There are three main types of expectation damages that are not collectable for a breach of contract:
- Plaintiff’s attorney fees
- Damages for mental distress
- Punitive damages
Attorney Fees
Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Company, Inc.
313 F.3d 385 (7th Cir. 2002).
Zapata won a jury verdict, and was awarded attorney fees. Hearthside appealed.
Question
Are attorney fees an appropriate remedy for breach of contract?
Rule
The American rule is that the loser of a case generally does not have to pay the attorney fees of the winner. Attorney fees may only be recoverable if a statute or convention authorizes it, or the contract agrees to it. The only fees that may be recoverable is through Rule 11 sanctions based on practice during the litigation (nothing before).
Holding
Although the jury verdict is affirmed, the Court reverses the award of attorney fees. On remand, the Jude (new judge than before) is to examine whether sanctions against Hearthside are appropriate.
Facts
Zapata is a Mexican company that sells cookie tins to bakeries such as Hearthside. Well, Hearthside ordered tins, used the tins, but failed to pay invoices with no good reason for failing to do so. This lack of excuse upset the judge who awarded attorney fees in favor of Zapata after the litigation had ended. Thus, this appeal is related to the awarding of attorney fees.
Analysis
Traditionally, there have been two main approaches taken by countries around the world. The American rule is that the winner covers their expenses. The European rule is that the loser covers the expenses of the winner. Barring some international statute saying that the loser pays (there is none), the Court should continue to follow the American rule.
Additionally, the court makes sure to emphasize that attorney fees and Sanctions cannot be used as an alternative to punitive damages related to the breach of damages. Any compensation for expenses incurred as a result of litigation would come from bad behavior during the litigation process through Sanctions.
Additional Notes
Note that the breach of a contract is not necessarily wrongful. As a result, the only damages that are typically recoverable under contract law is to put the non breaching party in as good of a position as they were if the contract was fulfilled.
Emotional Distress
Erlich v. Menezes
981 P.2d 978 (Cal. 1999).
Erich’s are the plaintiffs who won at trial and were awarded damages for both the breach and for emotional distress. Thus, Menezes appealed.
Rule
Breach of contract will not merit damages for emotional distress unless some tort is associated with that breach. A tortious breach of contract may be found when:
- Breach is accompanied by a standard common law tort, such as fraud;
- The means of causing the breach is tortious, such as deceit; or
- A party intentionally breaches for the purpose of causing severe mental anguish or personal hardship.
Without any of these requirements, any recovery must be based on a violation of a special relationship between the parties.
Further because damages must be within the contemplation of the parties, emotional distress would not be contemplated and is not recoverable as “other loss.”
Holding
Emotional damages are not recoverable, reversed.
Facts
Mr. and Mrs. Erlich were greatly excited to build their dream home. They contracted with Menezes to build the said home. However, once the home was built and the Erich’s moved in, there were several issues. Most significantly, flooding whenever it rained. The roof, windows, and walls leaked. Several pieces of wall were saturated with water causing significant damage. Additionally, standing water accumulated in the living space from all of the flooding. Despite Menezes’s efforts to stop and repair the damage, he was unsuccessful.
As a result of this damage, Mr. and Mrs. Erlich sued Menezes for negligent breach of contract and for emotional distress. The emotional distress claim was based on the constant fear the Erlich family lived in fear of the safety, the financial burden of repair, and the increase of a severe heart condition of Mr. Erlich.
Analysis
Generally, emotional damages from a breach of contract are not going to be recoverable. There needs to be certain circumstances to do so. Those circumstances in the present case are not met. For instance, there is no evidence that there was any fraud induced with the negligent building of the home. Additionally, it appears that the home was not built to be intentionally defective for the purpose of causing emotional harm. Further, there is no relationship (agreed upon or through public policy) between the parties. Even if there is a lot of emotional attachment to homes and other personal belongings, public policy supports the idea of free commercial enterprise without fear of entering into such contracts (may raise the costs of building homes otherwise).
Additional Notes
Emotional distress is a tort claim. Although a breach of contract may bring both contract and tort claims, the tort claim must be based on a duty independent of the contract in order to recover.
Punitive Damages
The Restatement 2d of Contracts § 255 states:
“Punitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also a tort for which punitive damages are recoverable.”
In other words, mere breach is not sufficient to recover punitive damages. There must also be a tort associated with it, and that specific tort must allow punitive damages as a remedy. The main exception to this rule are insurance companies who breach on bad faith.
Disclaimer
The content contained in this article may contain inaccuracies and is not intended to reflect the opinions, views, beliefs, or practices of any academic professor or publication. Instead, this content is a reflection on the author’s understanding of the law and legal practices.
