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« on: December 08, 2006, 12:28:32 PM »

Damages Padavano Florida Civil Practice


Damages
§ 27.6 Breach of Contract
Among other remedies that may exist, the rights of the parties to a contract can be enforced in an action for damages. The measure of damages is generally determined by the benefit the injured party would have derived if the contract had been performed. More specific principles apply under the case law, depending on the nature of the contract and the extent to which it had been performed at the time of the breach. These principles are discussed below.

The general rule governing damages in contract cases is derived from the holding in the old English case of Hadley v. Baxendale that the damages recoverable for a breach of contract are those that flow naturally from the breach and were foreseeable by the breaching party at the time the contract was made.
1 General Rule.
Damages for breach of contract are those that flow naturally from the breach and were reasonably foreseeable by the breaching party at the time of the contract.
See Mnemonics, Inc. v. Max Davis Associates, Inc., 808 So.2d 1278 (Fla. 5th DCA 2002);
Scott v. Rolling Hills Place Inc., 688 So.2d 937 (Fla. 5th DCA 1996), on rehearing and clarification, citing the rule in Hadley v. Baxendale, 156 Eng.Rep. 145 (ex. 1854)

The goal in awarding damages in an action for breach of contract is to restore the injured party to the condition that would have existed had the contract been performed.
2 Objective.
The goal in awarding damages in a contract action is to restore the injured party to the condition that would have existed had the contract been performed.
See Tucker v. John Galt Ins. Agency Corp., 743 So.2d 108 (Fla. 4th DCA 1999);
Koplowitz v. Girard, 658 So.2d 1183 (Fla. 4th DCA 1995);
Campbell v. Rawls, 381 So.2d 744 (Fla. 1st DCA 1980).

Some courts have expressed this general objective by stating that the standard measure of damages for breach of contract is the benefit of the bargain; that is, a party who is injured by the breach of a contract is entitled to damages in an amount equal to the benefit that party would have received if the contract had been performed.
3 Benefit of the Bargain
The standard measure of damages for breach of contract is the benefit of the bargain.
See Citibank, N.A. v. Julien J. Studley, Inc., 580 So.2d 784 (Fla. 3rd DCA 1991);
Rector v. Larson’s Marine, Inc., 479 So.2d 783 (Fla. 2nd DCA 1985);
Young v. Johnston, 475 So.2d 1309 (Fla. 1st DCA 1985);
Sundie v. Lindsay, 166 So.2d 152 (Fla. 3rd DCA 1964).
If the contract defines the benefit of the bargain, the court should not calculate damages for breaching the contract by a method foreign to the contract.
See Frenz Enters. v. Port Everglades, 746 So.2d 498 (Fla. 4th DCA 1999).

This principle serves not only to define the damages that are recoverable but also to limit the recovery. The injured party is not entitled to receive a benefit greater than that provided by the contract.

Loss of profits is a proper element of damages in an action for breach of contract. As with other kinds of contract damages, the loss of profits must flow naturally from the breach. The measure of damages for lost profits is the difference between the contract price and the cost of performance.
4 Loss of Profits
Loss of profits is a proper element of damages in an action for breach of contract.
See Scott v. Rolling Hills place, Inc., 688 So.2d 937 (Fla. 5th DCA 1996);
Bird Lakes Dev. Corp. v. Meruelo, 626 So.2d 234 (Fla. 3rd DCA 1993).
The measure of damages for loss of profits is the difference between the contract price and the cost of performance.
See Boca Developers, Inc. v. Fine Decorators, Inc., 862 So.2d 803 (Fla. 4th DCA 2003);
Knight Energy Serv., Inc. v. C.R. Int’l Enters., Inc., 616 So.2d 1079 (Fla. 4th DCA 1993).

This may be determined in the case of a partially performed services contract by reducing the amount of the remaining payments due under the contract by the cost of the remaining services. When the measure of damages is lost profits, the loss must be proven with a reasonable degree of certainty before it is recoverable.
5 Proof of Loss
Lost Profits must be proven with a reasonable degree of certainty.
See Sostchin v. Doll Ent., Inc., 847 So.2d 1123 (Fla. 3rd DCA 2003);
Brevard County Fair Assoc., Inc. v. Cocoa Expo, Inc., 832 So.2d 147 (Fla. 5th DCA 2002);
Shadow Lakes, Inc. v. Cudlipp Const. & Dev. Co., inc., 658 So.2d 116 (Fla. 2nd DCA 1995);
Wash-Bowl, Inc. v. Wroton, 432 So.2d 766 (Fla. 2nd DCA 1983).
An award of lost profits cannot be based on mere speculation or conjecture.
See North Dade Community Deve. Corp v. Dinner’s place, inc., 827 So.2d 352 (Fla. 3rd DCA 2002).

Prejudgment interest is also a proper element of damages in an action based on a contract.
6 Prejudgment Interest
Prejudgment interest is a proper element of damages in an action under a contract.
See M.L. Montgomery, Inc. v. Grassam, 580 So.2d 659 (Fla. 4th DCA 1991);
Indian River Colony Club, Inc. v. Schopke Const. & Eng’g Inc., 619 So.2d 6 (Fla. 5th DCA 1993).

Generally, prejudgment interest runs on the amount of the claim from the date of the loss to the date of the judgment. As the supreme court explained in Argonaut Insurance Co. v. May Plumbing, Co., a claim becomes liquidated for the purpose of awarding prejudgment interest when the verdict has the effect of fixing damages as of a certain date.
7 Liquidated Claim
A claim becomes liquidated for purposes of awarding prejudgment interest when the verdict has the effect of fixing damages as of a certain date.
See Argonaut Ins. Co. v. May Plumbing Co., 474 So.2d 212 (Fla. 1985);
M.L. Montgomery, Inc. v. Grassam, 580 So.2d 659 (Fla. 4th DCA 1991).
 In some cases it is possible to assert a claim in contract and in tort based on the same set of facts.
Although certain kinds of damages might be recoverable under either theory, recovery for an economic loss is limited to the action in contract.
Florida follows the majority view that “economic losses are ‘disappointed economic expectations’, which are protected by contract law, rather than tort law.”
8 Economic Loss Rule.
The economic loss rule precludes a recovery in tort for purely economic losses which are unaccompanied by personal injury or damage to independent property.
The quotation in the text is from Casa Clara Condominium Ass’n, Inc. v. Charley Toppino & Sons, Inc., 620 So.2d 1244 (Fla. 1993).
See also Florida Power & Light Co. v. Westinghouse Electric Corp., 510 So.2d 899 (Fla. 1987).
In HTP, Ltd. v. Lineas Aereas Costarricenses, S.A., 685 So.2d 1238 (Fla. 1996), the court held that the economic loss rule has not eliminated causes of action based on independent torts such as fraud in the inducement.
See also Wadlington v. Continental Medical Servs., Inc., 728 So.2d 352 (Fla. 4th DCA 1999).

Economic losses are “damages for inadequate value, cost of repair and replacement of the defective product, or consequent loss of profits – without any claim of personal injury of damage to other property.
9 Economic Losses
Economic losses include damages for inadequate value, cost of repair and replacement of the defective product, or consequent loss of profits, without any claim of personal injury of damage to other property. The quotation in the text is from:
Casa Clara Condominium Ass’n, Inc. v. Charley Toppino & Sons, Inc., 620 So.2d 1244, 1246 (Fla. 1993);
Florida Power & Light Co. v. Westinghouse Electric Corp., 510 So.2d 899 (Fla. 1987).


If a contract is breached before it has been fully performed, the injured party may recover damages in quantum meruit or in contract.
10 Incomplete Performance
If a contract is breached before it has been fully performed, the injured party may recover in quantum meruit or under the contract.
See Robinson v. Albanese, 636 So.2d 831 (Fla. 5th DCA 1994);
Shadow Lakes, Inc. v. Cudlipp Const. & Dev. Co., Inc., 658 So.2d 116 (Fla. 2nd DCA 1995).
However, if the contract has been fully performed, a party may recover only the contract price under the contract.
See Nichols v. Michael D. Eicholtz, Enterprise, 750 So.2d 719 (Fla. 5th DCA 2000).

The measure of damages for a recovery in quantum meruit is the reasonable value of the labor or services performed plus the market value of any materials provided.
11 Quantum Meruit
The measure of damages for recovery in quantum meruit is the reasonable value of the labor or service plus the market value of the materials provided.
See Digital Sys. of Florida, Inc. v. Committee, 472 So.2d 533 (Fla. 1st DCA 1985);
Robinson v. Albanese, 636 So.2d 831 (Fla. 5th DCA 1994);
Shadow Lakes, Inc. v. Cudlipp Const. & Dev. Co., Inc., 658 So.2d 116 (Fla. 2nd DCA 1995).

If the injured party seeks recovery under the contract, the measure of damages is the amount of the lost profits plus the reasonable cost of labor and material expended in partial performance.
12 Recovery in Contract
If a party elects to recover in contract for the breach of a partially completed agreement, the measure of damages is the amount of the lost profits plus the reasonable cost of labor and materials expended in partial performance.
See Marshall Constr., Ltd. v. Coastal Sheet Metal & Roofing, Inc., 569 So.2d 845 (Fla. 1st DCA 1990);
Robinson v. Albanese, 636 So.2d 831(Fla. 5th DCA 1994);
Shadow Lakes, Inc. v. Cudlipp Const. & Dev. Co., Inc., 658 So.2d 116 (Fla. 2nd DCA 1995).

Damages are recoverable under the contract or under the theory of quantum meruit, but not both.

The measure of damages for defective performance of a contract is the reasonable cost of making the work perform to the contract.
13 Defective Performance
The measure of damages for defective performance is the reasonable cost of making the performed work conform to the contract.
See Centex-Rooney Constr. Co., Inc. v. Martin County, 706 So.2d 20 (Fla. 4th DCA 1997);
Aponte v. Exotic Pools, Inc., 699 So.2d 796 (Fla. 4th DCA 1997);
Koplowitz v. Girard, 658 So.2d 1183 (Fla. 4th DCA 1995);
Smith v. Mark Coleman Constr., Inc., 594 So.2d 812 (Fla. 2nd DCA 1992).

An exception to this rule applies if the cost of curing the defect would cause economic waste. In that event, the measure of damages is the difference between the value of the item contracted for and the value of the performance received.
14 Economic Waste
If the cost of curing the defect in performance would cause economic waste, the measure of damages is the difference in the value of the item contracted for and the value of the performance received.
See Grossman Holdings Ltd. v. Hourihan, 414 So.2d 1037 (Fla. 1982);
Aponte v. Exotic Pools, Inc., 699 So.2d 796 (Fla. 4th DCA 1997);
Smith v. Mark Coleman Constr., Inc., 594 So.2d 812 (Fla. 2nd DCA 1992).

The economic waste exception is most often raised in construction disputes. For example, if a cosmetic defect in the construction of a building could be corrected only by tearing down major structural components, the court is likely to apply the economic waste exception and award damages based on the diminution in the value of the building.

Damages for breach of contract must be proven with reasonable certainty.
15 Certainty
Damages for breach of contract must be proven with reasonable certainty.
See Miller v. Allstate Ins. Co., 573 So.2d 24 (Fla. 3rd DCA 1990).

This requirement is usually met by proof that the damages claimed were in contemplation of the parties at the time the contract was made. However, the courts have recognized that it may be impossible to prove damages with certainty if the effect of the breach is to deprive an innocent party of an opportunity to obtain an award or a profit.
16 Lost Opportunity
An injured party is entitled to recover contract damages for a lost opportunity even if the amount is difficult to prove with certainty.
See Sharick v. Southeastern Univ. of the Health Sciences, Inc., 780 So.2d 136 (Fla. 3rd DCA 2000) (addressing permissible damages in claim by expelled student for lost earning capacity.);
Miller v. Allstate Ins. Co., 573 So.2d 24 (Fla. 3rd DCA 1990).

For example, if an insurance company breaches an agreement to preserve a damaged vehicle so that it can be used in a product liability suit against the manufacturer, the breach would result in a lost opportunity for the party intending to assert the product liability claim.
Recovery is not denied in such a case merely because it will be difficult to access the value of the lost opportunity.
As with other factual issues, the amount of the damages is a question for the jury.

An award of damages for breach of contract must be supported by evidence in the record of the trial.
17 Evidentiary Support
An award of damages for breach of contract must be supported by the evidence.
See Aponte v. Exotic Pools, Inc., 699 So.2d 796 (Fla. 4th DCA 1997).

If the amount of damages cannot be determined precisely, the record must reveal at least some reasonable basis for the amount awarded.
Assuming the correct legal standard has been applied,
the scope of the appellate review is limited to a determination whether the award is supported by competent substantial evidence.
 
§ 27.7 Liquidated Damages.

The parties to a contract may stipulate in advance to an amount of money to be paid or retained as damages in the event of a breach.
This remedy is known as liquidated damages.
Generally, the Florida courts will uphold a liquidated damages provision in a contract only if the use of the provision does not impose a penalty on the defaulting party for noncompliance with the contract and only if the stipulated amount of the damages is reasonable.

A liquidated damages clause of a contract enables the parties to avoid future litigation by estimating the damages that will be incurred in the event of a breach of the contract.
1. Purpose
Liquidated damages clauses are used to avoid litigation by estimating the damages that will result from a future breach.
See Humana Med. Plan, Inc. v. Jacobson, 614 So.2d 520 (Fla. 3rd DCA 1992).

Generally, a liquidated damages clause will be upheld to the extent that it is designed to meet this objective.
However, a liquidated damages clause should not be drafted in such a way that it acts as a deterrent to any future breach of the contract. This is not appropriate.
A liquidated damages clause cannot be used to compel performance with the terms of the contract.

Based on these principles, the Florida courts have held that a liquidated damages clause is invalid if it amounts to a penalty for a breach of the contract.

The courts are most likely to characterize a stipulated damages provision as a penalty if the stipulated amount is disproportionate to the damages that might reasonably flow from a breach of the contract.

As Williston explained is his treatise:
 A penalty is a sum named, which is disproportionate to the damages which could have been anticipated from the breach of contract, and which is agreed upon in order to enforce performance of the main purpose of the contract by the compulsion of this very disproportion.
It is held in terrorem over the promisor to deter him from breaking his promise.
2. Penalty.
The definition of a penalty in the text is from Crosby Forrest Products, Inc. v. Byers, 623 So.2d 585 (Fla. 5th DCA 1993) citing 5 Williston on Contracts § 776 at 668.
In Crosby, the court held that a provision for default in a settlement agreement calling for the payment of the original undiscounted amount due is valid and is not a penalty.

Florida courts apply an established test to determine whether a stipulated damages provision of a contract is valid as a proper exercise of the right to liquidate damages or whether it is invalid as a penalty.
If damages are readily ascertainable at the time the contract is made, a stipulated damages clause is a penalty and is unenforceable.
3. Damages Ascertainable
If damages are ascertainable on the contract date, a stipulated damages clause is a penalty and is therefore unenforceable.
See Hutchison v. Tompkins, 259 So.2d 129 (Fla. 1972);
Crosby Forrest Products, Inc. v. Byers, 623 So.2d 565 (Fla. 5th DCA 1993);
Humana Med. Plan, Inc. v. Jacobson, 614 So.2d 520 (Fla. 3rd DCA 1992).

In contrast, if damages are not ascertainable when the contract is made, the clause is for liquidated damages and it is enforceable provided the amount is not grossly disproportionate to the damages that could reasonably be expected to flow from the breach.
4 Not Ascertainable
A contract clause stipulating the amount of damages is generally enforceable if the actual damages cannot be ascertained at the time of the contract and if the amount is reasonable in light of the damages that might reasonably be expected to flow from the breach.
See Lefemine v. Baron, 573 So.2d 326 (Fla. 1991);
Gables v. Choate, 792 So.2d 520 (Fla. 3rd DCA 2001);
Crosby Forrest Products, Inc. v. Byers, 623 So.2d 565 (Fla. 5th DCA 1993)
A liquidated damages clause calling for a payment disproportionate to the actual damages will not be enforced, even if damages were impossible to ascertain at the time of the contract.
See Coleman v. B.R. Chamberlain & Sons, Inc., 766 So.2d 427 (Fla. 5th DCA 2000).

Consequently, a stipulation for the payment of a fixed sum of money as damages was ascertainable at the time the contract was made, or the amount was not ascertainable but the agreed amount is disproportionate to the damages that would be reasonably expected.

Whether a stipulated amount of damages is reasonable is a matter that must be determined in light of the circumstances of the case.
Because the validity of a liquidated damages clause depends in part on the reasonableness of the stipulated amount, the issue is one that must be determined by the court.
5 Court Issue
The reasonableness of the amount of liquidated damages is an issue for the court and not the jury.
See Public Health Trust of Dade County v. Romart Constr., Inc., 577 So.2d 636 (Fla. 3rd DCA 1991).

The court may not properly submit the question of reasonableness to the jury.
While the acceptable amount may vary, the courts have generally approved liquidated damages provisions that tie the amount of damages to an earnest money deposit.
6 Forfeiture of Deposit
A provision calling for the forfeiture of a ten percent deposit is likely to be upheld as reasonable.
See Ivanov v. Sobel, 654 So.2d 991 (Fla. 3rd DCA 1995) (a default provision calling for the forfeiture of a 10% deposit of $30,000 was valid because it was not grossly disproportionate to the actual damages the seller could reasonably expect to incur on the breach of an agreement for a $300,000 sale of their home).

Liquidated damages that are payable on a per diem basis for delay are also usually upheld if they bear a reasonable relationship to the loss incurred by the delay.
7 Delay
Liquidated damages payable per diem for delay in the performance of a contract are upheld if the amount is reasonable in light of the loss expected by the delay.
See Public Health Trust of Dade County v. Romart Constr., Inc., 577 So.2d 636 (Fla. 3rd DCA 1991)($2,500 per diem was reasonable for delay in construction of a medical center.).

A liquidated damages clause is generally not valid if the contract specifically provides for alternative methods of recovering damages. That is so because the use of liquidated damages as one option among others is inconsistent with the accepted purpose of a liquidated damages clause to settle in advance the amount of damages incurred as a result of the breach. Thus, a liquidated damages clause in a contract for the sale of real estate is invalid if the contract allows the seller an option of recovering the amount of the earnest money deposit or to sue for the actual damages incurred by the breach.
The court reasoned in Lefemine v. Baron, that the existence of an optional remedy shows that the parties “did not have the mutual intention to stipulate to a fixed amount as their liquidated damages in the event of a breach.”
8 Alternative Remedies.
A liquidated damages clause is generally invalid if the contract allows other options for the recovery of damages.
See Lefemine v. Baron, 573 So.2d 326, 329 (Fla. 1991);
Cloud v. Schenk, 869 So.2d 709 (Fla. 1st DCA 2004).

As the court explained in Lefemine, the use of alternative remedies is unfair in the case of a typical purchase and sale agreement:

   The reason why the forfeiture clause must fail in this case is that the option granted to [the seller] either to choose liquidated damages or to sue for actual damages indicates an intent to penalize the defaulting buyer and negates the intent to liquidate damages in the event of a breach.
The buyer under the liquidated damages provision with such an option is always at risk for damages greater than the liquidated sum.
On the other hand, if the actual damages are less than the liquidated sum, the buyer is nevertheless obligated by the liquidated damages clause because the seller will take the deposit under the clause.
Because neither party intends the stipulated sum to be the agreed-upon measure of damages, the provision cannot be a valid liquidated damages clause.

As with contract remedies in general, a stipulated damages clause must provide a mutuality of remedy.
9 Mutuality of Remedy
A liquidated damages clause must offer a mutuality of remedies.
See Seaside Community Dev. Corp. v. Edwards, 573 So.2d 142 (Fla. 1st DCA 1991).
In Hackett v. J.R.L. Dev., Inc., 566 So.2d 601 (Fla. 2nd DCA 1990), the court held that a stipulation requiring the buyer to forfeit a deposit in the event of a breach and allowing the seller to return the deposit in the event of a breach was void for lack of mutuality of remedies.

For example, a provision in a real estate sales contract allowing the seller to retain a deposit if the buyer defaults and granting the buyer a right to refund of the deposit if the seller defaults is a provision that offers an effective remedy to only one of the parties. Such a provision allows the seller to retain a stipulated sum of money as payment for the breach but offers the buyer nothing but that which the buyer had initially. A seller who is merely obligated to return the buyer’s deposit can default on the contract without any real consequence.
     


If the court determines that a stipulated damages provision is invalid, the complaining party is them limited to the contract remedies that would have existed without that provision.
The proper course of action in that event would be to pursue a breach of contract action for the actual damages incurred as a result of the breach.
10 Effect of Invalidity
If a liquidated damages provision is invalid, the aggrieved party can pursue a breach of contract action for the actual damages incurred as a result of the breach.
See Ropiza v. Reyes, 583 So.2d 400 (Fla. 3rd DCA 1991);
Hackett v. J.R.L. Dev., Inc., 566 So.2d 601 (Fla. 2nd DCA 1990).
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