Drews Co. v. Ledwith-Wolfe Associates, Inc.
1988 S.C. LEXIS 100, 296 S.C. 207, 371 S.E.2d 532 (1988)
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Rule of Law:
A new, unestablished business is not automatically precluded from recovering lost profits for a breach of contract; instead, lost profits may be recovered if they are proven with reasonable certainty.
Facts:
- Ledwith-Wolfe Associates, Inc. ('Owner') contracted with The Drews Company, Inc. ('Contractor') to renovate a building.
- Owner intended to operate a new restaurant in the renovated building.
- The renovation project was beset by construction delays and disputes over the quality of the work.
- Contractor ultimately ceased work and removed its workers from the project before completion.
- Due to the delays in completing the renovation, Owner claimed it was unable to open its restaurant as planned, resulting in a loss of profits.
Procedural Posture:
- The Drews Company, Inc. ('Contractor') filed suit in a South Carolina trial court to foreclose a mechanic’s lien against Ledwith-Wolfe Associates, Inc. ('Owner').
- Owner filed a counterclaim against Contractor for breach of contract, seeking damages for the cost of re-doing and completing the work, as well as lost profits.
- At the trial court, a jury returned a verdict for Owner on its counterclaim, which included an award of $14,000 for lost profits.
- The trial court judge denied Contractor's motion for a new trial.
- Contractor, as the appellant, appealed the judgment to the Supreme Court of South Carolina.
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Issue:
Does the 'new business rule' operate as an automatic bar to preclude a new, unestablished business from recovering lost profits as damages for a breach of contract?
Opinions:
Majority - Harwell, Justice
No. The 'new business rule' does not operate as an automatic bar but rather as a rule of evidentiary sufficiency, meaning a new business may recover lost profits if they can be established with reasonable certainty. The court explicitly overrules the prior, rigid application of the rule which held that lost profits for a new business were too speculative to be considered. The modern trend, which the court adopts, is to allow recovery if the plaintiff can meet the standard requirements for proving damages. To recover lost profits, a party must prove that the loss was: 1) a natural consequence of the breach, 2) foreseeable to the parties at the time of contracting, and 3) established with reasonable certainty. Although the court adopts this new standard, it found that Owner's evidence, which consisted only of gross profit figures for 11 months without any data on overhead or operating expenses, was too speculative and failed to prove lost profits with reasonable certainty.
Analysis:
This decision marks a significant modernization of contract damages law in South Carolina, formally abandoning the antiquated per se 'new business rule' in favor of a flexible evidentiary standard. By doing so, the court aligns the state with the majority of jurisdictions, providing new enterprises a potential path to recovery for breach-of-contract damages that were previously barred. The ruling emphasizes that while the door to recovery is now open for new businesses, the evidentiary burden remains high, requiring concrete proof such as market surveys, financial data, and expert testimony to establish lost profits with 'reasonable certainty.' This case will likely encourage more detailed financial planning and documentation by new businesses entering into significant contracts.
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