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Accurate Document Destruction, Inc. v. Moore North America

A-4379-03T3 (N.J. Super. App. Div. 2005) (Unpublished)

CONTRACTS; DAMAGES; LOST PROFITS — Lost profits are not recoverable unless they were within the specific contemplation of the parties when the contract was entered into, which may be determined by the contract on its face or implied from the terms of the contract.

A company that was in the business of shredding confidential materials and recycling entered into a contract with a manufacturer of business forms and labels. Under the contact, the shredding company agreed to destroy the manufacturer’s documents and remove them from the manufacturer’s premises. The contract term was for one year. Shortly before the contract was to expire, the parties agreed to extend the term for four more years pursuant to certain terms that were memorialized in a letter. Soon after the extended term began, the manufacturer hired a new manager. He began using another vendor for document destruction. The shredding company immediately sent the new manager a letter notifying him of his contractual duty to exclusively use the company for all document destruction. In response, the manager requested a copy of the contract between the parties from the shredding company. The shredding company refused to provide the manager with a copy of the contract and as a result, the manager continued using the other vendor for document destruction. The shredding company then filed an action against the manufacturer for breach of contract, asserting that it had lost profits from the manager’s refusal to comply with the contract. In addition, the company contended that it lost income from the resale of the manufacturer’s recyclable materials. The manufacturer filed a counterclaim, asserting that the shredding company had overbilled for its services. The manufacturer then moved for summary judgment, arguing that the shredding company’s claim for lost profits from the sale of its recyclable materials should be dismissed because it was not within the scope of the contract. The lower court granted summary judgment for the manufacturer with respect to this issue, and the shredding company appealed.

The Appellate Division reversed the lower court’s ruling. In reaching its decision, it discussed the contexts in which lost profits may be awarded for breach of contract actions. Lost profits may be awarded when the non-breaching party can prove that: 1) the amount of damages with a reasonable degree of certainty; 2) the wrongful acts of the breaching party caused the loss of profits; and 3) the profits were reasonably within the contemplation of the parties at the time the contract was entered into. As a general rule, consequential damages are not recoverable unless they were within the specific contemplation of the parties when the contract was entered into. The Court held it may not make a better deal for a party where the terms of a contract are clear, especially in commercial, arms-length agreements. In applying these principles, the Court found that the contract between the parties did not specifically address the shredding company’s practice of reselling the manufacturer’s recyclable materials to third parties. However, although this practice was not expressly set forth in the contract, the Court found that it could be inferred from a rebate clause within the contract. This clause provided that the manufacturer would receive certain rebates for certain materials that were recycled. The Court found that this clause raised an genuine issue of material fact regarding the manufacturer’s knowledge of the company’s recycling practice. As a result, the Court held that summary judgment was improperly granted with respect to this issue.

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