Know your limits

Entrepreneur, June, 2003 by Joanne Cleaver

Failure to fulfill a contract is just that, and no more, ruled the U.S. Circuit Court of Appeals in California in January. Its decision in Robinson Helicopter Co. Inc. v. Dana Corp. prevented the helicopter manufacturer from raking in damages a lower court had awarded because Dana Corp. had sold Robinson Helicopter Co. Inc. faulty parts and then covered it up. Because other state courts have made similar decisions, the California decision fuels an emerging national precedent, say lawyers on both sides.

The decision is good news for entrepreneurs because it clearly defines the upside and the downside of a contract, says Edwin V. Woodsome Jr., the Los Angeles lawyer whose firm, Howrey Simon Arnold & White, represented Dana Corp.

It also means entrepreneurs need to check out their suppliers even more thoroughly, adds Edward J. Horowitz, the lawyer for Robinson Helicopter Co. Inc. "If your business is damaged due to a breach of contract, you may not be able to count on a court-ordered compensation to help you recover," he warns. "You can only recover the original amount covered by the contract."

JOANNE CLEAVER has written for a variety of publications. including the Chicago Tribune and Executive Female.