Recovery for breach of contract based upon reliance is not without limitation. If it can be shown that full performance would have resulted in a net loss, the plaintiff cannot escape the consequences of a bad bargain by falling back on his reliance interest.
Three promoters hired a law firm to form a corporation to finance a venture involving an entertainer who was seeking to establish a world record for flagpole sitting. The corporation raised money for the venture by selling stock in the corporation. The law firm failed to structure the corporation in compliance with securities laws. The corporation discontinued the project and filed an action against the law firm for breach of contract and negligence. At trial, the court permitted the jury to consider the issue of reliance damages. This resulted in a verdict in favor of the corporation. The case was appealed to the Court of Special Appeals of Maryland.
Should the law firm be held liable?
The court held: 1) that there was a nexus between the law firm's failure to properly incorporate and the failure of the venture; 2) that the inability to establish that financial chaos was inevitable did not preclude the corporation from recovering reliance damages; 3) that the trial court properly submitted the issue of reliance damages to the jury; 4) that the trial court properly instructed the jury on reliance damages and properly declined to instruct on the issue of mitigation; 5) that the trial court did not err in denying the law firm's motion to disqualify a member of the firm for being called as a witness; and 6) that the reliance damages were not subject to pre-judgment interest.