Big Apple Jewelry v. Yellow

Big Apple Jewelry v. Yellow Nugget Mining:

Under the terms of the contractual agreement between the parties, the Yellow Nugget Mining Company (hereinafter "mining company") was obligated to provide all of the gold mined from a specific mine (Mine #7) to the Big Apple Jewelry Company (hereinafter "jewelry company") for a period of five years at a 10% discount in relation to the current market price of gold at the time of delivery.

That agreement does not actually require the mining company to produce any particular quantity of gold; it merely obligates the mining company to make any amount of gold actually mined from Mine #7 available to the jewelry company at the specified rate. It is doubtful that the mining company could have chosen to discontinue production in Mine #7 for the apparent purpose of circumventing the obligations of the contract, such as where the facts suggest that another customer offered to pay more for all of its output. However, in general, the type of contract involved would not prohibit the mining company from choosing to close Mine #7 for maintenance or for any other legitimate reason that falls within the realm of ordinary business operations and management absent any evidence of purposeful avoidance of its obligation to the jewelry company.

Certainly, where the closing of the mine was precipitated by the occurrence of a natural disaster such as an earthquake that is entirely out of the control of the mining company, there is no breach of contract. The jewelry company could have protected itself from such risks, such as by specifying the obligations of the parties (such as substituting the product of another mine) in the event that the operation of Mine #7 ceased for any legitimate (or uncontrollable) reason during the term of the contract.

Liquidated Damages:

Liquidated damages are a mechanism used to quantify the actual costs to the party harmed by a potential breach of contract in advance of any such breach. Generally, liquidated damages can include the reasonably foreseeable loss of revenue or other economic losses that the party fearing the consequences of breach, as well as the reasonable costs associated with recovering those damages from the party in breach such as attorney fees and court costs. Liquidated damage clauses can also include potential losses that would not be readily apparent from the terms of the agreement, such as where the party not in breach faces other potential losses as an indirect consequence of the breach, particularly where those losses fall outside of the normal scope of what could be considered objectively foreseeable to the breaching party at the time of contract.

While there is no requirement that liquidated damage clauses specify damages that are precisely calculated to reflect actual economic losses caused by a breach, there is a requirement that those liquidated damages bear some semblance to the actual monetary costs of a breach. On the other hand, liquidated damage provisions of contracts may not be used primarily for the purpose of imposing punishment for any breach.

For an example of a permissible liquidated damage clause using the facts of the previous case, the jewelry company could have included a liquidated damage clause requiring the mining company to compensate the jewelry company for the amount of money actually lost by virtue of losing the benefit of the 10% discount based on the market price of gold for the remainder of the contract term. Conversely, the jewelry company could not have included a liquidated damage clause specifying one-million dollars in damages for any breach of contract by the mining company.

Settlement Negotiations:

It is common practice for parties to litigation to exchange mutual releases of liability. This protects them from any future liability arising from arguments that certain circumstances were not covered by the settlement agreement. This is standard practice to ensure that the settlement agreement terminates any ongoing disputes between the parties arising from the original subject of litigation.

In some situations, oral settlement agreements may be enforced despite the absence of any writing between the parties and even where one (or both) parties specifically refuse to sign a writing based on oral agreements. Typically, those situations arise where the parties agree to settle during a settlement conference mediated by a judge or where the parties represent to the court at trial that the parties have agreed to settle the matter.

While oral settlement agreements between the parties made out of court may not be enforced, the fact that the attorneys involved in this case conducted an extensive e-mail exchange would likely satisfy any requirement of a writing where such a requirement applies. Nevertheless, without sufficient specificity as to the precise terms of the settlement or with respect to whether or not a formal offer was made and accepted, an oral settlement agreement would probably not be recognized.