Florafax International, Inc. v. GTE Market Resources, Inc.
933 P.2d 282 (1997)
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Rule of Law:
Lost profits from a collateral contract are recoverable in a breach of contract action if the loss was within the contemplation of the parties at the time of contracting, was proximately caused by the breach, and is capable of proof with reasonable certainty.
Facts:
- Florafax International, Inc. (Florafax) operated a floral wire service and also handled telemarketing for third-party clients.
- In early October 1989, Florafax entered into a contract with Bellerose Floral, Inc. (Bellerose) to handle consumer calls for its 1-800-FLOWERS service. This contract allowed either party to terminate with 60 days' written notice.
- In mid-October 1989, Florafax subcontracted the telemarketing services to GTE Market Resources, Inc. (GTE) under a multi-year agreement. GTE was aware of Florafax's contract with Bellerose and that it was a major client.
- The Florafax/GTE contract included a clause stating that if GTE ceased to perform its duties, it would pay Florafax consequential damages and lost profits on the business lost.
- Leading up to Mother's Day in May 1990, GTE intentionally failed to provide sufficient staff to handle the call volume for Florafax's clients, including Bellerose.
- GTE management communicated to Florafax that it was losing money on the contract and would not provide adequate staffing, in an apparent effort to coerce Florafax into renegotiating prices.
- Due to GTE's poor performance and failure to handle customer calls, Bellerose terminated its contract with Florafax in July 1990.
Procedural Posture:
- Florafax sued GTE in an Oklahoma trial court for breach of contract.
- A jury found GTE had breached the contract and awarded Florafax damages, including $750,000 for lost profits from the Bellerose contract for a two-year period.
- GTE appealed the judgment to the Oklahoma Court of Civil Appeals.
- The Court of Civil Appeals reversed the lost profits award, ruling that damages should be limited to a 60-day period corresponding to the termination clause in the Florafax/Bellerose contract.
- Both Florafax and GTE filed petitions for certiorari with the Supreme Court of Oklahoma.
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Issue:
In a breach of contract action, may the non-breaching party recover lost profits from a collateral contract with a third party for a period extending beyond that collateral contract's 'at-will' termination notice period?
Opinions:
Majority - Lavender, Justice.
Yes. A non-breaching party may recover lost profits from a collateral contract for a period beyond its termination-notice clause if the profits are proven with reasonable certainty and were a foreseeable consequence of the breach. The court held that lost profits from a collateral contract are recoverable if they satisfy a three-part test: 1) the loss was within the contemplation of the parties at the time the contract was made; 2) the loss flows directly or proximately from the breach; and 3) the loss is capable of reasonably accurate measurement. Here, GTE knew about the Bellerose contract and its importance, making the loss of profits foreseeable. The President of Bellerose testified that GTE's poor performance was the direct cause of the contract's cancellation. Finally, the amount of lost profits was established with reasonable certainty through expert testimony based on Bellerose's business history and projections. The 60-day termination clause in the Florafax/Bellerose contract does not automatically cap damages, as GTE, the breaching party, had no right to exercise that clause. The question of whether the relationship would have continued but for GTE's breach was a factual determination properly left to the jury.
Analysis:
This decision clarifies that a termination-at-will clause in a collateral contract does not create a legal bar to recovering long-term lost profits from a breaching party who caused the contract's termination. It establishes that the existence of such a clause is a factor for the jury to consider when determining the certainty and duration of lost profits, rather than a strict legal limitation on the amount of damages. This precedent strengthens the position of non-breaching parties by allowing them to recover the full, foreseeable value of a lost business relationship, shifting the focus from the legal possibility of termination to the factual probability of the contract's continuance absent the breach.
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