Designer Direct v. Deforest Redevelopment Auth.

313 F.3d 1036 (7th Cir. 2002)

 

RULE:

An injured party has a right to damages based on expenditures made in preparation for performance. Thus, reliance damages are not limited to those expenses made in relation to duties spelled out in the contractual agreement.

FACTS:

The parties entered into a contract concerning a development plan created by the developer, the construction of the infrastructure, the sale of land, and the subsequent construction. The authority had a contractual obligation to provide a full-time liaison to work with the developer, but the authority failed to do so. Instead, the authority reimbursed the developer for outside liaison sources. The parties also experienced problems regarding the purchase of a particular parcel of land and the plans to build a public library. The appellate court determined that the authority's breach of the liaison requirement was a material breach; the absence of a liaison had a significant effect on the developer's ability to perform. The appellate court affirmed the district court's decision as it related to the judgment in favor of the developer. The appellate court reversed and remanded the matter concerning the denial of reliance damages to the developer.

ISSUE:

Are reliance damages available for costs related to preparations for performance, where the contract was breached prior to performance?

ANSWER:

Yes.

CONCLUSION:

The appellate court determined that the authority's breach of the liaison requirement was a material breach; the absence of a liaison had a significant effect on the developer's ability to perform. Regarding the parcel of land that was not developed, the appellate court agreed with the district court's finding that the authority breached the express provisions requiring good faith. Regarding the library, the authority breached the contract by failing to act in good faith with respect to the library negotiations. Finally, the appellate court found that the developer was entitled to reliance damages.

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