Evergreen Amusement Corp. v. Milstead
112 A.2d 901 (1955) 206 Md. 610 (1955)
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Rule of Law:
Anticipated profits from a new commercial venture are generally not recoverable as damages for breach of contract because they are considered too speculative and cannot be proven with reasonable certainty.
Facts:
- Evergreen Amusement Corporation (Evergreen) contracted with Harold D. Milstead, a contractor, to clear and grade a site for a new drive-in movie theater.
- The contract stated that at the agreed price, 'no additional fill material will be substituted for unsuitable material found on the site.'
- Both parties initially believed the existing earth on the site would be sufficient to grade the property.
- During the work, it was discovered that a substantial amount of outside fill dirt was necessary to bring the site to the required grade.
- The parties orally agreed that Milstead would supply the necessary fill dirt and Evergreen would pay an additional sixty-eight cents per yard for it.
- Milstead's work was not completed on schedule, delaying the theater's planned opening from early June until mid-August.
- Milstead did not fully complete the project, leaving a drainage ditch and pipe installation unfinished.
Procedural Posture:
- Harold D. Milstead sued Evergreen Amusement Corporation in a trial court for the balance due on a construction contract.
- Evergreen filed a counter-claim against Milstead, seeking damages for lost profits allegedly caused by Milstead's delay in completing the work.
- The trial court, sitting without a jury, entered a judgment for Milstead for the balance of the contract, less damages awarded to Evergreen.
- The trial court refused to award Evergreen its claimed lost profits, ruling that such damages were too uncertain and speculative, and instead based Evergreen's damages for the delay on the rental value of the property.
- Evergreen Amusement Corporation, as the appellant, appealed the trial court's judgment to the Court of Appeals of Maryland.
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Issue:
Are anticipated lost profits from a new, unestablished business recoverable as damages for a breach of contract that delays its opening?
Opinions:
Majority - Hammond, J.
No, anticipated profits from a new business that has not gone into operation may not be recovered as damages because they are merely speculative and incapable of being ascertained with the requisite degree of certainty. The court distinguished between an established business, where a history of past performance can provide a sufficient basis for estimating lost profits, and a new business, which lacks such a history. For a new venture like the drive-in theater, factors such as weather, competition, and population make profit projections inherently unreliable. The court held that the proper measure of damages for the delay is the fair rental value of the property for the period of the delay, not speculative lost profits. The court also held that the subsequent agreement to pay for extra fill dirt was an enforceable modification due to unforeseen difficulties, and that Milstead's failure to complete the drainage ditch constituted substantial performance, allowing him to recover the contract price minus the cost for Evergreen to complete the unfinished portion.
Dissenting - Brune, C. J.
The Chief Judge dissented in part without a written opinion.
Analysis:
This decision reinforces the traditional 'new business rule,' which creates a significant barrier for new ventures seeking to recover lost profits in breach of contract cases. It solidifies the distinction in damage calculation between established businesses, which can use past performance to prove lost profits with reasonable certainty, and new businesses, which generally cannot. The ruling directs courts in similar situations to award damages based on more objective and provable measures like rental value, rather than engaging in speculative profit projections. This precedent makes it more predictable but also more difficult for start-up enterprises to be made whole after a breach of contract delays their launch.
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