Brief Fact Summary. A corporation could not achieve its stated purpose because it was not properly structured due to the negligence of its attorney.
Synopsis of Rule of Law. In the event of a breach of contract, damages for expenses incurred in reliance on the contract are recoverable, less any loss that would have resulted if the contract had been performed.
Issue. If anticipated profits are speculative, are damages incurred in reliance on the contract recoverable?
Held. Yes. Judgment affirmed. The Appellant was entitled to recover any loss that he incurred from relying upon the contract.
Discussion. The court reasoned that in the instant case, the Appellant knew that the Appellee was dependent upon the ability to sell stock to finance the venture. Therefore, the nexus between the breach and the failure of the project was established. The court examined case law and the Restatement of Contracts to find that recovery of reliance damages is proper where lost profits are too uncertain to calculate. It noted that this doctrine is limited in cases where the breaching party can prove that the other party would have sustained greater loss if the contract had been performed. Furthermore, while generally a breaching party is liable only for those expenses that are a foreseeable result of a breach at the time the contract was made, these limitations do not apply to an attorney when his client is relying upon his skill and knowledge. Finally, the court reasoned that the Appellant was under no duty to mitigate its damages by hiring a security specialist because this would cost a
substantial amount of money and parties are not obligated to mitigate damages by incurring large expenses. Also, the Appellant himself could have hired a specialist and chose not to do so.