Opinion ID: 1349008
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Heading: Lost Profits In South Carolina

Text: We begin our analysis of the lost profits issue by recognizing an elementary principle of contract law. The purpose of an award of damages for breach is to give compensation, that is, to put the plaintiff in as good a position as he would have been in had the contract been performed. 11 S. WILLISTON, A TREATISE ON THE LAW OF CONTRACTS, § 1338 (3d ed. 1968). The proper measure of that compensation, then, is the loss actually suffered by the contractee as the result of the breach. South Carolina Finance Corp. v. West Side Finance Co. , 236 S.C. 109, 122, 113 S.E. (2d) 329, 335 (1960). Profits have been defined as the net pecuniary gain from a transaction, the gross pecuniary gains diminished by the cost of obtaining them. Restatement of Contracts § 331, Comment B (1932); see Mali v. Odom , 295 S.C. 78, 367 S.E. (2d) 166 (Ct. App. 1988) (defining profits as the net of income over expenditures during a given period). Profits lost by a business as the result of a contractual breach have long been recognized as a species of recoverable consequential damage in this state. Hollingsworth on Wheels, Inc., v. Arkon Corp. , 279 S.C. 183, 305 S.E. (2d) 71 (1983); South Carolina Finance Corp. v. West Side Finance Co., supra . The issue is more difficult, however, when a new or unestablished business is the aggrieved party seeking projected lost profits as damages. The new business rule as a per se rule of nonrecoverability of lost profits was firmly established in this state in Standard Supply Co. v. Carter & Harris , 81 S.C. 181, 187, 62 S.E. 150, 152 (1907): When a business is in contemplation, but not established or not in actual operation, profit merely hoped for is too uncertain and conjectural to be considered. McMeekin v. Southern Ry. Co. , 82 S.C. 468, 64 S.E. 413 (1909), like Standard Supply Co. , involved profits allegedly lost when a carrier failed to deliver machinery necessary for a new mill enterprise. The Court adhered to a strict application of the rule, stating that [t]he plaintiff's business had not been launched, and therefore he could not recover profits he expected to make. Id. at 473, 64 S.E. at 415; cited in Currie v. Davis , 130 S.C. 408, 126 S.E. 119 (1923) (new business rule applied to prelude recovery of lost profits where carrier's tort against passenger delayed production by passenger's cotton gin not yet in active operation). Modern cases, however, reflect the willingness of this Court and our Court of Appeals to view the new business rule as a rule of evidentiary sufficiency rather than an automatic bar to recovery of lost profits by a new business. See Hollingsworth on Wheels, Inc. v. Arkon Corp., supra (holding that while aggrieved buyer's projections of lost profits from new business enterprise introduced unreasonable amount of uncertainty into damages computation, evidence sufficient to permit Court itself to reach reasonable figure for profits lost); Bryson v. Arcadian Shores, Inc. , 273 S.C. 471, 257 S.E. (2d) 233 (1979) (evidence of room revenues allegedly lost by hotel as result of construction delay held speculative and insufficient to allow recovery); Mali v. Odom, supra (attorney malpractice action  estimates of anticipated monthly income from new school held speculative and without reasonable basis where offered without reference to operational history or standard method for estimations); Petty v. Weyerhaeuser Co. , 288 S.C. 349, 342 S.E. (2d) 611 (Ct. App. 1986) (tort action  three month period business operated prior to debilitating effect of tort afforded basis for fairly and reasonably approximating lost profits). These cases have so eroded the new business rule as an absolute bar to recovery of lost profits that the rigid Standard Supply Co. , rule is no longer good law.