What amount of damages a party has incurred as the result of a breach of contract is important to evaluate as thoroughly as possible at the outset of any breach of contract case. Sometimes, the best defense to a breach of contract case is proving that the plaintiff did not suffer damages, or did not suffer the amount of the damages claimed.
There are lots of potential defenses that a defendant with a skilled and experienced breach of contract lawyer can successfully use to defend the damages aspect of a breach of contract case. Similarly, a skilled breach of contract lawyer representing a plaintiff can often find ways to maximize the plaintiff’s damage award in a breach of contract case. Because of the investment of time and money a breach of contract case can take, it is always in a client’s best interest to insist on an opinion about damages at the outset.
In our practice, we are confronted sometimes with potential clients who have cases where proving that the other side is liable to them for breach of contract is a cinch, but for whom it is not worthwhile to bring a legal action. Why may it not be worth it for these clients to bring lawsuits? Answer: Attorneys’ fees and expenses. If the maximum recoverable damages in a case are $10,000.00, but it will cost that amount, or very close to it, to litigate the case to settlement or judgment, in many situations, it is better to forego a lawsuit.
Tennessee follows the so-called “American Rule” regarding the recovery of attorney fees in lawsuits. Under the American Rule, each party to a lawsuit must pay his or her own attorneys’ fees, and the loser does not have to pay the attorneys’ fees of the winner. Lots of written contracts, however, contain clauses wherein the parties agree that, in the event of litigation, the non-prevailing party must pay the attorneys’ fees and expenses of the prevailing party. In Tennessee, these clauses are enforceable and, in fact, are enforced frequently.
In many breach of contract cases, part, or a substantial part, of the damages incurred by the non-breaching party are lost profits or lost income. In Tennessee, generally speaking, only lost net profits are recoverable—-not lost gross profits or lost gross revenues. This rule is imminently fair for obvious reasons.
The strategies to maximize a client’s lost profits recovery, or to defend a lost profits claim, can become very complex when plugged into different factual situations. For more on recovering lost profits and defending lost profits claims, see the article on this website.
If you are claiming lost profits or defending a lost profits claim in a Tennessee court, be aware that the tax returns of the plaintiff may well become the centerpiece exhibit at trial. We have been involved in quite a few cases where plaintiffs made claims for large amounts of lost profits, but where those plaintiffs’ cases have been sunk by tax records showing profitability inconsistent with the amounts of lost profits claimed. A plaintiff in a breach of contract case should never expect to be able to go into a Tennessee court and make a claim for lost profits without also expecting that its tax returns and financial records will receive detailed examination.
Tennessee law requires that a party to a contract which has been breached by the other party to the contract make reasonable efforts to mitigate its damages. Sometimes, it is possible to prove that, even though a party breached a contract and the other party was damaged, the non-breaching party could have done something to prevent itself from incurring money damages, or, at least, from incurring some of the money damages its claims. In every breach of contract case, a lawyer, whether he is representing the breaching party or the non-breaching party, should give thought to potential mitigation of damages defenses.