Doering Equipment Co. v. John Deere Co.

Brief Fact Summary.

Plaintiff sued Defendant for breach of the covenant of good faith and fair dealing, seeking $500,000 in damages for it operating losses under their contract during the previous three years. The trial court ruled in Defendant’s favor. Plaintiff appealed.

Synopsis of Rule of Law.

A court may not use reliance damages to place a party in a better position than it would have been in if the contract had been fully performed.

Facts.

Doering Equipment Co. (Plaintiff) agreed to act as distributor for golf and turf products from John Deere Co. (Defendant). Plaintiff lost money every year on its performance of the contract. Defendant allegedly told Plaintiff that it needed to purchase additional golf and turf products and add a salesperson for those products, and that these requirements were non-negotiable. Plaintiff notified Defendant that it was terminating the agreement. Plaintiff sued Defendant for a breach of the covenant of good faith and fair dealing, and sought $500,000 in damages for its operating losses under the contract during the previous three years. The trial court found in Defendant’s favor, holding that there was no causal connection between Plaintiff’s damage claims and the additional demands Defendant made on Plaintiff. Plaintiff appealed.

Issue.

Whether a court may use reliance damages to place a party in a better position than it would have been in if the contract had been fully performed.

Held.

No. The trial court’s judgment is affirmed. A court may not use reliance damages to place a party in a better position than it would have been in if the contract had been fully performed.

Discussion.

A court may not knowingly award reliance damages that would place a party in a better position than it would have been in if the contract had been fully performed. Contract damages are ordinarily based on the injured party’s expectation interest. In some cases, Massachusetts law allows the recovery of reliance damages as an alternative to expectation damages. Section 349 of the Restatement (Second) of Contracts also provides that an injured party is entitled to reliance damages, which may include the cost of performing or preparing for performance, but which may not include any loss that the injured party would have suffered if the contract had been performed. In this case, the operating losses that Plaintiff seeks to recover are precisely those losses that Plaintiff suffered while the contract was being performed by both parties. The evidence shows that the contract had been a losing proposition for Plaintiff since its inception. Although a breach may have led to Plaintiff’s termination of the contract, the breach did not cause Plaintiff’s claimed losses, which it had already incurred at the time of any breach. Plaintiff’s damages were cause by a bad bargain, unrelated to any breach. If Plaintiff were to recover its operating losses as requested, it would be in a better position that it would have been in if the contract had been fully performed.