Damages for Breach of Contract under Tennessee Law

Even for experienced breach of contract lawyers, applying Tennessee law regarding the amount and types of damages a plaintiff may be awarded in a breach of contract case, in many cases, is not so simple. In analyzing the potential damages that might be awarded in any Tennessee breach of contract case, you should start your analysis by applying the most fundamental rule applicable to contract damages in Tennessee: In a breach of contract case, the injured party should be awarded an amount of money that will put him in the position in which he would have been but for the other party’s breach of contract.

The above rule is designed to protect an injured party’s “expectation interest.” Another phrase that is often used to describe the law’s goal of protecting a party’s expectation interest is “benefit of the bargain”- – – an injured party is entitled to the benefits he would have received if not for the other party’s breach. In my experience, the most valuable benefit which is most often lost in breach of contract cases is profits which could have been made.

In order to recover lost profits in Tennessee, the injured party must prove them with reasonable certainty. The requirement that an injured party prove lost profits with reasonable certainty means that an injured party cannot recover what he expected to receive if not for the breach unless his expectations are supported by subjectively verifiable facts.

In quite a few breach of contract cases, it is not possible for an injured party to prove his lost profits with reasonable certainty. Take this example: ABC, LLC is a brand new Tennessee limited liability company which intends to earn money by providing consultation services to physicians and medical practice groups. ABC contracts with Tech, LLC to install all computer networks and software which it needs to begin its operations.

Tech undertakes the work, but completes it forty-five (45) days late. This causes ABC to delay the beginning of its operations by forty-five (45) days. With no track record of sales or profits, it is unlikely that ABC will be able to recover lost profits resulting from Tech’s breach. So, what can ABC recover?

Under Tennessee law, even where an injured party cannot recover damages for its expectation interest, such as ABC in the above example, the injured party may still recover damages based on its “reliance interest.” What damages might ABC be able to recover to compensate it for its reliance interest?

If ABC had hired and paid employees who had to sit around and do nothing for forty-five (45) days, it might be able to recover the money it paid to those employees. After all, ABC paid those employees in reliance on Tech’s agreement that ABC would have operational computer systems forty-five (45) days before it did. ABC might also be able to recover other expenses which it paid on the belief that Tech would finish its work as agreed and that ABC would be operational forty-five (45) days before it was.

In analyzing the damages which a client might recover in a breach of contract case, it might also be helpful to categorize your client’s different items of damages as either expectation interest damages or reliance interest damages. Reliance interest damages are typically much easier to prove. At trial, you can ask for damages that fall into both categories. Before trial, if you know what your client’s reliance interest damages are, you can determine what your client’s recovery will be if you are not able to prove expectation interest damages.

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