Chung v. Kaonohi Center Co.
618 P.2d 283 (1980)
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Rule of Law:
Damages for emotional distress are recoverable for the breach of a commercial contract where the breach is wanton or reckless. Additionally, damages for lost profits of a new or unestablished business are recoverable if they can be proven with reasonable certainty.
Facts:
- In September 1971, Farrant Chung and Jordon Lum began negotiations with Kao-nohi Center Company's agent, William Prosser, for a ten-year lease to operate a Chinese fast-food outlet in the Pearlridge Mall.
- On January 17, 1972, the parties executed a contract to lease the space, and on January 20, Chung and Lum paid a $1,666 deposit.
- In reliance on the contract, Chung and Lum arranged financing, ordered equipment, hired employees, and advertised for the new kitchen.
- Over the next year and a half, Prosser repeatedly assured Chung and Lum that they had the lease and to be patient regarding an opening date.
- During this time, Kao-nohi Center Company was secretly negotiating with other parties for the same lease, had given a right of first refusal to another person, and Prosser explicitly denied a newspaper report that another party had secured the lease.
- Eventually, Kao-nohi Center Company leased the entire international kitchen, including the Chinese kitchen space, to another party, Sergio Battistetti.
- In early June 1973, Prosser sent Chung and Lum a letter stating the mall would not pursue their lease and enclosed a check refunding their deposit.
Procedural Posture:
- Farrant Chung, Jordon Lum, and their partnership sued Kao-nohi Center Company and its partners in the circuit court of the first circuit (the trial court) for breach of contract.
- The plaintiffs sought damages for emotional distress and loss of future profits.
- The trial judge denied the plaintiffs' request for an instruction on punitive damages but allowed instructions on damages for emotional distress and lost profits.
- A jury returned a special verdict in favor of the plaintiffs, awarding $50,000 for emotional distress and $175,000 for lost profits.
- The defendants filed a motion for judgment notwithstanding the verdict or, in the alternative, for a new trial.
- The trial court denied the defendants' motion.
- The defendants (appellants) appealed the judgment to the Supreme Court of Hawaii.
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Issue:
Under Hawaii law, may a plaintiff in a breach of contract action for a commercial lease recover damages for emotional distress and for the lost profits of an unestablished business?
Opinions:
Majority - Richardson, C.J.
Yes. A plaintiff may recover damages for both emotional distress and lost profits of a new business in a commercial contract breach case. The court held that the dispositive factor for awarding emotional distress damages is not the nature of the contract (personal vs. commercial), but rather the wanton or reckless nature of the breach. Here, the defendants' conduct—knowingly stringing the plaintiffs along for over a year while secretly negotiating with others and outright lying about it—was reprehensible and constituted a wanton breach sufficient to give rise to tort-like damages for emotional distress. Furthermore, the court rejected the traditional rule that precludes recovery of lost profits for an unestablished business as a matter of law. Adopting the modern trend, the court held that such profits are recoverable if proven with reasonable certainty. It reasoned it would be grossly unfair to deny a plaintiff recovery for lack of a 'track record' when the defendant’s own breach prevented that record from being established. In this case, the plaintiffs' expert testimony, which used comparative data from the business that ultimately opened in the same location and other standard valuation methods, was sufficient evidence for the jury to determine lost profits with reasonable certainty.
Analysis:
This decision significantly expands the scope of contract damages in Hawaii by blurring the line between contract and tort. By allowing emotional distress damages for a wanton breach of a purely commercial contract, the court moves beyond traditional contract law's focus on purely economic, expectation damages. The case also aligns Hawaii with the modern trend of rejecting a rigid, per se rule against awarding lost profits for new businesses. Instead, it establishes a flexible, fact-based standard of 'reasonable certainty,' which allows new ventures a path to meaningful recovery when a defendant's breach prevents them from ever opening.
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