Fera v. Village Plaza, Inc.
396 Mich. 639; 242 N.W.2d 372 (1976)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Anticipated lost profits are recoverable for a breach of contract, even for a new business, provided they can be established with a reasonable degree of certainty and are not based on mere speculation or conjecture.
Facts:
- Plaintiffs signed a ten-year lease with agents of Fairborn-Village Plaza to operate a 'book and bottle' shop in a specific location within a proposed shopping center.
- Plaintiffs paid a $1,000 deposit to secure the lease.
- Subsequently, the parties agreed to exclude liquor sales from the lease's percentage rent override provision in exchange for plaintiffs relinquishing 600 square feet of their space.
- Due to construction delays and a subsequent foreclosure, the property management changed hands.
- When the shopping center was finally ready, the new management refused to give plaintiffs their contracted space, having misplaced the lease and rented the location to another tenant.
- Defendants offered plaintiffs an alternative space, which plaintiffs refused as it was unsuitable for their planned business.
Procedural Posture:
- Plaintiffs initiated suit in Wayne Circuit Court against defendants for breach of lease, seeking damages for anticipated lost profits.
- A jury at the trial court level returned a verdict in favor of the plaintiffs, awarding them $200,000.
- Defendants appealed the verdict to the Michigan Court of Appeals.
- The Court of Appeals reversed the trial court's judgment, holding that lost profits was an erroneous measure of damages for a new business, and remanded for a new trial on damages only.
- Plaintiffs appealed this decision to the Supreme Court of Michigan.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does the fact that a business is new and has no prior record of profitability automatically preclude it from recovering anticipated lost profits as damages for a breach of a lease?
Opinions:
Majority - Kavanagh, C. J.
No. The fact that a business is new does not automatically preclude it from recovering anticipated lost profits. The historical distinction between new and established businesses is not a rigid rule but rather an application of the general principle that damages must be proven with reasonable certainty. The core issue is the sufficiency of the proof, not the age of the business. In this case, both parties presented days of extensive and conflicting expert testimony regarding potential profits, ranging from a net loss to $270,000 over ten years. This thorough presentation of evidence elevated the question of damages from the realm of speculation to a question of fact for the jury. The jury's verdict of $200,000 was well within the range of testimony presented, and the appellate court should not substitute its judgment for that of the jury when the verdict is supported by the evidence.
Concurring-in-part-and-dissenting-in-part - Coleman, J.
No, but the evidence for liquor-related profits was insufficient. While anticipated profits from a new business can be recovered if proven with certainty, the claim for profits from liquor sales was too speculative. Plaintiffs did not have a liquor license, and testimony from Liquor Control Commission officials indicated they could not obtain one for the proposed store. Therefore, the issue of profits from liquor sales, which depended on the speculation of obtaining a license, should not have been submitted to the jury. The author would have allowed proof of loss only from the bookstore operation and would affirm the judgment only if plaintiffs agreed to a remittitur reducing the award to $60,000.
Analysis:
This decision effectively abandons the rigid, common-law 'new business rule' that often served as a complete bar to recovering lost profits for new ventures. The court shifts the analytical focus from the status of the business (new versus established) to the quality of the evidence presented to prove damages. This holding empowers new businesses to seek full contractual damages, provided they can support their claims with reasonably certain proof, such as expert testimony, market analyses, and financial projections. It places a greater gatekeeping role on trial courts to assess the sufficiency of evidence but ultimately respects the jury's function in weighing that evidence to determine a damage award.
Unlock the full brief for Fera v. Village Plaza, Inc.