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03/07/89 Arthur Cencula, v. Jay Keller

March 7, 1989

ARTHUR CENCULA, PLAINTIFF-APPELLEE

v.

JAY KELLER, DEFENDANT-APPELLANT

IN THE EARLY CASE OF HADLEY

v.

BAXENDALE (1854), 9 EX. 341, 156 ENG. REP. 145, THE RULE PERMITTING DAMAGES IN A BREACH OF CONTRACT ACTION WAS STATED AS FOLLOWS:



APPELLATE COURT OF ILLINOIS, SECOND DISTRICT

536 N.E.2d 93, 180 Ill. App. 3d 645, 129 Ill. Dec. 409 1989.IL.281

Appeal from the Circuit Court of Lake County; the Hon. Charles F. Scott, Judge, presiding.

APPELLATE Judges:

JUSTICE NASH delivered the opinion of the court. LINDBERG and REINHARD, JJ., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE NASH

Defendant, Jay Keller (the owner), appeals from a judgment entered upon the verdict of a jury in favor of plaintiff, Arthur Cencula (the contractor), for $93,559 as damages for breach of a construction contract between these parties. The jury also found for the contractor on the owner's counterclaim for damages from the contractor for his alleged failure to timely complete the project and do so in a workman-like manner.

The owner appeals, contending that the contractor was not entitled to recover as damages for breach of contract the $20,790 in interest the contractor paid on funds he borrowed to pay his subcontractors for labor and materials on this project; that the trial court erred in submitting the contractor's claim for "extras" to the jury and in certain rulings on the evidence; and the court erred in its construction of the contract between the parties. We affirm the judgment below, as modified.

Plaintiff and defendant entered into a contract in 1984 for the construction of a single-family residence in Antioch, Illinois, for a price of $161,000. This action was brought by plaintiff-contractor in 1985 in which it was alleged that the contractor had performed but the owner had failed to pay about $74,000 due under the contract and approximately $4,300 in claimed extras. The complaint also sought as consequential damages certain interest the contractor had paid on a bank loan taken out by him in 1985, allegedly for the purpose of paying the subcontractors on this project.

In 1986, the trial court denied the owner's motion to compel arbitration, finding that the owner had waived that contractual right, and this court affirmed that judgment in an interlocutory appeal taken by the owner. Cencula v. Keller (1987), 152 Ill. App. 3d 754, 757-58, 504 N.E.2d 997.

We consider first whether in this breach of contract action the plaintiff-contractor was entitled to recover interest he paid on a loan from a third party taken out to pay the subcontractors on the project.

Over the objections of defendant-owner, the trial court permitted the contractor to place in evidence testimony and documents relating to $70,000 the contractor borrowed from a bank in May 1985, after commencement of this action, and instructed the jury, also over the owner's objections, that the interest paid on the loan taken to pay subcontractors was an element of damages to consider if the contract was found to have been breached. Neither the parties nor the trial court was aware of any Illinois authority which had allowed the recovery of such interest as damages for breach of contract in these circumstances. The court, however, viewed the interest paid by the contractor as consequential damages similar to lost profits and instructed the jury that the interest could be recovered by the contractor "if such interest was foreseeable." The Judge reasoned, and apparently determined as a matter of law, that it was within the contemplation of the parties when they entered the contract that if the owner did not pay the contractor, the latter would have to pay his subcontractors from another source, such as a bank loan at interest, which could then be recoverable as damages on breach of the contract. In its verdict, itemized damages awarded to the contractor included $20,790 expended by him as interest on the loan in question.

"Where two parties have made a contract, which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e. according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract, as the probable result of the breach of it."

In Hadley, the defendant common carrier was found not liable for lost profits of plaintiff caused by delay in delivering a repair part for plaintiff's mill which had been shut down. The court considered that these lost profits did not arise naturally from defendant's breach of its contract to timely deliver the mill part nor were the lost profits damages the parties would have reasonably contemplated when making the contract, as the probable result of its breach.

Our supreme court recently considered and followed Hadley v. Baxendale, stating that it "provides that all damages which naturally and generally result from a breach are recoverable; it is only where damages are the consequence of special or unusual circumstances that it must be shown that the damages were within the reasonable contemplation of the parties." (Midland Hotel Corp. v. Reuben H. Donnelley Corp. (1987), 118 Ill. 2d 306, 318, 515 N.E.2d 61.) In Midland, the court determined that the lost profits sought to be recovered by plaintiff after defendant breached its contract to list plaintiff in defendant's telephone directory was a direct and foreseeable consequence of the breach, as a matter of law, as plaintiff's hotel profits formed the basis for its contract with defendant. (118 Ill. 2d at 319.) The court concluded that an instruction that lost profits must have been within the reasonable contemplation of defendant when the contract was formed was properly refused as the increased profits which were lost, and sought to be recovered in that case, were not collateral to the original contract but were, rather, the essential purpose of the contract.

The Midland Hotel case teaches that where a contract has been breached recoverable damages are those which (1) naturally result from the breach, or (2) are the consequence of special or unusual circumstances which were within the reasonable contemplation of the parties when making the contract (118 Ill. 2d at 306). (See also Naiditch v. Shaf Home Builders, Inc. (1987), 160 Ill. App. 3d 245, 267, 512 N.E.2d 1027; Mohr v. Dix Mutual County Fire Insurance Co. (1986), 143 Ill. App. 3d 989, 997, 493 N.E.2d 638; Case Prestressing Corp. v. Chicago College of Osteopathic Medicine (1983), 118 Ill. App. 3d 782, 788, 455 ...


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