Opinion ID: 1664562
Heading Depth: 1
Heading Rank: 4

Heading: Basis for Damages

Text: This issue of the basis for damages will encompass IP's questions 2 and 3, because both questions will be answered once the proper measure of damages for a breach of contract is determined. In this regard, the trial court charged the jury as follows: With regard to the damages under the breach of contract claim, [Madison] is claiming compensatory damages for breach of contract, which is that sum which would place the injured party in the same condition it would have occupied if the contract had not been breached. Madison had presented two exhibits that calculated its damages in different ways. One, titled Lost Contract Revenue, calculated the revenue lost to Madison because of IP's breach at $8,443,125. The other, titled Lost Revenue, used the same revenue figure as did the first, but subtracted from it the variable costs that Madison would likely have expended in providing the coating services. It yielded a figure of $4,047.638.58. Although it was captioned Lost Revenue, it more accurately should have been captioned Lost Profit. It appears that the jury chose to use the higher figure in its damages award, and IP contends that that choice was improper under the law. We agree. Had both parties fulfilled the contract for its intended duration, Madison would have received its expected amount of product for coating and, presumably, would have coated the product using its facilities, personnel, and materials, and would have experienced all the costs attendant with maintaining an ongoing operation of the nature contemplated. If the costs were less than the price it received for its services, it would have retained for its own use the residual or profit. This profit is what is required to place the injured party in the same condition it would have occupied had the contract not been breached. The proper measure of damages in cases such as this is the difference between the price agreed upon in the contract and the cost of performance, or, in other words, the profit. Cobbs v. Fred Burgos Constr. Co., 477 So.2d 335, 338 (Ala.1985). Tennessee law comports with this principle. See Tennessee v. Wood Group Enters., Inc., 816 S.W.2d 35, 37 (Tenn.Ct.App. 1991). This Court discussed the issue of profit recovery in a breach-of-contract situation as follows: The general rule is stated at 25 C.J.S. Damages § 43, as follows: `Under most authorities, as a general rule a party not in default is, in case of a breach of contract due to the fault or omission of the other party, entitled to recover profits which would have resulted to him from performance. In order that it may be a recoverable element of damages, the loss of profits must be the natural and proximate, or direct, result of the breach complained of and they must also be capable of ascertainment with reasonable, or sufficient, certainty, or there must be some basis on which a reasonable estimate of the amount of the profit can be made; absolute certainty is not called for or required. `Lost profits are recoverable only when it reasonably or definitely appears that they would have been made if the contract had been performed, and where it reasonably and definitely appears that their loss necessarily followed the breach.' Paris v. Buckner Feed Mill, Inc., 279 Ala. 148, 149-50, 182 So.2d 880, 881 (1966). It is in accord with this principle that IP argues that the figures used in creating the second exhibit, the one captioned Lost Revenue, favored Madison by understating costs and therefore overstating the lost profit. Because Madison did actually coat some product for IP, it had recorded actual costs incurred, and, IP argues, these should have been used to calculate damages. IP states that the maximum proper measure of damages recoverable for the breach of contract found by the jury is $4,378,625.79. That figure is derived from an exhibit to IP's postjudgment motion for a JML in which IP deducted from the amount Madison defined as lost revenues payments it had made to Madison under the contract. IP then argues that because Madison's costs were overstated in figuring its lost profit, Madison's actual experience in coating product for IP results in a maximum net lost profit of $3,371,675.48. This number was derived from Madison's Lost Revenue exhibit, less the contract revenue it paid Madison and adjusted for the removal of costs based on Madison's actual cost accumulated during its production for IP and for others. Madison argues that IP's adjustments should not be considered on appeal because they were not introduced during the trial. Although it is true that the actual exhibits were not introduced at trial, the subject matter of IP's disagreement with Madison's methodology, figures, and recommended adjustments was introduced in lengthy testimony by David Borden, a certified public accountant and IP's expert witness. Finally, IP argues that any damages awarded should be only for the time period before Madison ceased coating operations for IP. IP, however, in its motion for a JML stated that [i]t was undisputed that the requisite notice to cancel was given by [IP] and that the contract terminated by its terms on December 31, 2003. Since the term of the contract continued beyond Madison's cessation of its operation, the amount of damages to be awarded to place Madison in the position it would have occupied had the contract been appropriately performed must include the time up to the termination of the contract.