AMI 2443 Damages—Consequential Damages—Tacit Agreement Rule

Use this instruction with AMI 2442 when the plaintiff alleges consequential damages.

Insert the proper measure of consequential damages as permitted by law in the bracketed portion of the instruction. For lost profits as consequential damages in contract cases, the above measure of damage and definition of net profits may generally be used.

If the contract is governed by Article 2 of the Uniform Commercial Code, Ark. Code Ann. § 4-2-715, use AMI 2522.

The tacit agreement rule requires that before consequential damages may be recovered, the facts and circumstances in evidence must make it reasonable for the trier of fact to believe that the party, at the time of the contract, tacitly consented to be bound to more than ordinary damages in case of default on his part. See Reynolds Health Care Servs., Inc. v. HMNH, Inc., 364 Ark. 168, 174–75, 217 S.W.3d 797, 804 (2005) (insufficient evidence of tacit agreement to be liable for consequential damages); Bank of America, N.A. v. C.D. Smith Motor Co., 353 Ark. 228, 240–45 106 S.W.3d 425, 431–34 (2003) (sufficient evidence of tacit agreement to be liable for consequential damages); Deck House, Inc. v. Link, 98 Ark. App. 17, 25–28, 249 S.W.3d 817, 825–26 (2007) (insufficient evidence of tacit agreement to be liable for consequential damages).

Lost profits that flow from some consequence or result of a breach are consequential damages. Boellner v. Clinical Studies Ctrs., LLC, 2011 Ark. 83, at 14 (contract action); Smith v. Walt Bennett Ford, Inc., 314 Ark. 591, 604–05, 864 S.W.2d 817, 825 (1993) (fraud action). The tacit agreement rule does not apply where lost profits are the natural and direct result of the breach, as such damages are considered general rather than consequential. Acker Constr., LLC v. Tran, 2012 Ark. App. 214, at 9–10; K.C. Props. of N.W. Ark., Inc. v. Lowell Inv. Partners, LLC, 373 Ark. 14, 24, 280 S.W.3d 1, 10 (2008); Robertson v. Ceola, 255 Ark. 703, 705–06, 501 S.W.2d 764, 767 (1973); Deck House, Inc., 98 Ark. App. at 25, 249 S.W.3d at 825. In Acker, an owner of real estate entered into one contract for the construction of four chicken houses and a separate contract with the same contractor for the construction of three additional houses. Acker, 2012 Ark. App. 214, at 1–2. The owner testified that the four houses were to be completed before the other three were to be started so that she could earn income from the four houses while the other three were being built. Id. at 9. The contractor built all seven houses at the same time, delaying completion of the first four. Id. at 9–10. The court held that the lost anticipated profits on the first four houses were the natural and direct result of, rather than a consequence of, the contractor's breach of the agreement to complete the first four houses before starting the other three. Id. at 9–11.

The determination of the loss of anticipated profits on a contract that was not performed because of the defendant's breach requires two steps. First, the trial court must determine whether it is reasonably certain that the plaintiff would have made any profits on the contract if it had been performed so that the jury is not left to speculate as to the existence of a loss of profits. A plaintiff is only entitled to recover lost profits when he can present a reasonably certain set of figures from which an accurate projection of lost profits can be made. Too many variables will render the projection speculative. Proof of an established business's past profits is generally sufficient proof that it would have made future profits. Boellner, 2011 Ark. 83 at 14–15; Interstate Oil & Supply Co. v. Troutman Oil Co., 334 Ark. 1, 6–7, 972 S.W.2d 941, 943–44 (1998).

Second, the jury must determine the amount of any profits that it is reasonably certain the plaintiff would have made if the defendant had not breached the contract. Boellner, 2011 Ark. 83, at 14–15; Smith, 314 Ark. at 606. “[L]ess certainty is required to prove the amount of lost profits than is required to show that profits were lost.” Tremco, Inc. v. Valley Aluminum Prods. Corp., 38 Ark. App. 143, 145, 831 S.W.2d 156, 158 (1992) (a case arising under the UCC); Reed v. Williams, 247 Ark. 314, 317, 445 S.W.2d 90, 91 (1969) (common law contract action). The amount of loss may be determined in any manner reasonable under the circumstances. The fact that a party can only state the amount of damages from approximate estimates will not preclude recovery if from the approximate estimates a satisfactory conclusion can be reached. Boellner, 2011 Ark. 83, at 15; Interstate Oil, 334 Ark. at 6–7, 972 S.W.2d at 944.

Only lost net profits, i.e., lost gross profits less variable or incremental costs saved by the breach, are recoverable. Fixed overhead expenses continue despite the breach and are not deducted in arriving at lost net profits. Boellner, 2011 Ark. 83, at 14–15; Interstate Oil, 334 Ark. at 7, 972 S.W.2d at 944.