Lewis River Golf, Inc. v. O.M. Scott & Sons

• Decision Date: 11 February 1993
• Docket Number: No. 58216-5,58216-5
• Citation: 845 P.2d 987,120 Wn.2d 712
• Court: Washington Supreme Court
• Parties: , 22 UCC Rep.Serv.2d 510 LEWIS RIVER GOLF, INC., a Washington Corporation, Petitioner, v. O.M. SCOTT & SONS, a division of ITT Corporation, a Delaware Corporation, Respondent.

Page 712

120 Wn.2d 712

845 P.2d 987, 22 UCC Rep.Serv.2d 510

LEWIS RIVER GOLF, INC., a Washington Corporation, Petitioner, v. O.M. SCOTT & SONS, a division of ITT Corporation, a Delaware Corporation, Respondent.

No. 58216-5.

Supreme Court of Washington En Banc.

Feb. 11, 1993.

Hackett, Beecher & Hart, Steven A. Branom, James M. Beecher, Gary A. Boe, Seattle, for petitioner.

Schwabe, Williamson & Wyatt, Lory R. Lybeck, Seattle, Mildred J. Carmack, Portland, OR, for respondent.

BRACHTENBACH, Justice.

The main issue is narrow and essentially factual, i.e., should the testimony of plaintiff's damage expert have been stricken because it was speculative or not supported in the record? Secondary issues are whether, on retrial after the Court of Appeals granted a new trial limited to damages, the retrial violated the mandate as to the damages recoverable, and whether defendant has preserved two other issues raised in the Court of Appeals, and, if so, their resolution.

To understand the present posture of these issues, it is necessary to state the history of this case. Plaintiff, Lewis River Golf, Inc., grew sod or turf. It bought seed from defendant, O.M. Scott & Sons, under an express warranty. The sod grown from the seed had weeds. Plaintiff claimed that the express warranty was breached. Plaintiff lost most of its commercial customers and had been sued by two of its buyers dissatisfied with the sod. Defendant's proposed remedies were unsuccessful in resolving the weed problem. Plaintiff cut production from 275 acres to 45 acres and destroyed all of the turf raised from defendant's seed.

Plaintiff sued defendant for losses, including lost profits. In 1985, a jury awarded plaintiff $1,327,000. The verdict was unsegregated as to the elements of the damages found. In an unpublished 1987 opinion the Court of Appeals affirmed the verdict on liability, but held that the testimony of plaintiff's expert included two improper calculations, that is, inclusion of lost profits on unplanted acreage and certain interest costs. It held: "The award of damages is reversed and remanded for trial on that issue alone. In all other respects, the judgment is affirmed." Lewis River Golf, Inc. v. O.M. Scott & Sons, noted at 49 Wn.App. 1069 (1987), slip op. at 13, review denied, 110 Wn.2d 1026 (1988).

Thus, in 1989, when the case was again tried to a jury, there was no question of liability. The trial was limited to determination of damages. However, between the first and second trials, the facts about damages had changed. Plaintiff had sold its sod business. Plaintiff contended that, along with specific damages, it suffered a loss on the sale of its sod business because of damage to its reputation or goodwill from the sale of "bad" sod resulting from defendant's defective seed. The trial court submitted five elements of damages to the jury with a segregated verdict form. The jury followed the verdict form and made a separate award for items 1 through 4, as defined in the instructions. A separate awarded of $1,026,800 was made for the loss plaintiff "suffered on the sale of its sod division". Clerk's Papers, at 969.

Defendant again appealed to the Court of Appeals. In an unpublished decision, Lewis River Golf, Inc. v. O.M. Scott & Sons, noted at 60 Wn.App. 1042, review granted, 117 Wash.2d 1001, 815 P.2d 266 (1991), that court (1) affirmed the award of $664,430 made for items one through four of the damage instruction, but (2) reversed the verdict as to the loss on sale of the business. Plaintiff petitioned for review, but only, of course, as to the portion of the verdict which was reversed. Defendant did not petition for review of that portion of the verdict which was affirmed but conditionally raised issues if review were granted. We reverse the Court of Appeals to the extent that it reversed the verdict; thus, the judgment below is affirmed in its entirety.

To put the main issue in perspective, we emphasize what is not in issue. Liability for breach of warranty is no longer a question; that was decided in the earlier appeal. No error was assigned on appeal to any jury instruction given. The damages instruction listed five elements of damages, which the jury could award. The fifth element is for: "The loss [if any] Lewis River Golf suffered on the sale of its sod division." Clerk's Papers, at 969. By allowing this element of damages to go to the jury, without exception, defendant necessarily concedes that it is a proper measure of damages. Thus, defendant is limited to challenging the evidence to support an award for that unchallenged element of damages. The award for the other four elements of damages is not now challenged.

While defendant does not challenge the legal theory upon which plaintiff recovered, it is helpful to mention briefly the substance of the law because it is directly related to the nature and quantum of proof required to support an award for loss on the sale of the sod division.

Recovery of consequential damages is expressly authorized by the Uniform Commercial Code, which governs this action. RCW 62A.2-715(2)(a). The question then is whether the damage to plaintiff's reputation or goodwill is the type of consequential damage allowed under the statute. There is no doubt that such a damage claim is recognized. "In Washington, injury to a buyer's business reputation has been recognized as compensable ... Goldstein v. J.W. Carter Co., 157 Wash. 405, 288 Pac. 1063 (1930)." Cosway, Sales-A Comparison of the Law in Washington and the Uniform Commercial Code, 36 Wash.L.Rev. 440, 466-67, n. 98 (1961).

There is substantial authority that damages are recoverable for damage to a business reputation or goodwill and resulting loss in the value of the business. "As a general rule, loss in the value of a business as a going concern, or loss in the value of its good will, may be recovered as an element of consequential damages." Hydraform Prods. Corp. v. American Steel & Aluminum Corp., 127 N.H. 187, 199, 498 A.2d 339 (1985); accord, Delano Growers' Cooperative Winery v. Supreme Wine Co., Inc., 393 Mass. 666, 684, 473 N.E.2d 1066, 1077 (1985).

[R]ecognizing methods for calculation of goodwill by economists and accountants, goodwill has become more widely accepted as a recoverable item of consequential loss.

... If one removes the Pennsylvania cases from the count, a significant majority of the cases have allowed for the recovery of lost goodwill in proper circumstances.

(Footnotes omitted.) Anderson, Incidental and Consequential Damages, 7 J.L. & Com. 327, 420-21 (1987).

Pennsylvania has overruled the cases referred to in the cited article and now holds that a claim for loss of business reputation or goodwill is a jury question if there is a "reasonable basis" for calculating damages. AM/PM Franchise Assoc. v. Atlantic Richfield Co., 526 Pa. 110, 131 n. 20, 584 A.2d 915 (1990). Defendant relies on a case supplying the now-overruled Pennsylvania law. Brief of Appellant, at 21.

It is clear from the foregoing that the law permits recovery for the kind of damage contained in the jury instruction and verdict form, i.e., an award for damage to goodwill or business reputation. In this case, that loss was evidenced by a diminution in the value of the business when it was sold.

It is true that damages must be proved with reasonable certainty. Larsen v. Walton Plywood Co., 65 Wash.2d 1, 16, 390 P.2d 677, 65 Wash.2d 1, 396 P.2d 879 (1964). However, this reasonable certainty requirement must be considered in light of several underlying principles.

First, RCW 62A.1-106 provides:

The remedies provided by this Title shall be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed....

Second, the official comment to RCWA 62A.2-715 states:

The burden of proving the extent of loss incurred by way of consequential damage is on the buyer, but the section of liberal administration of remedies rejects any doctrine of certainty which requires almost mathematical precision in the proof of loss. Loss may be determined in any manner which is reasonable under the circumstances.

(Italics ours.) RCWA 62A.2-715, official comment 4.

Third is the established principle that "the doctrine respecting the matter of certainty, properly applied, is concerned more with the fact of damage than with the extent or amount of damage." Gaasland Co., Inc. v. Hyak Lumber & Millwork, Inc., 42 Wash.2d 705, 712-13, 257 P.2d 784 (1953); Alpine Indus., Inc. v. Gohl, 30 Wash.App. 750, 754, 637 P.2d 998, 645 P.2d 737 (1981), review denied, 97 Wash.2d 1013 (1982).

These Washington holdings represent the accepted rule of law:

It is often said that, once the buyer establishes the fact of loss with certainty (by a preponderance of the evidence), uncertainty regarding the amount of loss will not prevent recovery.

Thus, a buyer will not be required to prove an exact amount of damages, and recovery will not be denied because damages are difficult to ascertain.... Generally, whether the buyer has proved his loss with sufficient certainty is a question of fact.

(Footnotes omitted. Some italics ours.) Anderson, Incidental and Consequential Damages, 7 J.L. & Com. 327, 395-96 (1987).

Further, it is well recognized that the type of damages here involved are not subject to proof of mathematical certainty. " 'Compensatory damages are often at best approximate: they have to be proved with whatever definiteness and accuracy the facts permit, but no more.' Official UCC Comment, § 1-106...." The Cricket Alley Corp. v. Data Terminal Sys., Inc., 240 Kan. 661, 669, 732 P.2d 719 (1987).

With respect to loss of goodwill, proving damages with reasonable certainty should track the generally expansive recent history of lost profits. However, unlike lost profits, goodwill relates to the future and, thus, no actual profit base will exist for use at trial. Accordingly, the expert testimony of...