Posted by Catriona Larouche.
In early October, the Tennessee Supreme Court issued “an important decision making clear that in a breach of a contract dispute, the aggrieved party may recover more in damages than the parties’ contract permits, such as punitive, incidental, and consequential damages”. For a long time, it remained unclear in Tennessee whether sophisticated parties negotiating goods and services contracts would prohibit recovery of consequential, incidental, and other damages beyond what was included in their contract. Consequently, parties entering a contract could decide what recovery they might receive in the event of a breach without resorting to common law or statutory liability for other damages, placing some parties at a disadvantage.
Let’s assume the scenario where there is a sophisticated contract between two parties. Company A agrees to provide a service to Company B but fails to meet deadlines and breaches the contract. Shortly after signing the contract, Company A knew it would not be able to fulfill its duties to the contract. At the time of the contract signing, Company B did not anticipate such a breach and used a standard services agreement limiting them to damages of the price paid and excluding any consequential, incidental, and punitive damages. In this case, Company B has already paid Company A, and now, due to the breach, company B cannot fulfill its promises to its clients. As a result, Company B incurs a greater loss that is beyond the contract terms. In this case, the newly Tennessee Supreme Court decision would indeed help Company B in retrieving its losses not covered in the original contract. This past scenario is exactly what happened on September 28th, 2023, in the ruling of Commercial Painting Inc. The Weitz Company LLc case.
It is also crucial to keep in mind the economic loss doctrine in product liability cases. Since 2009, the Tennessee courts, for example in the Lincoln General Ins. Co. v. Detroit Diesel Corp. case has changed the economic loss liability doctrine in product liability cases. This doctrine says that when damages from a breach of contract are only economic damages, the plaintiff has no action under tort law. Therefore, if a defective product only damages itself, meaning it does not cause personal injury, the owner is in the same position as if it never had the product. The remedy in these cases should be limited to what was specified in the contract. Unfortunately, the economic loss doctrine is flexible and can be challenging in certain cases where it is difficult to differentiate recoverable tort damages or not.
In my opinion, I do believe this ruling from the Tennessee Supreme Court is fair. It assures that parties need to be held responsible for their actions and that the party who suffers from the breach gains reasonable damages. On the other hand, if only economic damages are present, the law will not provide other remedies, which I do also think is a fair decision.
In conclusion, the aim of this decision it to prevent parties from evading responsibility for their actions and to ensure that parties suffering from the breach of contract are properly supported, even if the remedies were not explicitly written in the contract.
Catriona is an International Business Major and Legal Studies in Business Minor at the Stillman School of Business, Seton Hall University, Class of 2024.
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