Tennessee Business Litigation Lawyers Blog
Assuming that one party proves that the other party has breached a valid and enforceable contract, what amount of money can the non-breaching party recover from the breaching party? When explaining how a Tennessee court will approach the question of what amount of money to award someone for a breach of contract, I think that it is helpful to think of two broad categories of damages under Tennessee law that come into play when a contract has been breached.
What are those categories? The first is the category of expectation damages. The second is the category of reliance damages. An astute client, who has lost money because of a breach of contract, might ask the following questions (all of which I will attempt to answer):
• What damages are expectation damages and what damages are reliance damages?
• What is the difference between the two categories?
• How does a Tennessee court decide which category of damages to award?
• Which category of damages is better for an injured party?
Expectation damages are designed to put the non-breaching party in the same position that he or she would have been in had the contract not been breached. Expectation damages, in my experience, are the most common category of damages awarded in breach of contract cases in Tennessee.
In Tennessee, generally, if the court can award expectation damages for breach of contract, it will. Also, generally, if the court determines that the injured party is not entitled to expectation damages, but only to reliance damages, the injured party will get a monetary award that is less than the amount for which it had hoped (and, very possibly, an award less than the money it might have actually made but for the breach of contract).
To understand the difference between expectation damages and reliance damages, and how they affect a party, let’s use some examples. Suppose a contractor enters into a contract to install 500 industrial light fixtures in a building. Assume that the contract requires the contractor to buy the light fixtures. Also assume that it is beyond dispute that the contractor’s net profit on the contract will be $100,000.00.
The contractor agrees to begin installation within 45 days, and to complete the project in 90 days. The contractor orders the 500 light fixtures from a supplier, which promises that the 500 fixtures will be shipped and will arrive on site within 30 days.
The supplier breaches the contract because it does not ship the fixtures for 90 days, by which time the owner of the building has canceled its contract with the contractor (which it had every right to do). The above facts make for a case where the court can easily award the contractor its expectation damages. The contractor expected to make $100,000.00, and would have been able to do so, but for the breach by the supplier.
Now, let’s change the facts a little. Assume that the contractor spent $15,000.00 for labor costs to remove the old light fixtures while it was waiting to receive the new fixtures. Assume also that the supplier is able to convince the court that it would be speculative to award $100,000.00 to the contractor because the project was underbid, and it was likely that the contractor would not have made a dime of profit on it.
A Tennessee court, under the above facts, would, most likely, award the contractor damages of $15,000.00 for the money it spent preparing to perform the contract and in reliance on the contract. This is an example of a situation in which a party which has breached a contract does not have to pay expectation damages, but still has to pay reliance damages.
A good breach of contract lawyer should always work to get expectation damages for his or her client. As a result of the legal concept of reliance damages, sometimes an injured party, who cannot get his or her expectation damages, at least has a fallback position that might prevent a total loss.