Caseflicks

North Dakota Supreme Court • 1991

Leingang v. City of Mandan Weed Board

468 N.W.2d 397 | 1991 N.D. LEXIS 64 | 1991 WL 56400

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Takeaway

In short, this case holds that lost profits for prevented performance equal the contract price minus costs actually avoided—not a share of fixed overhead that the contractor would have paid anyway.

Background

The City of Mandan Weed Board awarded Robert Leingang a contract to cut weeds on lots larger than 10,000 square feet. A different contractor received the contract for smaller lots. During the 1987 season, the Weed Board's agent improperly assigned some large lots to the small-lot contractor. After Leingang complained, the Board gave him some substitute lots, but it conceded that it had prevented his performance on work with a contract price of $1,933.78.

Leingang sued for breach of contract. The City removed the action from small claims court to county court, and the case proceeded to a bench trial solely on damages. Leingang contended that his recovery should equal the lost contract price minus only the expenses he saved by not doing the work. He testified that his avoided fuel, oil, repair, and blade-replacement expenses totaled $211.18.

The City argued that the court should also allocate a share of Leingang's general business overhead to the lost work. Relying in part on Leingang's tax returns, the trial court calculated a 20 percent "modified net profit" margin. It treated insurance, repairs, supplies, and car-and-truck expenses as costs of the weed-cutting work, deducted 80 percent of the contract price, and awarded $368.59 plus interest. Leingang appealed.

Issues

Issue #1

Whether the trial court used the proper measure of damages for a service contract when the City's breach prevented Leingang from performing the contracted work.

Holding

No. The court improperly deducted general business expenses without determining whether they were actually avoided because of the breach.

Reasoning

North Dakota contract-damages law aims to give the nonbreaching party the benefit of the bargain: compensation for the loss caused by breach, but no more than the party would have received through full performance. For a service contract whose breach prevents performance, recoverable damages include reasonable expenditures toward performance and reasonably certain anticipated profits.

When performance has been prevented, anticipated profit may be shown by taking the contract price and subtracting the costs the plaintiff would have incurred to perform the particular contract. This method is sufficiently certain when supported by evidence, and it recognizes that the plaintiff's loss is measured by the revenue lost less the expenses genuinely saved.

Constant or fixed overhead is not a cost saved by nonperformance. Expenses that the plaintiff must pay whether or not the particular contract is performed should not be deducted from the contract price, because the remaining contract proceeds would have been available to pay those continuing expenses. Deducting them again would undercompensate the plaintiff by effectively making the plaintiff bear those costs twice.

The trial court derived a 20 percent profit margin from categories on Leingang's tax returns, including insurance, repairs, supplies, and car-and-truck expenses. But it did not determine whether those expenses varied with the lost weed-cutting work or instead remained constant despite the City's breach. Without that determination, the court could not properly treat them as costs avoided by Leingang. The judgment was therefore reversed and the case remanded for a new trial limited to damages.