## Facts

- Card manufacturers Gruber and Martin (doing business as “International Cards”) reached an oral agreement with S‑M News Co., a nationwide distributor, for the 1945 Christmas season.
- Plaintiffs agreed to manufacture 90,000 boxed sets of twelve Christmas cards, conforming to samples and packaging approved by defendant, and to have them ready for shipment by early October 1945.
- Plaintiffs granted defendant exclusive rights to sell and distribute the sets.
- Defendant agreed to exercise reasonable diligence to sell the sets using its national advertising and distribution resources, paying plaintiffs $0.84 per set after retail sale, with credit for unsold sets returned.
- Plaintiffs completed production and on October 2, 1945 notified defendant the sets were ready and requested shipping instructions.
- Defendant refused to proceed with distribution and sale.
- The cards were seasonal; after the 1945 season their value dropped sharply. Plaintiffs later sold about 40,000 sets roughly four years later at $0.06 per set.

## Issues

1. What measure of damages applies to breach of an exclusive distribution contract when the seller’s expected profits from the distributor’s promised diligence cannot be proved with reasonable certainty?
2. If reliance damages are used, must recovery be reduced by losses the plaintiff would have incurred even if the defendant had fully performed, and who bears the burden on that reduction?

## Decision

- The court held the ordinary measure would be expectation damages: the difference between what plaintiffs actually obtained and what they would have obtained had defendant used reasonable diligence to market the cards.
- Because projected sales and profits were too speculative on the trial record, the court declined to award expectation damages.
- The court awarded reliance damages limited to expenditures reasonably made in performance of, or necessary preparation for, the contract, with credits for amounts plaintiffs recouped through later sales and salvage.
- The court ruled reliance recovery must be reduced by any loss plaintiffs would have suffered even upon full performance, but found defendant failed to prove such an inevitable loss.
- Judgment was entered for plaintiffs in the amount of $17,854.44 (plus interest).

## Legal Principles

- Contract remedies generally aim to place the nonbreaching party in the position it would have occupied had the contract been performed; expectation damages are the presumptive measure when provable.
- When expected profits are not provable with reasonable certainty, the court may award reliance damages based on expenditures made in reliance on the contract.
- Reliance damages are confined to reasonable costs incurred in performance or necessary preparation, and must account for amounts recovered through mitigation or other credits.
- Reliance recovery is reduced by losses the plaintiff would have incurred even if the contract had been fully performed; the breaching party bears the burden to prove that reduction.

## Conclusion

The court found liability for breach of an exclusive distribution agreement but rejected speculative lost-profit proof, awarding instead plaintiffs’ reasonable reliance expenditures (net of credits) because defendant did not prove plaintiffs would have suffered a loss even with full performance.


Gruber v. S-M News Co., 126 F. Supp. 442 (S.D.N.Y. 1954)