Minnesota Contract Measure of Damages
A Minneapolis, Minnesota contract lawyer knows that a breach of contract claim premised upon a breach of the implied covenant of good faith and fair dealing can be a powerful claim.
In In re Hennepin County 1986 Recycling Bond Litigation, 540 N.W.2d 494, 502 (Minn. 1995), the Minnesota Supreme Court held that:
Under Minnesota law, every contract includes an implied covenant of good faith and fair dealing requiring that one party not “unjustifiably hinder” the other party’s performance of the contract. Similarly, we have held that the party to a contract cannot take advantage of the failure of a condition precedent when the party itself has frustrated performance of that condition…
(citations removed). See also Sterling Capital Advisors, Inc. v. Herzog, 575 N.W.2d 121, 124 (Minn. Ct. App. 1998).
In White Stone Partners, LP v. Piper Jaffray Cos., Inc., 978 F.Supp. 878, 881 (D. Minn. 1997), the court predicted that the Minnesota Supreme Court would take the position that there is an implied covenant of good faith and fair dealing in all non-sales contracts in Minnesota. The issue in the case was whether the covenant of good faith applied to an escape clause that granted defendants “sole discretion” to reject an environmental assessment in a real estate transaction. The court adopted the Uniform Commercial Code’s standard for “good faith,” defined as “honesty in fact in the conduct or transaction concerned.” M.S.A. § 336.1-201(19), as the appropriate standard for resolving the good faith issue. 978 F.Supp. at 884.
The proper measure of damages in a case involving breach of a contract will vary, depending on the type of case. However, the general measure of damages for breach of contract is the amount that will place the nonbreaching party in the same situation as if the contract had been fully performed. Peters v. Mutual Benefit Life Ins. Co., 420 N.W.2d 908, 915 (Minn. Ct. App. 1988); Sprangers v. Interactive Technologies, Inc., 394 N.W.2d 498, 503–504 (Minn. Ct. App. 1986), rev. denied (Minn. Nov. 19, 1986) (quoting Paine v. Sherwood, 21 Minn. 225, 232 (1875)).
In Lesmeister v. Dilly, 330 N.W.2d 95, 103 (Minn. 1983), the supreme court set out the rule of expectancy damages:
A nonbreaching party should recover damages sustained by the breach which arose naturally from the breach or could reasonably be supposed to have been contemplated by the parties when making the contract as a probable result of the breach. However, a party recovering damages for breach of contract should not be better off because of the breach than he would have been had there been no breach.
In order for damages to be recoverable, they must have been within the contemplation of both parties at the time the contract was made, or so likely to result from the breach that they can reasonably be said to have been foreseen. Franklin Mfg. Co. v. Union Pacific R.R. Co., 311 Minn. 296, 298, 248 N.W.2d 324, 325 (1976).
Damages for lost profits are recoverable in an appropriate case. In Cardinal Consulting Co. v. Circo, 297 N.W.2d 260, 266–267 (Minn. 1980), the court set out the general rule:
[D]amages in the form of lost profits may be recovered where they are shown to be the natural and probable consequences of the act or omission complained of and their amount is shown with a reasonable degree of certainty and exactness. This means that the nature of the business or venture upon which the anticipated profits are claimed must be such as to support an inference of definite profits grounded upon a reasonably sure basis of facts. … This rule does not call for absolute certainty. Appliances, Inc. v. Queen Stove Works, Inc., 228 Minn. 55, 63, 36 N.W.2d 121, 125 (1949) (quoting from Johnson v. Wright, 175 Minn. 236, 239, 220 N.W. 946, 948 (1928)). The controlling principle is that speculative, remote, or conjectural damages are not recoverable. Leoni v. Bemis Co., 255 N.W.2d 824 (Minn. 1977); Hornblower & Weeks-Hemphill Noyes v. Lazere, 301 Minn. 462, 222 N.W.2d 799 (1974); Restatement of Contracts § 331(1) (1932); C. McCormick, Handbook on the Law of Damages § 26 (1935). Our earlier cases held that lost profits of unestablished businesses were not recoverable because they were speculative, remote, or conjectural, and thus incapable of proof, see, e. g., Village of Elbow Lake v. Otter Tail Power Co., 281 Minn. 43, 160 N.W.2d 571 (1968), but this is no longer the law in Minnesota. See, Leoni v. Bemis Co., 255 N.W.2d 824 (Minn. 1977). “Although the law recognizes that it is more difficult to prove loss of prospective profits to a new business than to an established one, the law does not hold that it may not be done.” Id. at 826.
Lost profits may be recovered if they are a natural and proximate result of the breach and are proved with reasonable, although not absolute, certainty. Olson v. Rugloski, 277 N.W.2d 385, 388 (Minn. 1979). Reasonable certainty depends on the circumstances of the particular case. Cardinal Consulting Co. v. Circo Resorts, 297 N.W.2d 260, 267 (Minn. 1980).