The victim of a breach of contract should be restored to the position he would have been in had the contract been performed. Determining that position involves finding what additions to the injured party's wealth have been prevented by the breach and what subtractions from his wealth have been caused by it. Where the contract requires a capital investment by one of the parties in order to perform, that party's reasonable expectation of profit includes recouping the capital investment. The expending party would not be in as good a position as if the contract had been performed if he is not afforded the opportunity, i.e., the full contract term, to recoup his investment. To recover these expenditures, they must have been reasonably made in performance of the contract or in necessary preparation.
An individual doing business as a freight company filed an action for breach of contract against a company after the company prematurely terminated their contract. A jury verdict awarded damages and attorney's fees for breach of contract to the individual. Thus, the case was appealed to the Court of Appeals of Texas. The company claimed that the individual could only recover the profits lost by reason of the breach.
Was the individual entitled to damages?
The court found that the individual was entitled to recover the amount of the expenditures she incurred to perform the contract because she was deprived of an opportunity to recoup those expenditures. The company was not entitled to have the individual's losses deducted from the recovery because the company had the burden to prove that amount, if any, and it did not do so. The court, however, recalculated the amount of the judgment to accurately reflect the individual's reliance damages and to eliminate any double recovery. As reformed, the judgment was affirmed.