Trans-Western Petroleum, Inc. v. United States Gypsum Co.

This opinion is subject to revision before
publication in the Pacific Reporter
2016 UT 27
IN THE
SUPREME COURT OF THE STATE OF UTAH
TRANS-WESTERN PETROLEUM, INC.,
Appellant,
v.
UNITED STATES GYPSUM COMPANY,
Appellee.
No. 20140453
Filed June 16, 2016
On Certification from the
United States Court of Appeals for the Tenth Circuit
The Honorable Paul J. Kelly, Jr.
Case Nos. 13-4012 and 13-4021
Attorneys:
Thomas W. Clawson, Stephen K. Christiansen,
Salt Lake City, for appellant
Patricia W. Christensen, Matthew J. Ball,
Salt Lake City, for appellee
JUSTICE HIMONAS authored the opinion of the Court, in which
CHIEF JUSTICE DURRANT, ASSOCIATE CHIEF JUSTICE LEE,
and JUDGE ORME joined.
Having been recused, JUSTICE DURHAM did not participate herein:
COURT OF APPEALS JUDGE GREGORY K. ORME sat.
JUSTICE JOHN A. PEARCE became a member of the Court
on December 17, 2015, after oral argument in this matter,
and accordingly did not participate.
JUSTICE HIMONAS, opinion of the Court:
INTRODUCTION
¶ 1 The following question is before us upon certification
from the United States Court of Appeals for the Tenth Circuit:
TRANS-WESTERN v. U.S. GYPSUM
Opinion of the Court
“How should expectation damages be measured for the breach of
an oil and gas lease?” For reasons detailed below, we hold that
expectation damages for the breach of an oil and gas lease are
measured in much the same way as expectation damages for the
breach of any other contract. Such damages may include general
(or direct) and consequential (or special) damages. “[G]eneral
damages are those that flow naturally from the breach . . . .”
McCleve Props., LLC v. D. Ray Hult Family Ltd. P’ship, 2013 UT App
185, ¶ 17, 307 P.3d 650 (citation omitted). Within the context of
this case, we measure general damages as the difference between
the contract price of the lease and the market value of the lease at
the time of the breach. Consequential damages, on the other hand,
are those that are “reasonably within the contemplation of, or
reasonably foreseeable by, the parties at the time the contract was
made.” Id. (citation omitted). And we measure consequential
damages “not by the value of the promised performance alone but
by the gains such performance could produce for collateral
reasons, or the loss that is produced by the absence of such
performance.” DAN B. DOBBS, LAW OF REMEDIES § 12.1(1) (2d ed.
1993). We further hold that trial courts may, in their discretion,
allow the use of post-breach evidence to help establish and
measure expectation damages.
BACKGROUND
¶ 2 The Tenth Circuit case at issue concerns Trans-Western
Petroleum, Inc. (Trans-Western), a Colorado corporation involved
in the buying and selling of oil and gas leases, and United States
Gypsum Company (U.S. Gypsum), a Delaware corporation that
owns the oil and gas beneath 1,720 acres in Sevier County, Utah.
In August 2004, Trans-Western contacted U.S. Gypsum and
expressed interest in an oil and gas lease for a section of its
acreage in Sevier County. At the time, the oil and gas interest for
that section of land had been leased to other parties, who had
assigned their leasehold interest to an entity known as Wolverine.
This preexisting lease, known as the “Wolverine lease,” was due
to expire on August 17, 2004. U.S. Gypsum agreed to lease that oil
and gas interest to Trans-Western for a term of five years starting
on August 17, 2004, and executed the lease on September 15, 2004.
¶ 3 But within weeks of the execution of the lease,
U.S. Gypsum breached the Trans-Western lease because of
Wolverine’s assertion that the Wolverine lease was still in force.
The underlying events are not in dispute. On October 1, 2004,
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Opinion of the Court
Wolverine informed Trans-Western by letter that Wolverine
believed its lease was still in force and that it did not recognize
Trans-Western’s interest in the property. Wolverine also sent U.S.
Gypsum a copy of the letter. Upon receiving the letter from
Wolverine, U.S. Gypsum sent a letter dated October 7, 2004, to
Trans-Western purporting to rescind the lease between the parties
“on the basis of a mistake of fact with respect to the status of the
Wolverine [l]ease.”
¶ 4 After this attempted unilateral rescission by U.S.
Gypsum, Trans-Western filed suit in September 2006 for
declaratory judgment and damages against Wolverine, U.S.
Gypsum, and another party 1 in federal district court. The parties
agreed that the court would first address the validity of the
Wolverine lease, and U.S. Gypsum did not participate in the
briefing on that issue. The federal district court determined that
the Wolverine lease ended in August 2004. On appeal, this
determination was upheld by the Court of Appeals for the Tenth
Circuit. After settlement of the issue regarding when the
Wolverine lease ended, Trans-Western pursued an amended
complaint in the federal district court asserting claims against
U.S. Gypsum for breach of contract and breach of the covenant of
quiet enjoyment.
¶ 5 The district court issued its findings of fact and
conclusions of law on November 29, 2012, and a final judgment on
December 27, 2012. The court found that the Trans-Western lease
was valid as of August 17, 2004, that U.S. Gypsum had
wrongfully rescinded the lease, and that the rescission constituted
a breach of contract and a breach of the covenant of quiet
enjoyment. The court also established that the value of the Trans-
Western lease did not change between the execution of the lease
on September 15, 2004, and the breach of the lease on October 7,
2004. In light of these findings, the district court awarded nominal
damages of one dollar to Trans-Western for its claim for breach of
contract. After the parties appealed to the Court of Appeals for the
Tenth Circuit, the Court of Appeals certified to us the question of
1 Other parties were added to the suit in January 2007;
however, none of these unnamed parties are involved in the
certified question before this court.
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Opinion of the Court
how to measure expectation damages for the breach of an oil and
gas lease.
STANDARDS OF REVIEW
¶ 6 “On a certified question, we are not presented with a
decision to affirm or reverse, and traditional standards of review
do not apply. Therefore, [o]n certification, we answer the legal
questions presented without resolving the underlying dispute.”
Garza v. Burnett, 2013 UT 66, ¶ 9, 321 P.3d 1104 (alteration in
original) (citation omitted).
ANALYSIS
¶ 7 U.S. Gypsum asserts that the appropriate measure of
damages for its breach of the oil and gas lease should be based on
the value of the lease at the time of the breach. The measure
U.S. Gypsum urges us to adopt is essentially the same as the one
used for measuring general damages for the breach of a contract
to sell real estate, “with appropriate adjustments in the form of
words used”: general damages for the breach of such a contract
are measured as the difference between the price paid for the
lease and the market value of the lease at the time of breach. DAN
B. DOBBS, LAW OF REMEDIES § 12.15(2) (2d ed. 1993). Trans-Western
claims that this measure of damages would fail to place it, as the
nonbreaching party, “in as good a position as if the contract had
been performed.” Instead, Trans-Western argues that the measure
of damages should be based on an amount that it could have sold
the lease for during the period of the lease. Trans-Western further
argues that, in applying this measure, courts should allow
“consideration of the best evidence available, including
post-breach evidence.”
¶ 8 We hold that the appropriate measure of expectation
damages for the breach of an oil and gas lease is much the same as
the measure of expectation damages for a breach of contract and
may include both general and consequential damages. We
measure general damages in the context of this case as the
difference between the contract price of the lease and the market
value of the lease at the time of breach. 2 And we measure
2 Courts usually measure general and consequential damages
at the same time. See generally Fifth Third Bank v. United States, 518
F.3d 1368 (Fed. Cir. 2008). But this is not always the case. For
(cont.)
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Opinion of the Court
consequential damages “not by the value of the promised
performance alone but by the gains such performance could
produce for collateral reasons, or the loss that is produced by the
absence of such performance.” DOBBS, LAW OF REMEDIES § 12.1(1).
We also hold that courts have discretion to permit parties to
introduce post-breach evidence to establish and measure their
expectation damages.
I. EXPECTATION DAMAGES FOR THE BREACH OF
AN OIL AND GAS LEASE ARE MEASURED THE
SAME WAY AS EXPECTATION DAMAGES
FOR A BREACH OF CONTRACT
¶ 9 It is well established under Utah law that, generally
speaking, leases are treated the same way as other contracts. See
Richard Barton Enters., Inc. v. Tsern, 928 P.2d 368, 376 (Utah 1996)
(“[P]rinciples of contract law rather than property law govern[]
the law of damages in computing a lessee’s liability for damages
for breach of a lease.”); Reid v. Mut. of Omaha Ins. Co., 776 P.2d 896,
904 (Utah 1989) (recognizing the “modern view that leases are
essentially commercial transactions, contractual in nature”); Hall
v. Warren, 632 P.2d 848, 850 (Utah 1981) (“This obligation is in
accord with the contemporary approach toward leased
instance, with respect to consequential lost profits, it has been said
that “the rule favoring the measurement of damages as of the time
of the breach does not apply . . . to anticipated profits or to other
expectancy damages that, absent the breach, would have accrued
on an ongoing basis over the course of the contract.” Anchor Sav.
Bank, FSB, v. United States, 597 F.3d 1356, 1369 (Fed. Cir. 2010)
(alteration in original) (internal quotation marks omitted). In
circumstances such as those, “damages are measured throughout
the course of the contract.” Id. (citation omitted). This same logic
applies to damages from a continuing breach. Such damages are
not measured “immediately after the initial injury [because that]
would be unduly restrictive and would not compensate plaintiffs
fully for their injury.” Brighton Homes, Inc. v. McAdams, 737 S.W.2d
340, 343 (Tex. Ct. App. 1987). Rather, if “a continuing breach . . .
[is] a continuing cause of damage,” a court may measure the
damage “up until the time of trial.” Id. Moreover, the measure of
general damages may vary depending on the nature of the breach.
See DAN B. DOBBS, LAW OF REMEDIES § 12.15(3).
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Opinion of the Court
habitations which emphasizes the contractual nature of the
relationship between the landlord and tenant instead of viewing a
lease simply as [a] demise of real estate.”). Accordingly, if an oil
and gas lease is just a lease, under our precedent we treat an oil
and gas lease as any other contract, barring some persuasive
reason to do otherwise.
¶ 10 The strictest view among authorities is that “the oil and
gas lease is not really a lease anywhere,” HOWARD R. WILLIAMS &
CHARLES J. MEYERS, OIL AND GAS LAW § 414 (2015) (citation
omitted)—that because “an oil and gas lease is not a ‘lease,’ . . . an
analogy between an oil and gas lease and an ordinary lease . . .
cannot represent the law,” A. W. Walker, Jr., The Nature of the
Property Interests Created by an Oil and Gas Lease in Texas, 7 TEX.
L. REV. 539, 559 & n.83 (1929). A somewhat softer view that does
not reject all similarities to a normal lease sees an oil and gas lease
as more similar to a real-estate deed than “an ordinary real-
property lease.” JOHN S. LOWE ET AL., OIL AND GAS LAW 181 (6th
ed. 2013). 3
¶ 11 Since an oil and gas lease is either not a lease or at most a
quasi-lease, authorities have warned that oil and gas interests
“should not be handled within the straitjacket of common law
concepts.” WILLIAMS & MEYERS, OIL AND GAS LAW § 213 (2015). 4
Instead, some have urged courts to flesh out the law of oil and gas
leases as specific issues arise in litigation rather than adopt “an
3 See also 2 EUGENE KUNTZ, OIL AND GAS § 18.2 (1989) (“The
instrument is called an oil and gas lease, but the word ‘lease’
should not be taken as a technical term which carries with it all of
the law relating to landlord and tenant.”); Unit Petroleum Co. v.
David Pond Well Serv., Inc., 439 S.W.3d 389, 396 (Tex. Ct. App.
2014) (noting that “an oil and gas ‘lease’ is not a lease in a
traditional sense”).
4 See also 2 KUNTZ, OIL AND GAS § 25.1 (1989) (“[C]onsiderable
difficulty is encountered in applying common law concepts
regardless of the nature of the lessee’s interest under the theory
entertained in the particular jurisdiction.”); Lynch v. State Bd. of
Equalization, 210 Cal. Rptr. 335, 337 (Ct. App. 1985) (“[C]ourts
[have] attempted to fashion rules of law [for oil and gas leases] by
analogies drawn from other fields of law which were often inapt
for comparison.”).
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Opinion of the Court
early arbitrary classification” that essentially determines all future
aspects of such a lease. 2 EUGENE KUNTZ, OIL AND GAS § 23.2
(1989). 5
¶ 12 Given the sui generis nature of oil and gas leases, courts
have deemed attempts to classify oil and gas interests “as thorny a
problem as has challenged the ingenuity and wisdom of
legislatures [and courts].” Lynch, 210 Cal. Rptr. at 337 (citing R.R.
Comm’n v. Rowan & Nichols Oil Co., 310 U.S. 573, 579 (1940)
(alteration in original)). With this in mind it is not surprising that
there is a lack of consensus as to how to classify such a lease and
which law should govern. 6 For instance, while jurisdictions
generally treat oil and gas leases as both a contract and a
conveyance, 7 courts classify the rights attached to such a “lease”
quite differently. LOWE ET AL., OIL AND GAS LAW 177, 181 (6th ed.
2013). Thus, in some jurisdictions the lessee’s interest is “a fee
simple determinable estate in the oil and gas in place,” whereas
other courts characterize “the interest as a grant of an irrevocable
license or profit a prendre.” Id. at 181. And usually these
classifications are based “upon whether the state follows an
ownership-in-place or exclusive-right-to-take theory of oil and gas
rights.” Id. These varying classifications can matter because they
5 See also Heiner v. S.J. Groves & Sons Co., 790 P.2d 107, 113
(Utah Ct. App. 1990) (“Many legal scholars contend that landlord-
tenant or real property law concepts should not be mechanically
applied in mining and oil and gas cases.”).
6 See 2 KUNTZ, OIL AND GAS § 18.2 (1989) (“The oil and gas lease
and the rights created thereby have been variously classified by
the courts for various reasons. The classifications are so numerous
and so inconsistent that a single classification of the oil and gas
lease for all purposes is not possible. . . . It can only be said that
the rights under an oil and gas lease have been classified as realty,
personalty, chattel real; as corporeal or incorporeal; as fees,
profits, or licenses, depending upon the purpose for which the
classification is made and depending upon the terminology used
to describe rights in oil and gas under the theory of ownership
entertained in the particular jurisdiction.”).
7 See id. (“The oil and gas lease . . . is a conveyance of an
interest in real property . . . . It is also an executory contract . . . .”).
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Opinion of the Court
“often determine[] the nature and extent of the lessee’s rights.” 8
Id. And this has led various jurisdictions to “rel[y] on the areas of
contract law, property law, landlord-tenant law, oil and gas law
and vendor-purchaser law with differing results.” Heiner v. S.J.
Groves & Sons Co., 790 P.2d 107, 113 (Utah Ct. App. 1990).
¶ 13 With that in mind, however, we do not see that the
specific classifications of the oil and gas lease in various
jurisdictions make any difference as to the type of expectation
damages available when a contract is breached in the oil and gas
context. We are aware of no jurisdiction that has carved out a
special rule for oil and gas leases with respect to the formulation
of the measure of expectation damages. And we can imagine no
theoretical reason for doing so. We therefore, for the limited
purpose of expectation damages in a breach of contract claim, will
treat oil and gas leases as we would treat any other lease under
Utah law. 9 And we do not reach more fundamental questions of
exactly how to classify an oil and gas lease and which law applies
outside of the narrow certified question we answer here.10
8 For instance, “a profit a prendre or a license is incorporeal and
nonpossessory,” and thus “the interest may be abandoned and is
not subject to the possessory remedies of trespass and ejectment.”
JOHN S. LOWE ET AL., OIL AND GAS LAW 181–82 (6th ed. 2013).
Accordingly, “[t]he lessee’s interest must be protected by
nonpossessory actions, such as a quiet title suit.” Id. at 182. On the
other hand, “if a state’s courts classify the leasehold interest as a
fee simple estate . . . then the interest is corporeal and possessory
in nature,” which means that “the common law rules of
abandonment should not apply, but the possessory remedies of
trespass and ejectment will be available.” Id. Furthermore, “how
the courts classify the leasehold interest may also have substantial
bearing upon the application of statutory provisions governing
taxation, intestate succession, and judgment liens.” Id.
9 Trans-Western argues that the covenant of quiet enjoyment is
also implicated in the question the Tenth Circuit certified to us.
We do not read the question that way and thus do not reach any
issues regarding the breach of that covenant in the context of an
oil and gas lease.
This opinion should not be read to extend our conclusions as
10
to which law applies beyond the narrow realm of expectation
(cont.)
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Opinion of the Court
Consequently, we turn to our contract jurisprudence to aid in our
determination of the proper measure of expectation damages for
the breach of an oil and gas lease.
¶ 14 Utah law provides the injured party in a breach of
contract action with “a right to damages based upon his
expectation interest.” TruGreen Cos., L.L.C. v. Mower Bros., Inc.,
2008 UT 81, ¶ 10, 199 P.3d 929 (citation omitted). This expectation
interest is generally measured by “(a) the loss in the value . . . of
the other party’s performance caused by its failure or deficiency,
plus (b) any other loss, including incidental or consequential loss,
caused by the breach, less (c) any cost or other loss . . . avoided by
not having to perform.” Id. (citation omitted). 11
¶ 15 Our courts have alternatively, but equally correctly,
defined expectation damages as including “those flowing
naturally from the breach” (general damages) and “those
reasonably within the contemplation of, or reasonably foreseeable
by, the parties at the time the contract was made” (consequential
damages). Machan v. UNUM Life Ins. Co. of Am., 2005 UT 37, ¶ 15,
damages in a breach of contract claim for an oil and gas lease. “In
Utah, the nature of the interest created by an oil and gas lease has
not been determined.” 2 KUNTZ, OIL AND GAS § 23.27 (1989). And
we do not define that interest here as that question has not been
certified to us or briefed by the parties. We also see the wisdom in
not adopting “an early arbitrary classification” and instead
allowing the “various incidents and . . . full characteristics [of an
oil and gas lease to be] revealed by litigation as specific problems
arise.” Id. § 23.2. We therefore save all of these issues for another
day when they are properly before us.
11 We caution that, in addition to general and consequential
damages, the measure of expectation damages also includes other
losses caused by the breach (e.g., incidental losses). We further
caution that the remedy for breach of a contract in general and, by
extension, for breach of a lease, is not limited to expectation
damages. Other potential remedies may include substitution
performance costs and reliance damages. DOBBS, LAW OF REMEDIES
§§ 3.3(5), 12.2(2), & 12.3(1) (2d ed. 1993). Nothing in this opinion
should be interpreted as narrowing the broad formulation of
general damages or the applicability of such other remedies.
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Opinion of the Court
116 P.3d 342 (citation omitted). 12 The overarching goal of
expectation damages and, hence, of general and consequential
damages, is to compensate the nonbreaching party “for actual
injury sustained, so that [the nonbreaching party] may be
restored, as nearly as possible, to the position [it] was in prior to
the injury.” Mahmood v. Ross, 1999 UT 104, ¶ 19, 990 P.2d 933
(citation omitted). “The difference between the two types of
damages is of importance because,” among other reasons,
“[consequential] damages must ordinarily be pleaded in order to
be recovered.” Cohn v. J.C. Penney Co., 537 P.2d 306, 307 (Utah
1975).
¶ 16 General damages for a breach of contract or lease are
measured by “the market value of the very thing promised, at the
time of performance.” DOBBS, LAW OF REMEDIES § 12.1(1). Such
general damages “are said to be implied in law” because they are
“the probable and necessary result of[] the injury.” Cohn, 537 P.2d
at 307–08. Hence, “[t]hey are damages which everybody knows
are likely to result from the harm described.” Id. at 307. Thus, the
general rule is that “the measure of damages for breach of an
executory contract to purchase real property or an interest
therein[] is the difference between the contract price and the
market value of the land at the time of the breach.” Justheim
Petroleum Co. v. Hammond, 227 F.2d 629, 637 n.9, (10th Cir. 1955)
(citing, among other cases, Dopp v. Richards, 135 P. 98 (Utah 1913)).
For the purposes of the narrow question certified to us, we are
treating an oil and gas lease as akin to a contract for an interest in
property. Therefore, the same general rule should apply, meaning
that we measure general damages for the breach of the oil and gas
lease as the difference between the contract price of the lease and
the market value of the lease at the time of the breach. But see
supra ¶ 8 n.2.
¶ 17 Consequential damages, in contrast, “are measured . . .
by the gains [the promised] performance could produce . . . or the
12 When writing about expectation damages, courts and
commentators often refer to general damages as direct damages
and consequential damages as special damages. See, e.g., McCleve
Props., LLC v. D. Ray Hult Family Ltd. P’ship, 2013 UT App 185,
¶ 17, 307 P.3d 650; DOBBS, LAW OF REMEDIES § 12.2(3). The
distinction is one of phraseology, not substance.
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Opinion of the Court
loss that is produced by the absence of such performance.” DOBBS,
LAW OF REMEDIES § 12.1(1). They “are the natural, but not the
necessary, result of an injury . . . and thus are not implied by law.”
Cohn, 537 P.2d at 308. Therefore, consequential damages “mean[]
particular items of damages which result from circumstances
peculiar to the case at hand.” Prince v. Peterson, 538 P.2d 1325,
1328 (Utah 1975). To recover consequential damages, an injured
“party must prove (1) that consequential damages were caused by
the contract breach; (2) that consequential damages ought to be
allowed because they were foreseeable at the time the parties
contracted; and (3) the amount of consequential damages within a
reasonable certainty.” Mahmood, 1999 UT 104, ¶ 20.
¶ 18 Both general and consequential damages may be
recovered in an appropriate case:
We again reiterate that, in addition to general
damages, one is entitled to recover those
[consequential] damages which arise from
circumstances peculiar to a particular case, provided
they may be reasonably supposed to have been
within the contemplation of the parties when the
contract was made, and provided further, that they
are properly pleaded and proved.
Ranch Homes, Inc. v. Greater Park City Corp., 592 P.2d 620, 624 (Utah
1979) (footnote omitted); see also Mahmood, 1999 UT 104, ¶ 19.
¶ 19 When we apply the rule for general damages, as
described above, it is clear that Trans-Western is entitled to
general damages, as measured by the difference between the
contract price of its oil and gas lease and the market value of that
lease at the time of U.S. Gypsum’s breach. As to Trans-Western’s
claim that it is entitled to the value of the lost profit from a
hypothetical sale of its lease to a third party sometime during the
lease term of five years, that claim is a claim for lost profits and,
because it results from “collateral business arrangements”
peculiar to the case, is a claim for consequential damages. DOBBS,
LAW OF REMEDIES § 3.3(4); see also In re Indesco Int’l, Inc., 451 B.R.
274, 313–14 (Bankr. S.D.N.Y. 2011). 13 Trans-Western may be
13 “One common form of consequential damages is . . . lost
profits.” DOBBS, LAW OF REMEDIES § 3.3(4). And while “[l]awyers
often speak loosely about ‘profits,’ . . . not all lost gains are lost
(cont.)
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Opinion of the Court
entitled to such consequential damages 14 if it can (1) establish that
those damages were caused by U.S. Gypsum’s breach,
(2) establish that those damages were foreseeable at the time the
parties entered into the lease, and (3) establish those damages
with reasonable certainty. See Mahmood, 1999 UT 104, ¶ 20. 15
profits and not all lost gains are measured by consequential
damages.” Id. Consider the following hypothetical: “the plaintiff
contracts to purchase Blackacre for $10,000 and at the time of
performance its market value is $20,000, then the plaintiff surely
has an expectancy; but since that expectancy reflects a market gain
in the very performance contracted for, it is an item of general
damages,” not consequential damages. Id. § 12.2(3). Alternatively,
suppose a plaintiff owns a movie theater and leases property next
to the theater from a landlord for parking, and the landlord then
denies plaintiff access to the parking lot, thereby breaching the
lease. Without convenient parking, film enthusiasts take their
business elsewhere. The plaintiff sues for the movie theater’s lost
profits, which are consequential damages.
14 We are cognizant that Trans-Western claims that the issue of
consequential damages is not before us. However, given that the
question certified to us centers entirely on how expectation
damages are to be measured, and given that consequential
damages are an essential feature of expectation damages, we do
not see how we could answer the question without addressing
consequential damages. We are also cognizant that the federal
district court appears to have already decided the consequential
damages issue.
15 We note our agreement here with the statement of the court
in Anchor Savings Bank, FSB, v. United States, 597 F.3d 1356, 1369
(Fed. Cir. 2010), that lost profit damages “that absent the breach,
would have accrued on an ongoing basis over the course of the
contract,” may be “measured throughout the course of the
contract.” Id. (internal quotation marks omitted); see also supra ¶ 8
n.2.
We further note that there is good authority from outside of
Utah that explicitly stands for the proposition that, “while
consequential damages may be recovered only where the amount
of loss is also capable of proof with reasonable certainty[,] with
respect to general damages, however, the amount need not be
(cont.)
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¶ 20 In sum, since the general rules for measuring expectation
damages apply to claims for expectation damages for the breach
of an oil and gas lease, the appropriate measure of general
damages for such a breach is the difference between the contract
price of the lease and the market value of the lease, which,
depending on the circumstances, may be at the time that the lease
was breached or throughout the lease (e.g., in the case of a
continuing breach). Additionally, consequential damages are also
available provided they have been appropriately pleaded and
proved.
reasonably certain.” In re Indesco Int’l, Inc., 451 B.R. 274, 317
(Bankr. S.D.N.Y. 2011) (internal quotation marks omitted).
Moreover, “[t]he non-breaching party need only provide a stable
foundation for a reasonable estimate of the damage incurred
before an award of general damages can be made.” Id. (internal
quotation marks omitted). The principal reason appears to be the
aphorism of visiting “the burden of uncertainty . . . upon the
wrongdoer.” Id. And while there is no equivalent, overt statement
in Utah law of which we are aware, our courts appear, on some
occasions, to have adopted the same proposition:
The proof of amount of damages is a less exacting
standard [than the proof that damages exist]
because [i]t is, after all, the wrongdoer, rather than
the injured party, who should bear the burden of
some uncertainty in the amount of damages. Thus,
[t]he amount of damages may be based upon
approximations, if the fact of damage is established,
and the approximations are based upon reasonable
assumptions or projections. Nonetheless, there still
must be evidence that rises above speculation and
provides a reasonable, even though not necessarily
precise, estimate of damages.
Ron Case Roofing & Asphalt Paving, L.L.C. v. Sturzenegger, 2007 UT
App 100, ¶ 14, 158 P.3d 556 (second and third alterations in
original) (internal quotation marks and citations omitted). Because
this issue has not been briefed in the case at bar, we decline to
openly adopt or reject the In re Indesco International, Inc.
proposition at this time.
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TRANS-WESTERN v. U.S. GYPSUM
Opinion of the Court
II. THE TRIAL COURT HAS DISCRETION TO PERMIT THE
USE OF POST-BREACH EVIDENCE TO ESTABLISH
AND MEASURE EXPECTATION DAMAGES
¶ 21 Having determined how to establish expectation
damages for the breach of an oil and gas lease, we now turn to the
question of whether parties may use post-breach evidence to
prove such damages. 16 We hold that a trial court has discretion to
allow parties to use post-breach evidence to establish and
measure their expectation damages. 17
¶ 22 “[W]here it is necessary to fashion an appropriate award,
a court may consider post-breach evidence when determining
damages in order to place the non-breaching party in as good a
position as [it] would have been had the contract been
performed.” Anchor Sav. Bank, FSB, v. United States, 597 F.3d 1356,
1369–70 (Fed. Cir. 2010) (internal quotation marks omitted).
Several courts have considered post-breach evidence in the
context of awarding expectancy damages when determining a lost
profits award. See, e.g., Peck Iron & Metal Co. v. United States, 603
F.2d 171, 175 (U.S. Ct. Cl. 1979) (use of post-breach evidence to
determine a general damages claim); Anchor, 597 F.3d at 1370 (use
of post-breach evidence to determine a consequential lost profits
claim). While we acknowledge the existence of authorities to the
contrary, we agree with those cited above and think courts should
likewise be able to consider post-breach evidence in establishing
and measuring expectation damages for the breach of an oil and
gas lease, if they determine it appropriate to do so in the context
16 In our order accepting the certified question, we requested
that the parties address the question “in the particular context of
the issues pending on appeal before the Tenth Circuit.” Having
had the benefit of the parties’ briefing and arguments, we agree
with Trans-Western that the certified question fairly implicates
the “evidence plaintiffs will be called upon to use in establishing
their damages” and, therefore, proceed to provide some guidance
on the issue.
17 While Trans-Western has phrased this issue in terms of its
use of the best “evidence . . . available at trial,” it appears to us
that what is really in dispute is the use of post-breach evidence to
establish expectation damages. We focus our analysis accordingly.
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Cite as: 2016 UT 27
Opinion of the Court
of a particular case. This approach is most consistent with our aim
of affording district courts wide latitude in fashioning suitable
damage awards. See, e.g., Clayton v. Crossroads Equip. Co., 655 P.2d
1125, 1130 (Utah 1982).
¶ 23 Thus, when claiming general damages, parties may be
able to use post-breach evidence to help establish the value of a
lease at the time of breach. For example, if a landlord breaches a
lease by denying the plaintiff possession and then turns around
and re-leases the property a few days later, this subsequent lease
would be considered post-breach evidence and would likely also
be credible evidence of the value of the plaintiff’s lease at the time
of the breach. There is no persuasive reason why we should
prohibit parties from introducing such evidence to establish their
general damages simply because that evidence is post-breach. The
same holds true with respect to consequential damages. Indeed,
we can readily envision cases in which a plaintiff can and should
be able to establish and measure consequential damages that take
the form of lost profits with post-breach evidence. 18
CONCLUSION
¶ 24 Although we have never before dealt with the specific
question of how expectation damages are to be measured for the
breach of an oil and gas lease, the answer is a familiar one because
under Utah law we generally treat leases like other contracts. And
we see no reason to vary from that practice here. Therefore,
expectation damages for the breach of an oil and gas lease, just
like expectation damages for a breach of contract, may consist of
general and consequential damages. General damages are to be
measured as the difference between the contract price of the lease
and the market value of the lease at the time of the breach.
Consequential damages are unique to a particular case, and
18 This is not, however, an open invitation for courts to admit
post-breach evidence without first subjecting it to appropriate
scrutiny. Post-breach evidence, like any other evidence, must
meet the evidentiary standards for admissibility (e.g., the
evidence must be relevant and may not be speculative). See Cook
Assocs., Inc. v. Utah Sch. and Institutional Tr. Lands Admin., 2010 UT
App 284, ¶ 36, 243 P.3d 888. We expect that trial courts, in their
discretion, will properly apply the tools in their evidentiary tool
kits to guard against improper awards.
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TRANS-WESTERN v. U.S. GYPSUM
Opinion of the Court
parties must establish that they were caused by the breach,
establish that they were foreseeable, and establish the amount of
damages with reasonable certainty. Finally, in the discretion of the
trial court, parties may introduce post-breach evidence to
establish and measure their expectation damages.
16