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December 31, 1996


Appeal from the Circuit Court of Du Page County. No. 89--L--1633. Honorable Bonnie M. Wheaton, Judge, Presiding.

As Corrected January 2, 1997. Rehearing Denied January 29, 1997. Released for Rehearing January 29, 1997.

The Honorable Justice Inglis delivered the opinion of the court: Geiger and Hutchinson, JJ., concur.

The opinion of the court was delivered by: Inglis

JUSTICE INGLIS delivered the opinion of the court:

Plaintiff, Sterling Freight Lines, Inc., sued defendant, Prairie Material Sales, Inc., for breach of contract. During a bifurcated bench trial, the circuit court of Du Page County first found defendant liable for breach of contract. After the trial on the issue of damages, the court determined plaintiff's damages arising from the breach to be $84,820. Plaintiff appeals from the damages award. We affirm in part and reverse in part and remand.

Defendant is in the ready-mix concrete business. Plaintiff was a bulk hauling company. In 1975, defendant and plaintiff signed an exclusive hauling agreement giving plaintiff the exclusive right to haul bulk cement and additives from cement manufacturers to defendant's plants located in the southern suburbs and south side of Chicago. The agreement ran from June 1975 to June 1981 and included two two-year options by which plaintiff could extend the contract.

Plaintiff hauled bulk cement for defendant during the life of the contract. In 1980, plaintiff chose to exercise its option to extend the hauling contract. In June 1980, defendant purchased A-1 Cartage (A-1), a hauling company. On January 20, 1981, defendant terminated the contract. Plaintiff thereafter filed for bankruptcy in 1983.

During the damages trial, Raymond Throckmorton, plaintiff's expert, testified that plaintiff's damages from January 1981 to June 1984 due to defendant's breach totaled $1,657,119. Further, when he adjusted for the effect of inflation through October 1995, the damages totaled $2,567,469.

Concerning his methodology, Throckmorton testified that he first calculated plaintiff's dry bulk revenues for the period beginning January 1981 and ending June 1984. This was accomplished by taking the 10 months of dry bulk revenue generated during fiscal year 1980 (March 1980 to January 1981) and figuring a monthly average. This figure was further modified by the percentage of dry bulk hauls made on defendant's behalf compared to the total number of dry bulk hauls to arrive at a final monthly average. This final monthly average was used as a base number for the fiscal years 1981 through 1984. Throckmorton then calculated a growth rate based on A-1's growth during the relevant time period and applied it to the base number. Throckmorton next calculated the expenses saved by defendant's breach in a similar fashion and subtracted them from the revenues to arrive at the total damages amount of about $1.7 million. He finally calculated an inflation multiplier for the period of March 1981 through September 1995 to arrive at the inflation-adjusted figure of about $2.6 million.

Defendant did not present an expert witness of its own, but challenged Throckmorton's methodology during cross-examination. Defendant accepted plaintiff's general methodology but disagreed with three assumptions: (1) the percentage of plaintiff's overall business attributable to defendant; (2) the growth rate to be applied to plaintiff's business; and (3) which expenses should be used to calculate plaintiff's damages.

After the evidence was presented, the trial court rejected plaintiff's figure for mix of business, which was based on a six-year average (representing the life of the contract). Instead, the court used a figure for mix of business for the year immediately preceding the breach. Next, the court declined to apply any growth rate over the remainder of the contract, finding that both the plaintiff's and defendant's proposed growth rates were too speculative. Finally, the court rejected plaintiff's tally of expenses and instead included fixed costs and depreciation in the damages calculation. The court also determined that an adjustment for inflation would be improper in this case. The court found that plaintiff had incurred damages of $84,820 arising from defendant's breach of the exclusive hauling agreement.

Plaintiff raises a number of issues on appeal, all of which are encompassed by the general question of whether the trial court correctly calculated the damages arising from the breach of contract. Plaintiff specifically challenges the trial court's deduction of fixed overhead expenses from gross contract revenues; the trial court's failure to apply an inflation adjustment factor to the judgment; the trial court's rejection of plaintiff's growth factor; and the trial court's rejection of plaintiff's mix-of-business percentage.

Generally, the "monetary award [of damages] should, to the extent possible, put the nonbreaching party in the position he would have been in had the contract been performed." Ollivier v. Alden, 262 Ill. App. 3d 190, 196, 199 Ill. Dec. 579, 634 N.E.2d 418 (1994). Damages must also be proved with reasonable certainty. F.E. Holmes & Son Construction Co. v. Gualdoni Electric Service Inc., 105 Ill. App. 3d 1135, 1141, 61 Ill. Dec. 883, 435 N.E.2d 724 (1982). Additionally, while lost profits, gross profits less costs, provides the proper measure of damages, the parties disagree about the method that should have been used to calculate plaintiff's lost profits.

Plaintiff initially asserts that the trial court erred when it deducted plaintiff's fixed overhead expenses from the gross contract revenues. According to plaintiff, lost profits are calculated by subtracting direct and variable costs from the contract price. Plaintiff defines direct and variable costs as those costs which are avoided as a result of the breach. Fixed overhead, states plaintiff, is incurred regardless of the contract at issue and cannot be avoided as a result of a breach. Therefore, plaintiff asserts that they are not included in the damages calculation and it was error for the trial court to include fixed overhead expenses as a part of its damages calculation. Defendant does not ...

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