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Collateral Contracts Rule Explained

December 30, 2005

In Mann v. U.S. (Dec. 7, 2005), the Court of Federal Claims rejected a broad reading of the rule that lost profits are not allowed under contracts collateral to the contract actually breached, explaining that when the lost profits directly relate to the subject of the contract they are recoverable, even if they would have required a transaction with a third party. In this breach of a lease agreement, assuming adequate proof, the contractor is able to recover the lost profits he would have made from releasing the property, as well as certain out-of-pocket costs to improve the property.

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