenses had the ship not moved from its dock is to adopt an unrealistic contrast.
Second, the majority’s computation cloaks an assumption that the non-overhead expenses of the last 43% days of the substitute charter would not.have been suffered had the original charter not been cancelled. As to fuel, this seems highly unlikely, since the ship might well have been employed elsewhere. Nor does it seem probable that other loading and discharge would not have been done. These expenses might, of course, have been balanced by freight payments for subsequent charters, but the entire computation is at best speculative. It is no more reasonable to assume that had the charter not been cancelled all later contracts would have been profitable ones than to assume that some might have resulted in losses.
Third, the classification of various items of expenditure into the overhead and non-overhead, or in-port and travel, *352categories involves the court in confusion and speculation. An accurate calculation would require, as Judge FRIENDLY admits, that fuel costs for the stay in port be classified as overhead. Moreover, the majority assumes that the other overhead expenses would be the same in port as at sea, and speculates as to the allocation of the total-daily-expense figure of $1,510 provided for in the stipulation. If there were no stipulation, the majority’s decision here would require the district court to decide not only what the total expense of the cancelled charter would have been, but to allocate the hypothetical figures by determining — at a second hypothetical remove — what would have been spent had the ship stayed in port.
I would, therefore, compute the daily loss" on the entire substitute charter just as did the commissioner in BerwindWhite with regard to daily profits. When multiplied by the 38% days for which the original charter is accountable, the total prorated loss comes to $33,-680.19. This sum should be added to the anticipated profit for a damage figure ■of $68,635.69, almost $5,000 less than the majority’s award. In an area in which the computation of damages is, as .Judge FRIENDLY concedes, approximate at best, this method has the merit of simplicity and avoids the hairline distinctions between overhead expenses and those which would not have been incurred “regardless of performance.”
It might appear anomalous that this ■dissenter, while objecting to the majority’s formulation as too restrictive from the plaintiff’s point of view, would •emerge with a damage award smaller than that of the majority. However, this result follows from the fact that the .■substitute charter was undertaken for a period considerably longer than that which was planned under the cancelled •charter, and from the rule requiring us •to prorate the loss.

. If, for example, it was proved that a $25,000 profit on a charter leaving from Korea was foreseen by the parties at the time of contracting and this figure were added to the substitute’s special expenses, the total of expenses attributable to performance of the substitute would come to $135,874. This would leave, as a balance applicable to general expenses, $16,436. When prorated onto a 38% day period, the allocated contribution would come to $7,716.94. This means that, under the majority’s formula, $50,-418.06 would be added to the anticipated profit instead of the present figure of $38,680.18. The plaintiff would, therefore, realize only $11,737.88 of his $25.-000 loss.