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Disfavored Total Cost Method of Calculating Damages May Be Used Only in Limited Circumstances

Posted in Case Summaries

Geolar, Inc. v. Gilbert/Commw. Inc. of Mich., 874 P.2d 937 (Alaska 1994)

In this case, a contractor sued an electric company for breach of contract against the company’s agent for tortious interference with contract.  The contractor also sued the electric company for breach of contract, and calculated its damages based on direct costs, lost of efficiency costs, and delay costs.  The trial court dismissed the contractor’s claim for intentional interference with contract, but the breach of contract claim went to trial, where a jury based an award of damages to the contractor on the contractor’s calculation.

The Supreme Court of Alaska reversed and remanded the issues of tortious interference with contract and damages.  It held that an agent whose conduct is motivated by a desire to protect the principal’s interest is privileged or justified to act on the principal’s behalf, and directed the trial court to inquire after the agent’s motivation.  With respect to damages, the Court held that the contractor’s calculation of damages was too similar to the disfavored “total cost method” of calculating damages because it assumed all deviations from the expected course of performance resulted from the electric company’s breach.  On remand, the trial court was directed to determine the acceptability of the contractor’s method, which can be used as a last resort method only if the contractor can show:  (1) the nature of the particular losses made it impossible or highly impracticable to determine them with a reasonable degree of accuracy; (2) the contractor’s bid was realistic; (3) its actual costs were reasonable; and (4) it was not responsible for the added expenses.