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Plaintiff can recover attorney fees in Arizona for a breach of contract

Posted by Steve Vondran | Jan 29, 2024

Vondran Legal® - Business, IP, Sports and Entertainment Contracts - Arizona Breach of Contract Explained.  Call us at (877) 276-5084.

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Recovering Attorney Fees in Arizona for a Breach of Contract: A Plaintiff's Guide

Introduction

When entering into a contract, parties usually expect that both sides will fulfill their obligations. Unfortunately, breaches of contract do occur, leaving the non-breaching party to pursue legal action to enforce their rights. In Arizona, one significant concern for plaintiffs pursuing a breach of contract claim is the recovery of attorney fees. This blog will explore the circumstances in which a plaintiff can recover attorney fees in Arizona for a breach of contract, the relevant legal principles, and the steps plaintiffs can take to increase their chances of obtaining such compensation.

The "American Rule" and Exceptions

The general rule in the United States, known as the "American Rule," is that each party involved in a lawsuit is responsible for their own attorney fees, regardless of the outcome. Nevertheless, Arizona, like many states, has recognized exceptions to this rule, allowing plaintiffs to recover attorney fees in certain circumstances. One such exception is outlined in Arizona Revised Statutes (A.R.S.) §12-341.01, which provides for fee-shifting in breach of contract cases.

A.R.S. §12-341.01 and Its Application (applies to implied agreements as well)

Under A.R.S. §12-341.01, a prevailing party in a breach of contract action may be entitled to recover reasonable attorney fees if the contract at issue explicitly includes a provision granting such recovery. It is important to note that Arizona's courts interpret the language strictly, requiring clear and unambiguous language in the contract for fee-shifting provisions to apply. Ambiguous or poorly drafted clauses may not be sufficient.

A. In any contested action arising out of a contract, express or implied, the court may award the successful party reasonable attorney fees.  

If a written settlement offer is rejected and the judgment finally obtained is equal to or more favorable to the offeror than an offer made in writing to settle any contested action arising out of a contract, the offeror is deemed to be the successful party from the date of the offer and the court may award the successful party reasonable attorney fees.

This section shall not be construed as altering, prohibiting or restricting present or future contracts or statutes that may provide for attorney fees.

B. The award of reasonable attorney fees pursuant to this section should be made to mitigate the burden of the expense of litigation to establish a just claim or a just defense. It need not equal or relate to the attorney fees actually paid or contracted, but the award may not exceed the amount paid or agreed to be paid.

C. The court and not a jury shall award reasonable attorney fees under this section.

Hear Attorney Steve Vondran Explain in this Podcast

Proving Your Case and Justifying Fee-Shifting:

To succeed in a breach of contract claim and potentially recover attorney fees under A.R.S. §12-341.01, a plaintiff must establish the following elements:

1. The existence of a valid contract: The plaintiff must demonstrate that a legally enforceable contract existed between the parties involved.

2. Breach of the contract: The plaintiff must prove that the defendant failed to comply with the terms and conditions specified in the contract.

3. Prevailing party status: The plaintiff must prevail in the litigation, either through a favorable judgment or a settlement that substantially upholds their contractual rights.

4. Specific fee-shifting provision: The contract must contain an explicit provision granting the prevailing party the right to recover attorney fees in case of breach.

Additionally, plaintiffs should be prepared to provide evidence of their reasonable attorney fees and expenses incurred throughout the litigation process. This evidence typically includes documentation such as itemized billing statements, fee agreements, and affidavits from the plaintiff's attorney.

Increasing Your Chances of Recovering Attorney Fees

While the inclusion of a fee-shifting clause in the contract is crucial, there are additional steps plaintiffs can take to improve their chances of recovering attorney fees in an Arizona breach of contract case:

1. Clear and specific fee-shifting language: Draft the fee provision in a way that is not open to interpretation or ambiguity.

2. Seek legal advice during contract drafting: Consulting an experienced attorney during the contract creation process can help ensure the inclusion of enforceable fee-shifting language.

3. Preserve accurate documentation: Maintain thorough records of communication, contracts, invoices, and other relevant documents related to the breach and litigation.

4. Consult with an experienced attorney: Seeking guidance from an attorney well-versed in Arizona contract law will help you navigate the complexities of the legal system and enhance your chances of a successful recovery.

Breach of Entertainment Law Contracts

  1. Talent Agreements - Contracts between performers and talent agents outlining representation, compensation, and other obligations.
    2. Recording Contracts - Agreements between artists and record labels for the production and distribution of music albums.
    3. Film Production Agreements - Contracts between filmmakers, producers, and investors pertaining to the creation and distribution of films.
    4. Distribution Agreements - Contracts outlining the rights and responsibilities for distributing films or music through various platforms.
    5. Licensing Agreements - Contracts granting the rights to use copyrighted material in exchange for royalties or other compensation.
    6. Music Publishing Contracts - Agreements between songwriters and publishers regarding the exploitation and promotion of musical compositions.
    7. Merchandising Contracts - Contracts granting the rights to produce and sell merchandise related to an artist or entertainment property.
    8. Endorsement Agreements - Contracts between celebrities or public figures and companies for endorsing products or services.
    9. Production Agreements - Contracts between producers and production companies outlining the terms of producing entertainment content.
    10. Option Agreements - Contracts granting the exclusive rights to purchase or produce a script or literary work within a specified timeframe.
    11. Talent Release Forms - Contracts securing the rights to use an individual's likeness, voice, or performance in a film, video, or other media.
    12. Composer Agreements - Contracts between composers and production companies or filmmakers for creating original music for films or TV shows.
    13. Screenwriting Agreements - Contracts between screenwriters and production companies for writing or adapting scripts for film or television.
    14. Non-Disclosure Agreements (NDAs) - Contracts ensuring the confidentiality of sensitive information related to entertainment projects or deals.
    15. Book Publishing Contracts - Agreements between authors and publishers for publishing and distributing books.
    16. Agent Agreements - Contracts between artists and agents detailing the terms of representation and commission rates.
    17. Management Agreements - Contracts between artists and their managers outlining the responsibilities, compensation, and duration of the manager's services.
    18. Sponsorship Agreements - Contracts between brands and artists or entertainment events for sponsorship arrangements and promotional activities.
    19. Location Agreements - Contracts securing the right to use specific locations for film or television production.
    20. Clearances and Rights Agreements - Contracts ensuring that all necessary rights and clearances are obtained for the use of copyrighted materials, trademarks, or other intellectual property.
    21. Production Services Agreements - Contracts between production companies and third-party vendors or service providers for various production needs (e.g., equipment rental, catering, transportation, etc.).
    22. Co-Production Agreements - Contracts between multiple production companies for jointly producing a film or television project.
    23. Sync Licensing Agreements - Contracts granting the rights to synchronize music with visual media (e.g., films, TV shows, commercials).
    24. Live Performance Agreements - Contracts between artists and event organizers or promoters for live performances, concerts, or tours.
    25. Digital Distribution Agreements - Contracts governing the distribution and monetization of digital content through online platforms or streaming services.

Various Sports Law Contracts that may be breached

1. Standard Player Contracts - Professional sports leagues have standard contracts that outline the terms and conditions for employment of players. These contracts cover player compensation, playing time, performance bonuses, and dispute resolution.
2. Rookie Contracts - Contracts offered to rookie players, typically for a predetermined number of years and at a lower salary compared to veteran players.
3. Veteran Contracts - Contracts offered to players who have completed a certain number of years in the league and may include higher salaries and additional incentives.
4. Maximum Contracts - Contracts that set a maximum salary a team can offer to a player, often applicable in salary-capped leagues.
5. Minimum Contracts - Contracts that set a minimum salary a team must offer to a player, ensuring a certain level of compensation.
6. Incentive-based Contracts - Contracts that include performance-based incentives, such as hitting certain statistical milestones, making the All-Star team, or winning awards.
7. Signing Bonuses - Lump sum payments offered to players upon signing a contract.
8. Option Contracts - Contracts that include a team or player option for an additional year(s) at the discretion of one of the parties.
9. Franchise Tags - A designation given in certain leagues that allows a team to retain a player for one year at a predetermined salary.
10. Transition Tags - Similar to franchise tags, but with a slightly lower salary offer and allows the player to negotiate with other teams.
11. Restricted Free Agent Contracts - Contracts offered to restricted free agents, who can negotiate with other teams, but their original team has the right to match offers.
12. Unrestricted Free Agent Contracts - Contracts offered to unrestricted free agents, who have no limitations on negotiating with any team.
13. Arbitration - Contracts that result from an arbitration process when players and teams cannot come to an agreement on the terms of a contract.
14. Sponsorship Contracts - Contracts between athletes or teams and corporate sponsors, usually involving endorsement deals, appearance fees, and product endorsements.
15. Broadcast Contracts - Contracts that govern the rights and financial arrangements between leagues/teams and television networks or streaming platforms for broadcasting games and events.
16. Equipment Contracts - Contracts between athletes or teams and equipment manufacturers, often involving the supply of equipment, sponsorship, and brand promotion.
17. Stadium/arena Contracts - Contracts between teams and the venues they play in, includes the terms for lease, rent, revenue sharing, and other operational aspects.
18. Coaching Contracts - Contracts between teams and coaches, outlining their terms of employment, compensation, and performance incentives.
19. Broadcast Talent Contracts - Contracts between broadcasters and media networks, governing the terms of employment, salaries, and appearance requirements.
20. Endorsement Contracts - Contracts between athletes or teams and companies for the promotion of products or services.
21. Licensing Contracts - Contracts that grant a license to manufacturers or companies to produce and sell merchandise featuring team or player branding.
22. Insurance Contracts - Contracts taken out by teams or athletes to cover potential loss or injury, including disability, career-ending, and medical insurance.
23. Transfer Contracts - Contracts related to the transfers or trades of players between teams or leagues, outlining the terms, fees, and conditions.
24. International Contracts - Contracts governing the terms of international players playing in a different country or league, often involving work permits and immigration requirements.
25. Collective Bargaining Agreements (CBA) - Contracts between players' unions and leagues, establishing the terms and conditions of employment, salary caps, revenue sharing, and other policies.

Arizona breach of contract - jury instructions!

Here are the Arizona jury instructions for a breach of contract case:

A contract is an agreement between two or more people or entities. For a contract to exist, there must be an offer, acceptance of the offer, consideration, and terms sufficiently specific so that the obligations created by the contract can be determined. [To find that the parties had a contract, you must find that they each intended to be bound by the agreement and that they made that intention known to the other party.]

[Name of plaintiff] claims that [name of defendant] breached a contract. On this claim, [name of plaintiff] must prove there was a contract with [name of defendant]. [Name of defendant] breached the contract, and that breach resulted in damage to [name of plaintiff]. [Name of defendant] claims (insert affirmative defense[s]). [Name of defendant] must prove these defenses.]

A promise may be enforceable even without the existence and formation of a binding contract between the parties if the elements of promissory estoppel are met. If there is a claim of promissory estoppel, use Contract Instruction 28 (Promissory Estoppel).

Other Requirements: There may be other requirements of a contract in individual cases. For example, the parties to the contract must be competent. The contract must be for a legal purpose. There must be a sufficient specification of terms so that the obligations involved can be ascertained. Depending on the facts involved, these issues could be a question for either the judge or jury

Certainty of Terms

If one or more terms of the claimed contract are uncertain or left for later resolution, then the court or jury must determine whether the parties intended to be bound. In Savoca Masonry Co. v. Homes & Son Constr. Co., 112 Ariz. at 395, the Arizona Supreme Court held that a contract did not exist where “such essentials as manner of payment, time for completion, . . . penalty provisions, bonding, etc.” were not set forth in the agreement. See also Pyeatte v. Pyeatte, 135 Ariz. 346, 350-51 (App. 1982) (contract does not exist if the “material requirements” or “essential terms” are uncertain). But see Arok Constr. Co. v. Indian Constr. Servs., 174 Ariz. 291, 295, 298 (App. 1993) relying on RESTATEMENT (SECOND) OF CONTRACTS §§ 33 cmt. a, 204, suggesting that the Arizona Supreme Court would decide Savoca Masonry “differently today,” and holding that a court may provide some missing terms.

Revoking an offer prior to acceptance

The person making the offer may revoke the offer at any time before the communication of acceptance by the person to whom the offer is made. [This is so even though the offer is stated to be good or irrevocable for a specified period, unless there is valid consideration for the promise to keep the offer open.] An offer is revoked: 

  1. [By the person who made the offer, by giving notice of revocation3 to the person to whom the offer has been made] [; or] 2. [By the lapse of the time set forth in the offer for the acceptance, [or if no time is set forth, the lapse of a reasonable time without communication of the acceptance]] [; or] 3. [By the failure of the person accepting the offer to fulfill a requirement for acceptance] [; or] 4. [By the [death] [mental incompetence] of the person making the offer.]

A binding and continuing offer (i.e., an option) cannot be revoked until the time fixed for expiration. Mack v. Coker, 22 Ariz. App. 105, 108 (1974). 3 Notice need not comply with all of the formal requirements for acceptance as long as the notice of revocation is received by the offeree prior to acceptance. Notice can be constructive (i.e., the knowledge of the person to whom the offer was made that the property is already sold constitutes notice.) See Butler v. Wehrley, 5 Ariz. App. 228, 232 (1967); Allen R. Krauss Co. v. Fox, 132 Ariz. 125, 126 (App. 1982).

Modification of a contract

[Name of party] claims the parties changed the terms of the contract. After parties enter into a contract, they may agree to change it. The party claiming there has been a change must prove there was an offer to change the contract, acceptance of that offer, and consideration for the change.  See Yeazell v. Copins, 98 Ariz. 109, 115-16 (1965) (parties may substitute a new contract for the old one, by mutual consent); Pleasant v. Arizona Storage & Distributing Co., 34 Ariz. 68, 76 (1928); Angus Med. Co. v. Digital Equip. Corp., 173 Ariz. 159 (App. 1992); Ancell v. Union Station Assocs., 166 Ariz. 457, 460 (App. 1990).

What is a material breach?  

[Name of plaintiff] contends that there has been a material breach of the contract by [name of defendant].

A breach of contract occurs when a party fails to perform an obligation under the contract. Not every breach of a contract is a material breach. A material breach occurs when a party fails to perform a substantial part of the contract or one or more of its essential terms or conditions. [Name of same plaintiff] has the burden of proving that any breach was material.

A material breach by one party excuses performance by the other party to the contract.  See Ry-Tan Const., Inc. v. Washington Elem. Sch. Dist. No. 6, 208 Ariz. 379, 401 (App. 2004) vacated on other grounds by 210 Ariz. 419 (2005); Amos Flight Operations, Inc. v. Thunderbird Bank, 112 Ariz. 263, 267 (1975); Mahurin v. Schmeck, 95 Ariz. 333, 339 (1964); Zancanaro v. Cross, 85 Ariz. 394, 400 (1959).

Depending on the facts and circumstances of the case, the court may also want to instruct the jury on some or all of the factors in the RESTATEMENT (SECOND) OF CONTRACTS § 237 (1981). The Restatement cites the following circumstances:

A material breach is failure to perform in a manner that substantially defeats the purpose of the contract.

The Restatement cites the following circumstances to determine whether a material breach has occurred:

a. the extent to which the injured party will be deprived of the benefit reasonably expected;

b. the extent to which the injured party can be adequately compensated for the part of that benefit which will be deprived;

c. the extent to which the party failing to perform or to offer to perform will suffer forfeiture;

d. the likelihood that the party failing to perform or to offer to perform will cure the failure, taking account of all the circumstances including any reasonable assurances; e. the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.

RESTATEMENT (SECOND) OF CONTRACTS § 241 (1981). Material breach excuses performance by the nonbreaching party. Nonmaterial breach does not excuse performance by the other party, but may permit a claim for damages. See Contract Instruction 10, Substantial Performance

Substantial Performance

[Name of party] claims that [name of other party] has not performed according to their agreement. [Name of other party] claims that he should not have to perform because [name of party] did not fully perform. [Name of party] claims that he did substantially perform, thus making [name of other party]'s performance due. Substantial performance means that [name of party] has performed all that is required by the contract, except for slight defects that can easily be cured.

To determine whether [name of party] has substantially performed his obligations under the contract, you should consider the nature of the promised performance, the purpose of the contract, and the extent to which any defects in performance have defeated that purpose. [Name of party] must prove substantial performance.

RESTATEMENT (SECOND) OF CONTRACTS § 237 cmt. d (1981); Matador Drilling Co., Inc. v. Post, 662 F.2d 1190, 1195 (5th Cir. 1981); Material Movers, Inc. v. Hill, 316 N.W.2d 13, 18 (Minn. 1982); Alaska State Hous. Auth. v. Walsh & Co., Inc., 625 P.2d 831, 835 (Alaska 1980); Mathis v. Thunderbird Village, Inc., 389 P.2d 343, 351 (Or. 1964). 

As to damages, if the party claiming substantial performance has proved it, that party is entitled to recover the contract price, less recoupment or set-off.

Recoupment should be measured either by the cost of correcting the deficiency or, if this would involve unreasonable economic waste, the difference in value between what was contracted for and what was actually received.

Other terms or phrases such as “deficiencies in performance” may be substituted for “defects,” as appropriate: 

Shifting Burden of Proof: The burden of proving substantial performance is on the party claiming it. If the evidence establishes substantial performance, the burden shifts to the other party to prove that certain defects in performance merit recoupment or set-off. 

Substantial Completion: Much of the case law in this area seems to arise out of construction law situations where “substantial completion” is the issue. One court has indicated that the terms “substantial performance” and “substantial completion” are interchangeable. Ramada Dev. Co. v. Rauch, 644 F.2d 1097, 1105-06 (5th Cir. 1981). 

RESTATEMENT (SECOND) OF CONTRACTS § 237 cmt. d, however, discusses the relationship between substantial and full performance and explains that “if there has been substantial although not full performance, the building contractor has a claim for the unpaid balance and the owner has a claim only for damages.”

3a. Intentional Defects

Dicta: One Arizona case supports, at least in dicta, the principle that intentional and deliberate defects in performance will defeat a substantial performance claim. Economy v. Frohme, 13 Ariz. App. 117, 118 (1970). The Economy court relied on Cassino v. Yacevich, 261 App. Div. 685, 27 N.Y.S.2d 95 (1941), in which the court rejected a claim for substantial performance after concluding that the plaintiff had not performed in good faith.

According to 3A CORBIN ON CONTRACTS, § 707 (1960), pp. 328-329, most courts that cite the principle that intentional, albeit slight, defects in performance will bar recovery under a substantial performance claim, do so merely in dicta.

3b. Intentional Defects and Express Conditions:

The principle that intentional defects, even seemingly insignificant ones, will bar recovery for substantial performance seems to apply more readily to express conditions than to performance. Express contractual conditions require strict and literal, rather than substantial, performance. Ram Dev. Corp. v. Siuslaw Enter.., Inc., 580 P.2d 552, 555 (Or. 1978). In an Oregon Supreme Court decision, recovery for substantial performance was allowed even though a contractor willfully failed to build a cover over a compressor because the other party refused to pay him. Mathis v. Thunderbird Village, Inc., 389 P.2d at 350-51 (Or. 1964).

The court reasoned that willfully refusing to perform a minor portion of the contract after breach by the other party should not defeat recovery for substantial performance. Id. The Mathis court cited a case where a substantial performance claim was rejected because the contract required the contractor to provide receipt vouchers for all labor and materials, but instead he willfully produced canceled checks. Camp & DuPuy v. Lauterman, 152 P. 288 (Or. 1915). 

The Camp court did not mention willfulness, but rejected the claim on the ground that the deviation was not trivial. Thus, because the deviation was not trivial, the performance was not “substantial.” The voucher provision, however, appears to have been an express condition to payment.

3c. Intentional Defects: Summary:

The issue of trivial but intentional defects is unresolved in Arizona. Perhaps the better rule is that intentional defects in performance will not absolutely preclude success on a substantial performance claim unless they are made in order to defeat the purpose of the contract, are in themselves substantial deviations, or are conscious decisions to not perform express conditions. Although intent is not normally an element of breach of an express condition, it is possible that unintentional and good faith deviations from express conditions will not defeat a claim for substantial performance, but will merely reduce the recovery in the same way that minor deviations in other contractual terms will reduce recovery. On the other hand, intentional deviations from express conditions may bar recovery, even though the contract has been, in all other respects, substantially performed.

Anticipatory Breach

[Name of plaintiff] claims that there was an anticipatory breach of contract by [name of defendant]. To recover on this claim, [name of plaintiff] must prove:

  1. [Name of defendant] stated or showed a clear intent not to perform as promised; and
  2. [Name of plaintiff] was ready, willing and offered to perform [the party's] duties under the contract if [name of defendant] had not refused to perform. 

SOURCE: Snow v. Western Sav. & Loan Ass'n, 152 Ariz. 27, 33 (1986); Kammert Bros. Enter., Inc. v. Tanque Verde Plaza Co., 102 Ariz. 301, 306 (1967); United Cal. Bank v. Prudential Ins. Co., 140 Ariz. 238, 277 (App. 1983); RESTATEMENT (SECOND) OF CONTRACTS § 253 and § 250, cmt. b (1981). COMMENT: 1. Some Specific Examples: Anticipatory repudiation is a species of breach of contract. Diamos v. Hirsch, 91 Ariz. 304, 307 (1962). A statement that merely implies that performance will not be forthcoming is not the equivalent of a “positive and unequivocal refusal to perform.” McMahon v. Fiberglass Fabricators, Inc., 17 Ariz. App. 190, 192 (1972). However, the insistence upon the performance of terms that are not contained in the contract constitutes an anticipatory repudiation of the contract. Snow, 152 Ariz. at 33. 

2. Manifestation: Some Arizona cases state that an anticipatory repudiation occurs when a party unequivocally communicates that it will not perform and treats the contract as if it were terminated. The better rule, however, appears to be that an unequivocal manifestation of an intention not to perform will be viewed as an anticipatory breach because the nonbreaching party may justifiably rely on that manifestation, even if the breaching party has not treated the contract as terminated. This seems to be the rule in Snow, 152 Ariz. at 33.

Good Faith and Fair Dealing

 A party to a contract has a duty to act fairly and in good faith. This duty is implied by law and need not be in writing. This duty requires that neither party do anything that prevents the other party from receiving the benefits of their agreement.

If you find that [name of defendant] has breached the duty of good faith and fair dealing, [name of plaintiff] is entitled to recover damages proved by the evidence to have resulted naturally and directly from the breach [and to recover consequential damages].

SOURCE: Taylor v. State Farm Mut. Auto. Ins. Co., 175 Ariz. 148, 156 (1993); Rawlings v. Apodaca, 151 Ariz. 149, 153-54 (1986); Wagenseller v. Scottsdale Memorial Hosp., 147 Ariz. 370, 383 (1985); Miel v. State Farm Mut. Auto. Ins. Co, 185 Ariz. 104, 109 (App. 1995); Nelson v. Phoenix Resort Corp., 181 Ariz. 188, 197 (App. 1994); Southwest Sav. & Loan Ass'n v. SunAmp Systems, 172 Ariz. 553, 557 (App. 1992); Oldenburger v. Del E. Webb Dev. Co., 159 Ariz. 129, 132 (App. 1988).

COMMENT: The duty of good faith and fair dealing is implied in every contract. Rawlings, 151 Ariz. at 153. In Rawlings, the court analyzed the types of contractual relationships in which the breach of the duty of good faith and fair dealing would give rise to a cause of action in tort. 151 Ariz. at 158- 61. Since Rawlings, the Arizona appellate courts have analyzed whether tort damages would be available for the breach of the duty of good faith and fair dealing in other contexts. Thus, in Oldenburger, 159 Ariz. at 132, the court concluded that tort damages were not available for a breach of the duty of good faith and fair dealing arising out of a real estate contract. In Dodge v. Fidelity & Deposit Co. of Maryland, 161 Ariz. 344, 346-47 (1989), the court concluded that tort damages were available in a bad faith action against a surety on a contractor's performance bond. In Burkons v. Ticor Title Ins. Co., 168 Ariz. 345, 356 (1991), the court affirmed the dismissal of a bad faith case against an escrow agent based upon the facts presented, but declined to decide whether given proper facts, tort damages might be available in a bad faith case against an escrow agent. Finally, in Nelson, 181 Ariz. at 198, the court held that tort damages were not generally available in a bad faith action by an employee against an employer. Contract Instruction 16 is intended for use in cases in which the court has concluded that only contract damages are available for the breach of the duty of good faith and fair dealing. In a case in which the court concludes that tort damages are available, a different instruction will need to be drafted. See Bad Faith Instruction 1 (insurance bad faith instruction; see also Employment Law Instruction 3 (Bad Faith Instruction for use in employment cases).

Measure of Direct Damages (Breach of Contract)

If you find that [name of defendant] is liable to [name of plaintiff] for breach of contract, you must then decide the full amount of money that will reasonably and fairly compensate [name of plaintiff] for the damages proved by the evidence to have resulted naturally and directly from the breach of contract.

The damages you award for breach of contract must be the amount of money that will place [name of plaintiff] in the position [name of plaintiff] would have been in if the contract had been performed. To determine those damages, you should consider the following:

[The profit that [name of plaintiff] would have received had the contract been performed;]

[The return of the value of the things or services that [name of plaintiff] provided to the [name of defendant;]]

 [The value of things or services expended by [name of plaintiff] in preparing to perform his part of the contract or in preparing to accept the benefits of [name of defendant]'s expected performance;]

 [Whether [name of plaintiff], by not having to perform his part of the contract, has avoided any cost [or loss] which should be deducted from his damages.]

SOURCE: A.R.A. Mfg. Co. v. Pierce, 86 Ariz. 136, 141 (1959); Northern Ariz. Gas Serv., Inc. v. Petrolane Transp., Inc., 145 Ariz. 467, 478-79 (App. 1984); Southern Ariz. School for Boys, Inc. v. Chery, 119 Ariz. 277, 280 (App. 1978);

RESTATEMENT (SECOND) OF CONTRACTS §§ 347, 351 (1981); DOBBS, HANDBOOK ON THE LAW OF REMEDIES § 12.1 (1973).

USE NOTE: 1 Bracketed Alternatives: This instruction should be modified as appropriate to the facts and claims being presented. Select from the bracketed elements as appropriate to the case. Ordinarily, a plaintiff may recover on only one of the theories stated in the first three of the bracketed options. Be careful not to create the possibility of a double recovery of some elements of damage. For example, if damages for breach of contract cannot be proven with the requisite degree of proof, as an alternative, the injured party has a right to damages based on his reliance, including expenditures made in preparation for performance or in performance of the contract, less any loss that the party in breach can prove with reasonable certainty that the injured party would have suffered had the contract been performed. RESTATEMENT (SECOND) OF CONTRACTS § 349 (1981).

  1. Indirect Damages: See Contract Instruction 18 (Consequential Damages).
  2. Reasonable certainty as to amount of damages: 5 CORBIN ON CONTRACTS § 1021 (1964), p. 127; Coury Bros. Ranches v. Ellsworth, 103 Ariz. 515, 521 (1968) (where testimony was speculative and conjectural, lost profits were not established with reasonable certainty); Gilmore v. Cohen, 95 Ariz. 34, 36-37 (1963) (concluding that damages had not been established with reasonable certainty where all evidence relating to damages was in the form of testimony by plaintiffs, without any accounts or other cost records introduced, and where testimony itself was ambiguous and confused); Grummel v.Hollenstein, 90 Ariz. 356, 359 (1962) (upheld trial court's award of damages for breach of agreement to convey land although exact damages would be difficult, if not impossible, to calculate mathematically); Rancho Pescado, supra 140 Ariz. at 184-86 (plaintiff must provide “some reasonable method,” and a “reasonable basis in the evidence for the trier of fact to fix computation when a dollar loss is claimed”); Broadway Realty & Trust v. Gould, 136 Ariz. 236, 238 (App. 1983) (where trial court made specific findings of fact that were well within the range of the expert testimony presented regarding loss of profits, there was reasonable basis for damages and uncertainty as to the amount of damages would not preclude recovery); Hercules Drayage Co. v. Chanco Leasing Corp., 24 Ariz. App. 598, 601 (1975) (damages could be recovered for lost profits shown with as much mathematical precision as the nature of the claim could provide, and certainty as to the amount of damages was not essential to recovery when the fact of damages was proven); One case indirectly discusses the meaning of the term “reasonable certainty” in the context of determining jury instructions to adequately inform the jury of the appropriate burden of proof regarding future lost wages. Lewis v. N.J. Riebe Enter., Inc., 170 Ariz. 384, 397 (1992) (“assuming ... that the amount of future lost wages must be established with reasonable certainty,” the thenexisting RAJI instructions on burden of proof, measure of damages, and defining burden of proof were, as a whole, adequate). 3. Nominal damages: When the fact of damage has been established, but the amount of damages has not been proven with reasonable certainly, nominal damages may be awarded. See Gilmore v. Cohen, 95 Ariz. 34, 36 (1963) (affirming award of nominal damages); RESTATEMENT (SECOND) OF CONTRACTS § 352, ills. 1-2 (1981).

Consequential Damages

 [Name of plaintiff] also seeks to recover damages for [specify items of damage determined by the court to be consequential in nature rather than direct]. To recover for these alleged damages, [name of plaintiff] must prove:

  1. It was foreseeable to the parties when they entered into the contract that these damages would probably result if the contract was breached;
  2. These damages were in fact caused by [name of defendant]'s breach of contract; and
  3. The amount of the damages.

Seekings v. Jimmy GMC of Tucson, Inc., 130 Ariz. 596, 601 (1981); Cole v. Atkins, 69 Ariz. 81 (1949); Miscione v. Bishop, 130 Ariz. 371, 374 (App. 1981). COMMENT: A party may recover both “direct” and “consequential” damages. Direct damages are those which, in the ordinary course of human experience, can be expected to result directly from a breach. Consequential damages do not flow directly from a breach but arise because of special circumstances. Whether damages are direct or consequential in nature is a question of law. An instruction on consequential damages should only be given when the court has decided that the damages claimed are consequential in nature. Whether the damages were foreseeable, and the amount of such damages, however, are generally questions of fact for the jury. Richmond Med. Supply Co. v. Clifton, 369 S.E.2d 407, 409 (Va. 1988). Generally, consequential damages are those that may reasonably be within the contemplation of the parties at the time the contract was made. If a jury is asked to decide whether an item of damage was “within the contemplation of the parties,” the jury may conclude that unless the damage was actually contemplated, it is not recoverable. However, that is not the law. See 22 AM. JUR. 2d Damages § 456.

The “contemplation of the parties” requirement is but one formulation of the principle of foreseeability. Id. § 455. This instruction uses the term “foreseeable” in the belief that it will be more comprehensible to jurors and less likely to suggest that the parties must actually have contemplated the damage. What must be foreseeable is that the item of damage would be a probable result of the breach, and not merely a possible one. Id. § 456; see also Cole , 69 Ariz. at 85-87.

Damages for Lost Profits

[Name of plaintiff] [also] seeks to recover damages for lost profits. To recover damages for present or future lost profits, [name of plaintiff] must prove:

  1. That it is reasonably probable that the profits would have been earned except for the breach;
  2. That the loss of profits is the direct and natural consequence of the breach; and
  3. 3. The amount of lost profits can be shown with reasonable certainty.

If future lost profits are reasonably certain, any reasonable basis for determining the amount of the probable profits lost is acceptable. However, the amount of lost profits cannot be based on conjecture or speculation. In determining whether and to what extent [name of plaintiff] proved lost profits, you must subtract the costs and expenses [name of plaintiff] would have incurred from the gross revenue [name of plaintiff] would have received if the contract had not been breached. 0 SOURCE: RESTATEMENT (SECOND) OF CONTRACTS § 351, cmt. (b) (1979) (foreseeability of lost profits in general); JUDICIAL COUNCIL OF CALIFORNIA CIVIL JURY INSTRUCTIONS (2003-04), CACI No. 352; FEDERAL JURY PRACTICE AND INSTRUCTIONS−CIVIL §§ 86.04 and 86.05 (1987). USE NOTE: 1. Lost profits are pre-tax net profits: KNAPP, 1 COMMERCIAL DAMAGES § 5.01 et seq. (1994); A.R.S. § 47-2708 (U.C.C. § 2-708); Campbell v. Westdahl, 148 Ariz. 432, 439 (App. 1985) (lost profits equal contract price the party would have received less inventory retained and expenses avoided); Morton v. Rogers, 20 Ariz. App. 581, 586 (1973) (profits are the difference between cost of materials and sales receipts). 2. Foreseeability of lost profits; Breach as proximate cause of the loss: Short v. Riley, 150 Ariz. 583, 585 (App. 1986). As to damages relating to the sale of goods, see generally A.R.S. § 47-2715 (U.C.C. § 2-715). 3. Certainty of fact of damages: Isenberg v. Lemon, 84 Ariz. 340, 345-46 (remanding for new trial on damages), modified on other grounds , 84 Ariz. 364 (1958) (reversing trial court's $31,800 award to plaintiff for lost profits, where plaintiff produced no definitive evidence as to actual anticipated profits); Farr v. Transamerica Occidental Life Ins. Co., 145 Ariz. 1, 6 (App. 1984) (plaintiff could not recover damages for loss of credit reputation where nothing in the evidence, except speculation, suggested that they actually suffered any damage to their credit); Rancho Pescado v. Northwestern Mut. Life Ins., 140 Ariz. 174, 184-86 (App. 1984) (no reasonable basis for award of lost profits where there was no conclusive evidence that plaintiff could have successfully raised and marketed large quantities of catfish, and the evidence as a whole amounted to nothing more than conjecture and speculation); Lininger v. Dine Out Corp., 131 Ariz. 160, 162-63 (App. 1981) (lost profits due to defendant's omission of plaintiff from annual coupon book for two-for-one dinners); Earle M. Jorgensen Co. v. Tesmer Mfg. Co., 10 Ariz. App. 445, 450 (1969) (plaintiff must first prove, with certainty, that he has in fact been damaged by defendants.

4. Reasonable certainty as to amount of damages: 5 CORBIN ON CONTRACTS § 1021 (1964), p. 127; Coury Bros. Ranches v. Ellsworth, 103 Ariz. 515, 521 (1968) (where testimony was speculative and conjectural, lost profits were not established with reasonable certainty); Gilmore v. Gilmore, 95 Ariz. 34, 36-37 (1963) (concluding that damages had not been established with reasonable certainty where all evidence relating to damages was in the form of testimony by plaintiffs, without any accounts or other cost records introduced, and where testimony itself was ambiguous and confused); Grummel v. Hollenstein, 90 Ariz. 356, 359 (1962) (upheld trial court's award of damages for breach of agreement to convey land although exact damages would be difficult, if not impossible, to calculate mathematically); Rancho Pescado, 140 Ariz. at 184-86 (plaintiff must provide “some reasonable method,” and a “reasonable basis in the evidence for the trier of fact to fix computation when a dollar loss is claimed”); Broadway Realty & Trust v. Gould, 136 Ariz. 236, 238 (App. 1983) (where trial court made specific findings of fact that were well within the range of the expert testimony presented regarding loss of profits, there was reasonable basis for damages and uncertainty as to the amount of damages would not preclude recovery); Hercules Drayage Co. v. Chanco Leasing Corp., 24 Ariz. App. 598, 601 (1975) (damages could be recovered for lost profits shown with as much mathematical precision as the nature of the claim could provide, and certainty as to the amount of damages was not essential to recovery when the fact of damages was proven). One case indirectly discusses the meaning of the term “reasonable certainty” in the context of determining jury instructions to adequately inform the jury of the appropriate burden of proof regarding future lost wages. Lewis v. N.J. Riebe Enter., Inc., 170 Ariz. 384, 397 (1992) (“assuming ... that the amount of future lost wages must be established with reasonable certainty,” the thenexisting RAJI instructions on burden of proof, measure of damages, and defining burden of proof were, as a whole, adequate). COMMENT:1. Double Recovery: As a general proposition, it has long been the law that a double recovery is not permitted. E.g., The Warren Co. v. Hanson, 17 Ariz. 252, 261 (1915) (remanding for new trial because jury instruction permitted double recovery).

Contract terms that preclude double recovery will be enforced. E.g., Schultz v. Farmers Ins. Group, 167 Ariz. 148, 151 (1991). No Arizona appellate decision has addressed the issue of a double recovery in the context of lost profits. But the law seems clear that such a recovery is not allowed. Renner v. Kehl, 150 Ariz. 94, 97-98 (1986) (allowing rescission of contract on basis of mutual mistake of fact, but disallowing consequential damages); Seekings v. Jimmy GMC Inc., 130 Ariz. 596, 601 (1981) (allowing plaintiffs who returned defective vehicle to recover purchase price, but not damages for breach of warranty); Adams v. Dion, 109 Ariz. 308, 309 (1973) (amount received from one joint tortfeasor must be credited on judgment against other joint tortfeasor); USLife Title Co. v. Gutkin, 152 Ariz. 349, 355 (App. 1986) (having obtained a quit claim deed, recovery for unjust enrichment not permitted).

Courts faced with the double recovery issues have universally condemned the practice of including calculations for both lost profits and lost business value. E.g., American Anodco, Inc. v. Reynolds Metals Co., 743 F.2d 417, 423-24 (6th Cir. 1984) (“[w]here the loss of profits and loss of value are intertwined, as they are here, and the loss of value is based on loss of future profits, to allow both would be to permit a double recovery”); C.A. May Marine Supply Co. v. Brunswick Corp., 649 F.2d 1049, 1053 (5th Cir.), cert. denied, 454 U.S. 1125 (1981) (“Both business goodwill and future profits are computed into the going concern value loss. Hence, damage awards which include recovery for lost future profits and going concern value are impermissibly duplicitous.”); R.E.B., Inc. v. Ralston Purina Co., 525 F.2d 749, 753-55 (10th Cir. 1975) (“Since this property loss included harm to, and deaths of, the swineherd as well as loss resulting [sic] from diminution of good will and going value of the business as a whole, it necessarily embraced loss of profits for the entire period.”); Bush v. National School Studio, 389 N.W.2d 49, 53 (Wis. Ct. App. 1986) (“[L]ost business value focuses on the reduction in value of the business. Both good will and future profits are computed into lost business value. Therefore, damages awards that include lost profits and lost business value are impermissibly duplicitous.”).

The only cases where the measure of damages may include components for lost business value and lost profits are those involving businesses which were sold or otherwise terminated. Even then, the lost profits measure must be limited to the period during which the defendant's wrongful or unlawful activity continued. See R.E.B., Inc. v. Ralston Purina Co., 525 F.2d at 753-55. 2. Factors for Determining Future Lost Profits: The Committee has concluded that factors for the jury to consider when determining whether plaintiff is entitled to future lost profits should not be included in the jury instructions; rather, they are best left to argument. These factors include: (1) the uncertainty which makes the success of a new business problematical [if applicable], (2) plaintiff's experience in the business, (3) the competition in the relevant geographical area, and (4) the general market conditions in that area.

Mitigation of Damages

[Name of defendant] claims that [name of plaintiff] did not make reasonable efforts to prevent or reduce damages. [Name of plaintiff] may not recover for any damages that could have been prevented or reduced through reasonable efforts. [name of defendant] must prove: 1. [Name of plaintiff] did not make reasonable efforts to prevent or reduce damages; 2. If [name of plaintiff] had acted reasonably, [name of plaintiff] could have prevented or reduced damages; and 3. The amount of [name of plaintiff]'s damages that could have been prevented or reduced through reasonable efforts. 0 SOURCE: Coury Bros. Ranches v. Ellsworth, 103 Ariz. 515, 518 (1968); West Pinal Family Health Ctr, Inc., v. McBryde, 162 Ariz. 546, 548-49 (App. 1989) (mitigation of d.amages does not require filing of lis pendens); Fairway Builders, Inc. v. Malouf Towers Rental Co., 124 Ariz. 242, 255 (App. 1979); C. MCCORMICK, LAW OF DAMAGES § 127 (1935); RESTATEMENT (SECOND) OF CONTRACTS § 350 (no breach of duty where party has made reasonable, but unsuccessful efforts).

NOTES: 1. In some circumstances, it may be proper to include an instruction referring to the triggering incident that determines when mitigation efforts should have begun. 2. In some circumstances, it may be proper to include an instruction to the effect that the plaintiff is not required to incur unreasonable risk or cost in order to mitigate damages. 3. The amount that should be subtracted is net mitigation, i.e., if the plaintiff obtains $20,000 in mitigation efforts but had to spend $5,000 to do so, the actual mitigation effect would be $15,000. 

Promissory Estoppel

[Name of plaintiff] claims that [name of defendant] should be bound by [name of defendant]'s promise [specify nature of promise] even [if you find] [though]1 there was no binding contract between the parties. On this claim, [name of plaintiff] must prove: 1. [Name of defendant] made such a promise; 2. It was reasonably foreseeable to [name of defendant] that [name of plaintiff] would rely upon that promise; 3. [Name of plaintiff] justifiably relied upon the promise; and 4. [Name of plaintiff] incurred loss or suffered detriment as the result of such reliance. 0 SOURCE: Contempo Constr. Co. v. Mountain States T. & T. Co., 153 Ariz. 279, 282 (1987); Trollope v. Koerner, 106 Ariz. 10, 18 (1970) (reliance must be justified). See also RESTATEMENT (SECOND) OF CONTRACTS § 90. COMMENT: “Reliance is justified when it is reasonable, but is not justified when knowledge to the contrary exists.” Higginbottom v. State, 203 Ariz. 139, 144 (App. 2002) (quoting Carondelet Health Servs. v. Arizona Health Care Cost Containment System, 187 Ariz. 467, 470 (App. 1996) (citation omitted)). The remedy for promissory estoppel is based on the damages resulting from the plaintiff's reliance on the defendant's promise, rather than the terms of the promise. Arok Const. Co. v. Indian Const. Servs., 174 Ariz. 291, 300 (App. 1993). 1 Use the first bracketed phrase (“even if you find”) in cases where the plaintiff makes alternative claims sounding in both contract and promissory estoppel. Use the second bracketed ph

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Thank you for viewing our blogs, videos and podcasts. As noted, all information on this website is Attorney Advertising. Decisions to hire an attorney should never be based on advertising alone. Any past results discussed herein do not guarantee or predict any future results. All blogs are written by Steve Vondran, Esq. unless otherwise indicated. Our firm handles a wide variety of intellectual property and entertainment law cases from music and video law, Youtube disputes, DMCA litigation, copyright infringement cases involving software licensing disputes (ex. BSA, SIIA, Siemens, Autodesk, Vero, CNC, VB Conversion and others), torrent internet file-sharing (Strike 3 and Malibu Media), California right of publicity, TV Signal Piracy, and many other types of IP, piracy, technology, and social media disputes. Call us at (877) 276-5084. AZ Bar Lic. #025911 CA. Bar Lic. #232337

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