Leingang v. City of Mandan Weed Board

North Dakota Supreme Court
468 N.W.2d 397 (1991)

ELI5:

Rule of Law:

When calculating damages for lost profits from a breach of contract, the proper measure is the contract price less the costs the non-breaching party avoided by not having to perform. Fixed overhead expenses that would have been incurred regardless of the breach are not deducted from the contract price.

Facts:

The City of Mandan Weed Board awarded Robert Leingang a contract to cut weeds on lots with an area greater than 10,000 square feet.
A different contractor was awarded the contract for smaller lots.
The Weed Board’s agent began improperly assigning large lots, which were part of Leingang's contract, to the small-lot contractor.
Leingang was prevented from performing work that had a total contract price of $1,933.78.
Leingang testified that the expenses he avoided by not performing this work (gas, oil, repair, and replacement blades) totaled $211.18.

Procedural Posture:

Robert Leingang filed a breach of contract action against the City of Mandan in small claims court.
The City removed the case to county court.
In the county court, the City admitted that it had breached the contract.
A bench trial was held in county court solely on the issue of damages.
The trial court, adopting a 'modified net profit' approach, awarded Leingang $368.59 in damages.
Leingang, as the appellant, appealed the trial court's damage award to the Supreme Court of North Dakota.

Premium Content

Subscribe to Lexplug to view the complete brief

You're viewing a preview with Rule of Law, Facts, and Procedural Posture

Issue:

In a breach of contract action, does the correct measure of damages for lost profits involve deducting the non-breaching party's fixed overhead expenses from the contract price, or only those variable expenses that were avoided because performance was excused?

Opinions:

Majority - Levine, Justice

No, the correct measure of damages for lost profits deducts only those variable expenses that were avoided because of the breach; fixed overhead expenses that would have been incurred regardless of the breach are not deducted. The purpose of contract damages is to place the non-breaching party in as good a position as if the contract had been fully performed. Deducting fixed, constant overhead costs—expenses the plaintiff must pay whether or not the contract is performed—under-compensates the plaintiff because the contract proceeds would have been used to cover those costs. Subtracting fixed expenses from the damage award effectively forces the plaintiff to pay those expenses twice. The trial court erred by using Leingang's tax returns to calculate a 'net profit' margin, which improperly deducted general business costs without determining whether they were fixed costs or variable costs saved by the breach.

Analysis:

This decision clarifies the proper methodology for calculating lost profits in breach of service contract cases, specifically addressing the treatment of fixed versus variable costs. It establishes a precedent that protects non-breaching parties from being under-compensated by preventing the breaching party from deducting general overhead from the damage award. The ruling mandates that courts must distinguish between costs saved by the breach (variable) and costs incurred regardless (fixed), ensuring damage awards more accurately reflect the plaintiff's 'benefit of the bargain,' which includes the contract's contribution to covering overhead.

Gunnerbot

AI-powered case assistant

Loaded: Leingang v. City of Mandan Weed Board (1991)

Try: "What was the holding?" or "Explain the dissent"