Avoiding Lost Profits Damages in Breach of Contract
In defending a breach of contract claim in Illinois (or elsewhere), it's important to understand the nature and extent of damages for which you could be held liable. Depending on the circumstances of the breach of contract claim, you could not only be on-the-hook for compensatory damages associated with observable and recorded losses, but also for lost profits that are fundamentally more nebulous.
Are you being sued for breach of contract? Skillful advocacy can mean the difference between minimal and significant damage liability for such breach. If you are the defendant in an Illinois breach of contract lawsuit, consult with experienced Chicago who will advocate aggressively on your behalf.
So, how do lost profits work, and when could you be exposed to damage liability for such losses? Let's take a look at the basics.
Lost Profits — The Basics
Lost profits are not available in all breach of contract cases in which there may be some indirect or distant basis on which the plaintiff might assert such damages. In Illinois, lost profits may be recovered only where they are reasonably certain.
Generally speaking, contract damages in most breach of contract lawsuits are meant to be compensatory in nature. Essentially, the recoverable damages are intended to put the plaintiff in the same position that they would have been in had that contract not been breached. In many "standard" breach of contract cases, this is reflected by damages for direct costs incurred as a result of breach, such as the cost of manufacturing products that are refused by the buyer without reasonable cause.
In some breach of contract cases, however, putting the plaintiff in the same position that they would have been in had the contract not been breached — in other words, fully compensating the plaintiff — requires the imposition of lost profits damage liability. In such cases, the plaintiff is recovering damages for profits that they would have earned had the contract not been breached.
Lost profits can be significant, and as a breach of contract defendant, it's critical that you avoid such liability where possible.
Plaintiffs are saddled with the burden of proving that they have suffered reasonably certain lost profits. As a defendant, however, you will want to counter the plaintiff's assertions by showing that the lost profits are highly speculative, and therefore unrecoverable. In Illinois, lost profits are not recoverable in cases where the profits are excessively speculative.
It's important to note that speculation and uncertainty related to the "amount" of damages will still allow the plaintiff to recover lost profits. The key is to show that it is uncertain and speculative that the plaintiff suffered any lost profits as a result of breach, whatever the amount of such damages.
For example, suppose that you (a product manufacturer) and a plaintiff entered into a contract for a sale of goods. The plaintiff is a distributor of similar goods, but had not yet sold the goods to a retailer. The plaintiff had ordered goods from you with the intention of "testing the market," so to speak. If you breach the contract and fail to deliver the goods, the plaintiff may make a claim for lost profits they would have received had they sold the goods to a retailer. You will likely have a strong argument for asserting that the lost profits are too speculative and uncertain, as there was no guarantee that a retailer would agree to purchase such goods.
Contact a skilled attorney for help with your case today.