Folds v. Red Arrow Towbar Sales Co.
378 So. 2d 1054 (1979)
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Rule of Law:
Damages for lost future profits from a breach of contract do not require mathematical certainty and may be awarded if proven with reasonable certainty. A court may properly calculate such damages by using the profits of a successor business operating in the same territory as a evidentiary yardstick.
Facts:
- In late 1975, Lenard G. Folds and Red Arrow Towbar Sales Company entered into discussions for an exclusive distributorship.
- On January 2, 1976, Folds and Red Arrow executed a contract granting Folds the exclusive right to sell Red Arrow products in Louisiana.
- As part of the agreement, Folds made an initial purchase of over $30,000 worth of merchandise from Red Arrow.
- Both parties understood Folds would continue his current employment for six months to satisfy a notice requirement, despite a contract clause requiring his full time and energy.
- After the agreement was signed, Red Arrow failed to provide promised training for Folds' sales employees and continued to sell its products in Louisiana through other representatives.
- In February 1976, Red Arrow refused to fill an additional $14,000 merchandise order from Folds.
- Red Arrow representatives took and sold equipment Folds had purchased and stored, and failed to deliver $380 worth of merchandise from his initial order.
- In October 1976, Red Arrow granted another exclusive distributorship for a three-parish area within Louisiana to another individual, Herman Pritchard.
Procedural Posture:
- Lenard G. Folds (plaintiff) filed suit against Red Arrow Towbar Sales Company and its individual partners (defendants) in a Louisiana trial court for damages from breach of contract.
- During pre-trial discovery, the trial court held defendants in contempt of court for failing to properly respond to plaintiff's interrogatories.
- Defendants' application to the Court of Appeal for supervisory writs regarding the contempt citation was denied.
- The trial court denied the defendants' motion for a continuance, which was filed four days before the scheduled trial date.
- After a bench trial, the trial court found in favor of Folds, ruling that the defendants had breached the contract.
- The trial court rendered judgment against the defendants for $86,509.60, which included damages for undelivered merchandise, misappropriated merchandise, and lost future profits.
- The trial court denied the defendants' motion for a new trial.
- Defendants Red Arrow and Wallace Hawkins (appellants) appealed the judgment to the Court of Appeal of Louisiana, Second Circuit.
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Issue:
Does a party who breaches an exclusive distributorship agreement become liable for lost future profits that are calculated based on the actual sales of a subsequent distributor in the same territory?
Opinions:
Majority - Price, Chief Judge
Yes, a party who breaches an exclusive distributorship agreement is liable for lost future profits proven with reasonable certainty. The evidence clearly established that Red Arrow breached the contract by failing to provide training, continuing to sell in the exclusive territory, refusing further sales to Folds, and granting another distributorship. The court reasoned that while damages for lost profits cannot be based on speculation, they need only be proven within a reasonable certainty. Where liability and the fact of damage are certain, but the quantum is uncertain, courts are required to award damages. The trial court's method of calculating Folds' lost profits—by projecting the actual nine-month profits of the successor distributor, Herman Pritchard, over a twelve-month period on a statewide basis—was a proper and reasonable method to determine the extent of the loss.
Analysis:
This case affirms the principle that lost profits for a new or unestablished business, which are traditionally difficult to prove, are recoverable if a reasonable basis for calculation exists. It solidifies the use of a 'yardstick' approach, allowing the performance of a comparable successor business to serve as credible evidence for estimating damages. This decision provides a clear pathway for plaintiffs in breach of contract cases involving new ventures to prove lost profits, moving away from a historically rigid 'new business rule' that often barred such recovery. It empowers courts to award damages where a breach is clear, ensuring that a defendant cannot escape liability for lost profits simply because the plaintiff's business had not yet generated a track record.
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