Contracts
Exam 29
Fact pattern
Restaurateur recently opened a tapas and wine bar, whose reputation relied on being able to serve its customers quality wines. To ensure a steady supply, Restaurateur signed an agreement with Wine Store to purchase 10 cases of “assorted top-quality red wines” per month. The contract had a term of 24 months. Restaurateur’s total contractual obligation for these shipments was $160,000, to be paid in four installments of $40,000 every six months.
Wine Store performed under the agreement for the first 18 months, and the bar had a smooth opening. After delivery of the eighteenth monthly shipment, however, Wine Store’s CEO emailed Restaurateur the following:
Apologies for the inconvenience, but I’m afraid this will be our last shipment of wine to your bar. Market changes and some staffing difficulties prevent us from being able to ship any further cases at this time.
Restaurateur called Wine Store to confirm Wine Store’s refusal to send more shipments. A Wine Store representative confirmed the CEO’s email. Up to that point, Restaurateur had paid only two installments to Wine Store, for a total of $80,000. Under the contract’s terms, Restaurateur’s third $40,000 payment to Wine Store was due in a few days. However, Restaurateur refused to send the payment, arguing that Wine Store’s breach had eliminated any further payment obligations.
Restaurateur looked for a new wine supplier, but the lowest price Restaurateur was able to find for equivalent-quality wines was $50,000 every six months. Restaurateur then signed a contract with that substitute wine supplier that covered the six months that Wine Store refused to supply Restaurateur, as well as future terms.
Wine Store sent Restaurateur a $40,000 invoice for the wine shipments it had sent during months 13 to 18 under their agreement.
Restaurateur denied that he owed Wine Store anything and sued Wine Store for breach of contract, claiming that the breach had damaged him in three ways. Calling them expectation damages, Restaurateur asked for the $50,000 he had to pay to the new vendor to provide quality wines during the last six months of Wine Store’s contract following the breach. Restaurateur also sought two types of special damages. First, he argued that he had been storing at least half of the wines from each shipment in a cellar. Although this was an unusual move in the industry, Restaurateur was secretly doing this because he personally believed that, in a few years, their value would be at least triple the price under his contract with Wine Store, or $120,000. Second, Restaurateur argued that because the bar’s success depended upon a constant supply of top-quality wines, the disruption in the bar’s red-wine supply had caused reputational damage of at least $100,000.
Wine Store filed a counterclaim for breach of contract, arguing that Restaurateur owed the contract price of $40,000 for the wine shipments accepted by the bar during months 13 to 18.
Questions
Is Restaurateur likely to receive the $50,000 of damages he requested for the cost of the substitute contract? Explain.
Is Restaurateur likely to receive the $120,000 in damages for the lost cellared wine and the $100,000 for reputational damages that he requested? Explain.
What is the amount of the final judgment the court is likely to award in this dispute? Explain.