Brief Fact Summary.
Plaintiff filed a mechanic’s lien against Defendant and Defendant counterclaimed for breach of contract, seeking lost profits resulting from construction delays. The trial court found in favor of both parties on their contract claims. The trial court awarded Defendant $14,000 in lost profits. Plaintiff appealed with respect to the award of lost profits.
Synopsis of Rule of Law.
Lost profits are recoverable if they are a natural consequence of the breach of contract, reasonably foreseeable, and established with reasonable certainty.
The proof must pass the realm of conjecture, speculation, or opinion not founded on facts, and must consist of actual facts from which a reasonably accurate conclusion regarding the cause and the amount of the loss can be logically and rationally drawn.View Full Point of Law
Ledwith-Wolfe Associates, Inc. (Defendant) contracted the Drews Company, Inc. (Plaintiff) to renovate Defendant’s building. Defendant intended to open a restaurant in the building. The parties ran into disagreements about the project from the beginning, and eventually Plaintiff stopped performance. Plaintiff filed a mechanic’s lien for the labor and materials used in renovating the building and subsequently sued to foreclose on the lien. Defendant counterclaimed, alleging breach of contract, seeking among other things, lost profits resulting from construction delays. As evidence of lost profits, Defendant provided evidence of gross profits the restaurant made in the months following the eventual completion of the construction. Defendant’s owner testified that he “would expect at least a third of that [gross figure] to be” net profit. The trial court found in favor of both parties on their contract claims. The trial court awarded Defendant $14,000 in lost profits. Plaintiff appealed with respect to the award of lost profits.
Whether lost profits are recoverable if they are not established with reasonable certainty.
No. The trial court’s award of lost profits to Defendant is reversed. Lost profits are recoverable if they are a natural consequence of the breach of contract, reasonably foreseeable, and established with reasonable certainty.
The new business rule does not automatically preclude the recovery of lost profits by a new business, but rather is a rule of evidentiary sufficiency. A brand new business seeking to recover lost profits will by its nature engender more speculation about the profits than an established business with an established track record of profits. However, the new business owner still has a right to prove the reasonable certainty of the lost profits claimed. In the case at bar, although Defendant could have recovered lost profits of its new business, Defendant did not sufficiently demonstrate lost profits with reasonable certainty. Defendant’s estimation of net profits was not accompanied by any method for calculating net profits with any reasonable certainty. The estimation is thus not sufficient to overcome to reasonable certainty bar to recovering lost profits.