Opinion ID: 2604741
Heading Depth: 3
Heading Rank: 4

Heading: Other Damages Instructions

Text: Apart from this error, the jury instructions regarding damages were correct. In particular, the court did not err in refusing to tell the jury that the sales commission paid to Pacific Timber Products was a cost avoided in 1980. The jury was instructed to use a cost differential method of measuring damages, and the sales commission had no effect on the cost of logs produced by MEG in 1979. It would therefore have been incorrect and misleading to tell the jury to deduct the sales commission from the award of damages. On remand, however, the jury should be instructed to compute damages by the more accurate and equitable method of profit differentials. Using this method, the absence of the sales commission in 1980 will be relevant. NTC's profits were reduced in 1979 by the cost of the sales commission, and because NTC did not pay the commission in 1980, its 1980 profits were correspondingly greater. If the jury on remand finds that the logging of domestic timber was not done to minimize losses, then they must look at the net profit figures on export logs alone. They may conclude that NTC made more money from export logs in 1980 than it did in 1979 ( See note 5 supra ). Such a conclusion would be based, in part, on the cost of the sales commission. Regardless of how damages are computed, the penalty assessed by 3-M for defective and substandard logs is an extra cost associated with MEG's log production. Regarding this penalty, the jury was instructed as follows: If you find that the penalties levied by 3M Co., Ltd., against NTC resulted from MEG's failure to meet quality standards, the penalties should also be included [in the damage figure]. MEG did not dispute that it failed to meet certain quality standards set out in the agreement, but argued that this instruction was erroneous because the penalty was not a foreseeable result of the breach of the logging agreement. This argument is untenable. A producer of defective goods has reason to foresee that when the buyer of those goods loses money as a result of the defects, the producer will be liable for the loss. See Restatement (Second) of Contracts § 351 (1979); UCC § 2-714 (1972). The damages available in a breach of contract case are limited to those expenses which are the natural consequence of the breach. Arctic Contractors, Inc. v. State, 564 P.2d 30, 44-45 (Alaska 1977). MEG could have foreseen that if it did not meet the standards outlined in the agreement, a natural consequence would be that it would not be paid. In other words, MEG could have foreseen a one hundred percent penalty for defective logs. The fifteen percent penalty actually levied was not unforeseeable and was, under the circumstances, generous. [6] The jury instruction on the 3-M penalty was therefore correct.