Northern Illinois Gas Co. v. Energy Cooperative_ Inc

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Northern Illinois Gas Co. v. Energy Cooperative_ Inc Powered By Docstoc
					Ashcraft & Gerel v. Coady, 244 F.3d 948, 2001 Issue Reasoning
The K specified that material breaches triggered the liquidated damages provision. o The liquidated damages amount was not unreasonable given his increased responsibility and value to the firm. Re Rule of PR: inapplicable because the liquidated damages were no linked to his decision to compete.


Liquidated damages provisions are valid so long as the amount agreed to by the parties prior to the breach is reasonable. Rest 2nd K: Liquidated Damages o Damages for beach may be liquidated o Only at amount that is reasonable  In light of the anticipated or actual loss caused by breach o Unreasonably large liquidated damages are un-enforceable on PP as a penalty.

Coady (managing attorney of Ashcraft & Gerel’s Boston office and the only expert in the field of practice) was fired for deliberate acts of misconduct including attempts to steal clients and sabotage the firm’s DB. The firm sued him for breach of K and asked that he pay the K’s liquidated damages (of $400K) as this was a substantial breach. o The K provided that the liquidated damages go up every year starting at $50K in 1994 and going up to $400K in 1998. In his defense, he produced evidence showing that the firm was planning to fire him and that it took various discretionary decisions which Foreseeability worked to his disadvantage including mis-calculations that resulted in minimizing his bonus.

Held Proc

П argues Δ argues

Affirm that firm was not barred from suing for beach of K. Affirm refusal to strike the firm’s claim for liquidated damages. Reverse judgment and remand to allow Coady to present evidence of the firm’s manipulation of his bonus. DC excluded Coady’s evidence(of bonus manipulation) and found that he breached his employment K; He, therefore, was required to pay the liquidated damages. Appeals: manipulation of his bonus was a breach of K by the firm and is admissible evidence. o But that did not justify him in staying on the job and working against the interests of his ER (the firm). He is the only L in that offices with substantial experience in the firm’s Boston practice area. Termination is isruptive and creates both considerable losses and expenses. Estimated business opportunities lost = $1Mil-$1.5Mil Courts should look suspiciously at the liquidated damages provision. Look at Rule of Professional Conduct: L has the right to practice after termination.

Northern Illinois Gas Co. v. Energy Cooperative, Inc. (П), 461 N.E.2d 1049, 1984 Does a liquidated damages clause provide the exclusive measure of damages? Issue Reasoning Rule
Proof of liability is all that is required to entitle the injured party to liquidated damages. o But does not create the right to seek a greater measure of damages than the amount bargained for. UCC 2-719(1): Contractual Modification or Limitation of Remedy. (1) Subject to the provisions of subsections (2) and (3) of this Section and of the preceding section on liquidation and limitation of damages, (a) the agreement may provide for remedies in addition to or in substitution for those provided in this Article and may limit or alter the measure of damages recoverable under this Article, as by limiting the buyer's remedies to return of the goods and repayment of the price or to repair and replacement of nonconforming goods or parts; and (b) resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy. A liquidated damages clause does not limit a remedy but instead provides an agreed upon measure of damages. A liquidated damages clause which provides an agreed upon formula for calculating the amount of money damages owed in the event of nonperformance is not a limitation on a remedy. o Liquidation or limitation of damages is governed by § 2-718. o Limitations of remedies fall under § 2-719. o Any restrictions on the right to liquidate damages by agreement is contained in § 2-718 and nowhere else. Liquidated damages clause provides the exclusive remedy.


Northern Illinois Gas promised to buy 56 mill brl of naphtha from ECI to convert to natural gas. But NI breached the K when it became cheaper to buy natural gas from somewhere else. Instead of liquidated damages, ECI sought actual damages in the amount of $305Mil = the difference b/w the K price and the market price of naphtha + consequential damages. (Liquidated Damages clause provided for 1 cent/gal = $13Mil)

§ 2-719(1)(b) does not govern the liquidated damages clause in the K with ECI. o It is concerned what what remedies are available rather than the monetary amount § 2-718 and § 2-719 are separate and distinct. Liquidated damages clause provides the exclusive remedy.

Held Proc П argues Δ argues

Reverse the court’s order striking the liquidated damages defense. Trial court denied NI’s motion for summary judgment on the liquidated damages clause and stuck the liquidated damages o Liquidated damages clause of the K gave the non-breaching party the choice of recovering either actual or liquidated damages. Have not made a demand for liquidated damages, therefore can ask for actual damages. UCC 2-719(1)(b): liquidated damages clause does not provide the exclusive measure of damages unless it is expressly agreed to be exclusive and labeled as such. The liquidated damage clause provides the exclusive measure of damages. § 2-719(1)(b) applies to K provisions which limit a remedy and not to liquidated damages clauses.

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