Morrow v. First National Bank of Hot Springs

Supreme Court of Arkansas · Contracts

ContractsConsequential damagesTacit agreement testContract vs. tortconsequential damagesspecial damagestacit agreementnotice

Facts

Plaintiffs collected coins and, because insurance was becoming too expensive, reserved three large safety-deposit boxes from the defendant bank on June 25, paying $25 per box. Morrow told bank employees that he especially wanted the boxes by September 1 and one or two employees promised to notify him as soon as the boxes were available. The boxes became available on August 30, but the bank did not notify plaintiffs before a burglary on September 4 in which coins worth $32,155.17 were stolen from Morrow's home. When Morrow asked after Labor Day, the bank admitted it had not notified him because it "just didn't have time," and plaintiffs then immediately moved the remaining coins into the boxes.

Issue

Can plaintiffs recover the value of their stolen coins as consequential damages for the bank's breach of its promise to notify them when the safety-deposit boxes became available? Alternatively, can the bank's failure to notify be treated as a tort so as to avoid the tacit agreement requirement?

Rule

Under Arkansas's tacit agreement test, a plaintiff seeking consequential damages for breach of contract must prove not only that the defendant had knowledge that breach would cause special damages, but also that the defendant at least tacitly agreed to assume responsibility for those damages. Mere notice of special circumstances is insufficient, especially where the claimed damages are out of proportion to the consideration paid. A mere failure to act in performing a contract is nonfeasance and is not treated as a tort absent a special duty such as that owed by an innkeeper or public warehouseman.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Tulsa, Nora Patel paid $60 to reserve a climate-controlled storage locker from Red Clay Storage. She told the manager the locker was needed to protect rare comic books worth $80,000 and asked to be called the moment a unit opened; the manager agreed, but no call was made, and a week later the comics were stolen from Nora's apartment.

If Nora sues for the value of the stolen comics as consequential damages for breach of contract, which is the best result?

Explanation. Under the majority rule in this case, consequential damages require more than the defendant's knowledge of special circumstances. The plaintiff must show the defendant at least tacitly agreed to assume responsibility for the extraordinary loss. Here, the small reservation fee and the manager's promise to call do not by themselves show assent to insure an $80,000 collection. (Derived from Morrow v. First National Bank of Hot Springs (n.d.).)