Morrow v. First National Bank of Hot Springs
550 S.W.2d 429 (1977)
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Rule of Law:
To recover consequential damages for a breach of contract, a plaintiff must prove not only that the defendant had knowledge of the special circumstances that could lead to such damages, but also that the defendant tacitly agreed to assume responsibility for those damages.
Facts:
- Plaintiffs Morrow and Goslee were partners in coin collecting and stored a substantial part of their collection at Morrow's home.
- Due to prohibitive insurance rates, they sought to rent large safety-deposit boxes to secure their collection.
- On June 25, 1971, Morrow and Goslee paid the defendant bank $75 to reserve three large safety-deposit boxes in a new building that was not yet open.
- Morrow explained his urgent need for the boxes, and one or two bank employees promised to notify him as soon as they became available.
- The boxes became available for use on August 30, 1971, but the bank failed to notify Morrow.
- On September 4, 1971, Morrow's home was burglarized, and coins valued at $32,155.17 were stolen.
Procedural Posture:
- Morrow and Goslee (plaintiffs) filed an action against First National Bank of Hot Springs (defendant) in a trial court to recover the value of their stolen coins.
- The complaint alleged breach of contract for the bank's failure to provide notice of the safety-deposit boxes' availability.
- The trial court granted summary judgment in favor of the defendant bank.
- The plaintiffs, Morrow and Goslee, appealed the summary judgment to the Arkansas Supreme Court.
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Issue:
Does a party's failure to perform a contractual promise make them liable for consequential damages when that party was aware of circumstances that could lead to such damages, but did not tacitly agree to assume responsibility for them?
Opinions:
Majority - George Rose Smith
No. A party is not liable for consequential damages resulting from a breach of contract without evidence of a tacit agreement to assume such liability. The court affirmed its adherence to the 'tacit agreement test' established in Hooks Smelting Co. v. Planters’ Compress Co. This test requires more than the defendant's mere knowledge that a breach might cause special damages; the plaintiff must show the defendant implicitly consented to be bound for such extraordinary losses. Here, it is unreasonable to assume the bank, in exchange for a $75 rental fee, tacitly agreed to act as an insurer for a loss exceeding $32,000. The vast disparity between the consideration paid and the damages sought makes it highly unlikely the bank would have assented to such liability. The court also rejected the plaintiffs' attempt to frame the claim as a tort, classifying the bank's failure to notify as a nonfeasance (a failure to act), which does not give rise to tort liability in this context.
Analysis:
This decision reaffirms Arkansas's adherence to the minority 'tacit agreement test' for consequential damages, distinguishing it from the more common 'foreseeability' test adopted by the Uniform Commercial Code. The ruling establishes a high bar for plaintiffs seeking special damages, requiring proof that the breaching party essentially agreed to act as an insurer for disproportionately large potential losses. This protects providers of low-cost goods and services from being exposed to massive, unforeseen liability that is out of proportion to the value of the contract. The case solidifies a contract-centric view that limits liability to what the parties reasonably appeared to have consented to at the time of formation.
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