Chapter 11-3 Out-of-Pocket Damages

• Jurisdiction: United States

11-3 Out-of-Pocket Damages

"Out-of-pocket" damages seek to restore to the claimant the out-of-pocket costs he has incurred as a result of relying¹³ on the contractual or fraudulent representations of the defendant, by measuring the difference between the value of that which was parted with and the value of that which was received.¹⁴

In most cases, a plaintiff will have anticipated receiving a greater "benefit-of-the-bargain" than the "out-of-pocket" costs being incurred, so "out-of-pocket" damages are usually sought as an alternate remedy when it will be difficult to prove the actual "benefit-of-the-bargain" damages.

Calculation of out-of-pocket damages may simply involve totaling the sum of all expenditures made by the claimant. Alternatively, where a plaintiff has delivered a business or business opportunity due to the fraud of the defendant, the out-of-pocket damages may require valuing the business or lost business opportunity to determine what has been "parted with."¹⁵ Likewise, if real property has been sacrificed in reliance upon and as a cost of the transaction, the calculation of out-of-pocket damages may involve valuation of the real property. As a result, any one of several of the common damage calculations discussed in Chapter 11, Section 11-5:7 may be applicable as an out-of-pocket damages model.

Recovering both benefit-of-the-bargain damages and out-of-pocket damages for the same loss is inconsistent and an impermissible double recovery.¹⁶ They are inconsistent because the first measure of damages seeks to affirm the transaction while the second measure of damages seeks to disaffirm it.¹⁷ A plaintiff may recover under the damages theory that provides the greater recovery.¹⁸ Both measures of damages may be submitted to the jury, but an election of remedies is required for the entry of judgment.¹⁹

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Notes:

^[13] See Restatement (Second) of Contracts § 344(b) (reliance damages for breach of contract).

^[14] Baylor Univ. v. Sonnichsen, 221 S.W.3d 632, 636 (Tex. 2007).

^[15] Rogers v. Alexander, 244 S.W.3d 370, 385-87 (Tex. App.—Dallas 2007, pet. denied).

^[16] Yeng v. Zou, 407 S.W.3d 485, 491 (Tex. App.—Houston [14th Dist.] 2013, no pet.).

^[17] Sharifi v. Steen Auto., LLC, 370 S.W.3d 126, 151 (Tex. App.—Dallas 2012, no pet.).

^[18] Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 817 (Tex. 1997).

^[19] Yeng v. Zou, 407 S.W.3d 485, 491 (Tex. App.—Houston [14th Dist.] 2013, no pet.).