Opinion ID: 1234314
Heading Depth: 2
Heading Rank: 1

Heading: Certainty

Text: Lost profits must be established with reasonable certainty. Penelko, Inc. v. John Price Associates, Inc., Utah, 642 P.2d 1229, 1235 (1982). At times, we have described this requirement in terms of proof of sufficient certainty that reasonable minds might believe from a preponderance of the evidence that the damages were actually suffered. First Security Bank of Utah v. J.B.J. Feedyards, Inc., Utah, 653 P.2d 591, 596 (1982). This requirement applies to proof of (1) the fact of lost profits, (2) causation of lost profits, and (3) the amount of lost profits. Id.; Penelko, 642 P.2d at 1235; 5 A. Corbin, Corbin on Contracts § 1022 at 135 (1964). Chief argues that reasonable certainty was lacking in each of these areas. 1. The evidence that net profits could have been made during the delay period was extensive. The Cooks were highly experienced in both the production and sale of slurry. The Minnesota plant was located near the Mesabi Iron Range, one of the largest markets for slurry explosives. Sales at the Utah plant boomed during much of the 8-month delay in opening the Minnesota plant, and Merrill Cook testified that the Minnesota plant could have had sales throughout this time. Moreover, once the plant was in operation, it immediately generated significant sales and profits, which finally resulted in a net profit of $479,080 in the first year of operation. This evidence was ample to put the fact of lost profits to the jury. 2. There was also substantial evidence that the lost profits were caused by Chief's failure to send workable parts in a timely manner. Despite repeated follow-up contacts by Cook, the final shipment of parts for the silos was not received until almost a year after it was promised. Once the parts were received and modified, the plant quickly became operational, earning its first profits within a month. Merrill Cook testified that operations could have commenced 8 months sooner if the parts had been sent earlier. 3. Chief also contends that the amount of lost profits was not established with reasonable certainty. In making this argument, Chief asserts that no recovery should have been allowed for lost profits because, as a new business, the Minnesota plant had no prior history from which to approximate their amount. In support of this view, Chief cites our statement of the general rule in Jenkins v. Morgan, 123 Utah 480, 486-87, 260 P.2d 532, 535 (1953): [B]efore special damages for loss of profits to a general business occasioned by the wrongful acts of another may be recovered, it must be made to appear that the business had been in successful operation for such a period of time as to give it permanency and recognition, and that such business was earning a profit which could be reasonably ascertained and approximated. Chief also refers to our statement that the general rule is that loss of anticipated profits of a business venture [involves] so many factors of uncertainty that ordinarily profits to be realized in the future are too speculative to base an award of damages thereon. First Security Bank of Utah v. J.B.J. Feedyards, Inc., 653 P.2d at 596. While we reaffirm our disapproval of speculative awards of lost profits, as voiced in these statements of the general rule, we conclude that the pivotal question is not whether the plaintiff has proven an established earning record but whether he has proven the damages for lost profits with reasonable certainty, although the former is often relevant to the latter. Clark v. International Harvester Co., 99 Idaho 326, 346-47, 581 P.2d 784, 804-05 (1978). Accord, Wyoming Bancorporation v. Bonham, Wyo., 563 P.2d 1382, 1385 (1977). A record of past earnings obviously increases the certainty with which one could predict future profits. But that fact should not automatically preclude new businesses from recovering lost profits because they lack such a record. Rather, new businesses should be allowed to try to prove lost profits up to a reasonable level of certainty by other means, just as established businesses are permitted to do. [4] See, e.g., Welch v. U.S. Bancorp Realty & Mortgage Trust, 286 Or. 673, 703-05, 596 P.2d 947, 963 (1979); S. Jon Kreedman & Co. v. Meyers Brothers Parking-Western Corp., 58 Cal. App.3d 173, 184-85, 130 Cal. Rptr. 41, 49 (1976); U.C.C. § 2-708 comment 2, 1A U.L.A. 377 (1976); R. Dunn, Recovery of Damages for Lost Profits § 4.2 (2d ed. 1981). Once a defendant has been shown to have caused a loss, he should not be allowed to escape liability because the amount of the loss cannot be proved with precision. Winsness, 593 P.2d at 1306; Gould v. Mountain States Telephone & Telegraph Co., 6 Utah 2d 187, 192, 309 P.2d 802, 805 (1957). Consequently, the reasonable level of certainty required to establish the amount of a loss is generally lower than that required to establish the fact or cause of a loss. Terry v. Panek, Utah, 631 P.2d 896, 897-98 (1981); 5 A. Corbin, supra, at 137 n. 84. The certainty requirement is met as to the amount of lost profits if there is sufficient evidence to enable the trier of fact to make a reasonable approximation. Winsness, 593 P.2d at 1305-06; Security Development Co. v. Fedco, Inc., 23 Utah 2d 306, 310, 462 P.2d 706, 709 (1969); 5 A. Corbin, supra, at 124, 135, 156-57; 11 S. Williston, A Treatise on the Law of Contracts § 1345 at 234 (3d ed. 1968). What constitutes such an approximation will vary with the circumstances. Greater accuracy is required in cases where highly probative evidence is easy to obtain than in cases where such evidence is unavailable. Winsness, 593 P.2d at 1306. As proof of the amount of loss in this case, Cook provided the financial summary discussed in Part II. It provided a breakdown of monthly sales volumes, costs of sale, and net profits for the first 13 months. This gave the jury a basis to award damages for whatever period of time it found profits to have been lost. Cook also introduced the evidence described earlier on the fact of lost profits, including the net profits earned at the Utah plant during the delay in Minnesota. This evidence would permit the jury to make a reasonable approximation of the amount of loss.