Jetz Service Co. v. Salina Properties
865 P.2d 1051 (1993)
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Rule of Law:
A lessor or service provider with the capacity to enter into subsequent contracts irrespective of a breach is considered a 'lost volume lessee' and is not required to mitigate damages, because the subsequent transaction is not a substitute for the breached contract.
Facts:
- In May 1987, Salina Properties' predecessor in title entered into a six-year lease with Jetz Service Co., Inc. for space to operate coin-operated laundry equipment in an apartment complex.
- Under the lease, Jetz Service paid a $3,000 decorating allowance and was entitled to the greater of $300 per month or 50% of the gross receipts from the machines.
- In November 1987, Jetz Service installed five washing machines and five dryers in the facility.
- Jetz Service maintained an inventory of approximately 1,500 used washers and dryers in its warehouses and was continually seeking new locations for its equipment.
- In July 1992, with 16 months remaining on the lease, Salina Properties disconnected all of Jetz Service's equipment and replaced it with its own.
- Jetz Service retrieved its equipment and stored it in one of its warehouses.
- In January 1993, Jetz Service re-leased four of the five sets of recovered equipment to a new client, although it had other suitable equipment available in its inventory to fulfill this new lease.
Procedural Posture:
- Jetz Service Co., Inc. sued Salina Properties in a Kansas trial court for breach of a lease agreement.
- The trial court found that Salina Properties had breached the lease and determined that Jetz Service was a 'lost volume' lessee, not required to mitigate its damages.
- The trial court awarded Jetz Service damages of $6,383.08 for lost profits and $2,165 in attorney fees.
- Salina Properties, as the appellant, appealed the trial court's award of damages to the Kansas Court of Appeals, with Jetz Service Co., Inc. as the appellee.
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Issue:
Is a service provider with a large and readily available inventory of leasable equipment, considered a 'lost volume lessee,' exempt from the standard duty to mitigate damages when one of its leases is breached?
Opinions:
Majority - Larson, J.
Yes. A service provider with the capacity to perform additional contracts is a 'lost volume lessee' and is not required to mitigate damages because the subsequent transaction is not a substitute for the breached contract. The court reasoned that the traditional duty to mitigate damages does not apply where the injured party has a supply of goods or services so large that it could have performed both the breached contract and a subsequent contract. Citing principles from the UCC's 'lost volume seller' doctrine and the Restatement (Second) of Contracts, the court found the concept analogous to a provider of services. The evidence established that Jetz Service had approximately 1,500 machines in its inventory and constantly sought new business, proving it had the capacity to handle both the Salina Properties lease and the subsequent Kansas City lease. To force Jetz Service to deduct profits from the new lease would deprive it of a transaction it would have secured regardless of the breach, thereby failing to place it in as good a position as full performance would have.
Analysis:
This case is significant as it marks the first time a Kansas court officially adopted the 'lost volume' doctrine and extended its application beyond the sale of goods under the UCC to a provider of services and a lessor of equipment. The decision establishes a key exception to the general duty to mitigate damages, creating a precedent that benefits businesses with a high volume or virtually unlimited capacity to perform contracts. For such businesses, this ruling allows for the recovery of full lost profits from a breach, as subsequent transactions are not considered substitutes that offset the loss. This changes the damages calculation for a specific class of plaintiffs in breach of contract actions within the jurisdiction.
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