Fera v. Village Plaza, Inc., 1

• Citation: 396 Mich. 639,92 A.L.R.3d 1278,242 N.W.2d 372
• Decision Date: 03 June 1976
• Docket Number: No. 1,1
• Parties: Anthony FERA and Frank Fera, Plaintiffs-Appellants, v. VILLAGE PLAZA, INC., et al., Defendants-Appellees, Cross-Appellants. 396 Mich. 639, 242 N.W.2d 372, 92 A.L.R.3d 1278
• Court: Supreme Court of Michigan

Page 372

242 N.W.2d 372

Anthony FERA and Frank Fera, Plaintiffs-Appellants, v. VILLAGE PLAZA, INC., et al., Defendants-Appellees Cross-Appellants.

No. 1.

396 Mich. 639, 242 N.W.2d 372, 92 A.L.R.3d 1278

Supreme Court of Michigan June 3, 1976.

Keywell & Rosenfeld, by Sidney L. Frank, Christopher Jeffries, Birmingham, for plaintiffs-appellants.

Hammond, Ziegelman & Sotiroff, by Lawrence R. Abramczyk, Detroit, for appellees Schostak Brothers & Co., Inc. and Bank of the Commonwealth.

Zussman, Doctoroff, Wartell & Kaplow, by Milton Y. Zussman, Robert D. Kaplow, Southfield, for appellees Village Plaza, Inc. and Fairborn Property Co., Inc.

T. G. KAVANAGH, Chief Justice.

Plaintiffs received a jury award of $200,000 for loss of anticipated profits in their proposed new business as a result of defendants' breach of a lease. The Court of Appeals reversed. 52 Mich.App. 532, 218 N.W.2d 155 (1974). We reverse and reinstate the jury's award.

FACTS

On August 20, 1965 plaintiffs and agents of Fairborn-Village Plaza executed a ten-year lease for a 'book and bottle' shop in defendants' proposed shopping center. This lease provided for occupancy of a specific location at a rental of $1,000 minimum monthly rent plus 5% Of annual receipts in excess of $240,000. A $1,000 deposit was paid by plaintiffs.

After this lease was executed, plaintiffs gave up approximately 600 square feet of their leased space so that it could be leased to another tenant. In exchange, it was agreed that liquor sales would be excluded from the percentage rent override provision of the lease.

Complications arose, including numerous work stoppages. Bank of the Commonwealth received a deed in lieu of foreclosure after default by Fairborn and Village Plaza. Schostak Brothers managed the property for the bank.

When the space was finally ready for occupancy, plaintiffs were refused the space for which they had contracted because the lease had been misplaced, and the space rented to other tenants. Alternative space was offered but refused by plaintiffs as unsuitable for their planned business venture.

Plaintiffs initiated suit in Wayne Circuit Court, alleging Inter alia a claim for anticipated lost profits. The jury returned a verdict for plaintiffs against all defendants for $200,000.

The Court of Appeals reversed and remanded for new trial on the issue of damages only, holding that the trial court 'erroneously permitted lost profits as the measure of damages for breach of the lease.' 52 Mich.App. 532, 542, 218 N.W.2d 155, 160.

In Jarrait v. Peters, 145 Mich. 29, 31--32, 108 N.W. 432 (1906), plaintiff was prevented from taking possession of the leased premises. The jury gave plaintiff a judgment which included damages for lost profits. This Court reversed:

'It is well settled upon authority that the measure of damages when a lessor fails to give possession of the leased premises is the difference between the actual rental value and the rent reserved. 1 Sedgwick on Damages (8th Ed.) par. 185. Mr. Sedgwick says:

"If the business were a new one, since there could be no basis on which to estimate profits, the plaintiff must be content to recover according to the general rule.'

'The rule is different where the business of the lessee has been interrupted. * * *

'The evidence admitted tending to show the prospective profits plaintiff might have made for the ensuing two years should therefore have been excluded under the objections made by defendant, and the jury should have been instructed that the plaintiff's damages, if any, would be the difference between the actual rental value of the premises and the rent reserved in the lease.'

Six years later, in Isbell v. Anderson Carriage Co., 170 Mich. 304, 318, 136 N.W. 457, 462 (1912), the Court wrote:

'It has sometimes been stated as a rule of law that prospective profits are so speculative and uncertain that they cannot be recognized in the measure of damages. This is not because they are profits, but because they are so often not susceptible of proof to a reasonable degree of certainty. Where the proof is available, prospective profits may be recovered, when proven, as other damages. But the jury cannot be asked to guess. They are to try the case upon evidence, not upon conjecture.'

These cases and others since should not be read as stating a rule of law which prevents Every new business from recovering anticipated lost profits for breach of contract. The rule is merely an application of the doctrine that '(i)n order to be entitled to a verdict, or a judgment, for damages for breach of contract, the plaintiff must lay a basis for a reasonable estimate of the extent of his harm, measured in money'. 5 Corbin on Contracts, § 1020, p. 124. The issue becomes one of sufficiency of proof. 'The jury should not (be) allowed to speculate or guess upon this question of the amount of loss of profits.' Kezeli v. River Rouge Lodge IOOF, 195 Mich. 181, 188, 161 N.W. 838, 840 (1917).

'Assuming, therefore, that profits prevented may be considered in measuring the damages, are profits to be divided into classes and kinds? Does the term 'speculative profits' express one of these classes, differing in nature from nonspeculative profits? Do 'uncertain' profits differ in kind from 'certain' profits? The answer is assuredly, No. There is little that can be regarded as 'certain,' especially with respect to what would have happened if the march of events had been other than it in fact has been. Neither court nor jury is required to attain 'certainty' in awarding damages; and this is just as true with respect to 'value' as with respect to 'profits'. Therefore, the term 'speculative and uncertain profits' is not really a classification of profits, but is instead a characterization of the evidence that is introduced to prove that they would have been made if the defendant had not committed a breach of contract. The law requires that this evidence shall not be so meager or uncertain as to afford no reasonable basis for inference, leaving the damages to be determined by sympathy and feelings alone. The amount of evidence required and the degree of its strength as a basis of inference varies with circumstances.' 5 Corbin on Contracts, § 1022, pp. 139--140.

The rule was succinctly stated in Shropshire v. Adams, 40 Tex.Civ.App. 339, 344, 89 S.W. 448, 450 (1905):

'Future profits as an element of damage are in no case excluded merely because they are profits but because they are uncertain. In any case when by reason of the nature of the situation they may be established with reasonable certainty they are allowed.'

It is from these principles that the 'new business'/'interrupted business' distinction has arisen.

'If a business is one that has already been established a reasonable prediction can often be made as to its future on the basis of its past history. * * * If the business * * * has not had such a history as to make it possible to prove with reasonable accuracy what its profits have been in fact, the profits prevented are often but not necessarily too uncertain for recovery.' 5 Corbin on Contracts, § 1023, pp. 147, 150--151. Cf. Jarrait v. Peters, supra.

The Court of Appeals based its opinion reversing the jury's award on two grounds: First, that a new business cannot recover damages for lost profits for breach of a lease. We have expressed our disapproval of that rule. Secondly, the Court of Appeals held plaintiffs barred from recovery because the proof of lost profits was entirely speculative. We disagree.

The trial judge in a thorough opinion made the following observations upon completion of the trial.

'On the issue of lost profits, there were days and days of testimony. The defendants called experts from the Michigan Liquor Control Commission and from Cunningham Drug Stores, who have a store in the area, and a man who ran many other stores. The plaintiffs called experts and they, themselves, had experience in the liquor sales business, in the book sales business and had been representatives of liquor distribution firms in the area.

'The issue of the speculative, conjectural nature of future profits was probably the most completely tried issue in the whole case. Both sides covered this point for days on direct and cross-examination. The proofs ranged from no lost profits to two hundred and seventy thousand dollars over a ten-year period as the highest in the testimony. A witness for the defendants an expert from Cunningham Drug Company, testified the plaintiffs probably would lose money. Mr. Fera, an expert in his own right, testified the profits would probably be two hundred and seventy thousand dollars. The jury found two hundred thousand dollars. This is well within the limits of the high and the low testimony presented by both sides, and a...