Machine Co. v. . Tobacco Co.
141 N.C. 284, 53 S.E. 885, 1906 N.C. LEXIS 101 (1906)
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Rule of Law:
Anticipated profits from a new or unestablished business are not recoverable as damages for a breach of contract because they are inherently uncertain, speculative, and cannot be proven with reasonable certainty.
Facts:
- Winston Cigarette Machine Co. developed a new machine for manufacturing cigarettes.
- Wells-Whitehead Tobacco Co. contracted with Winston Cigarette Machine Co. to exhibit this new machine at an upcoming exposition.
- The purpose of the exhibition was to advertise the novel machine to potential buyers in the tobacco industry to generate future sales.
- The machine was a new invention, and the business of selling these machines was not yet established; it had no history of sales or proven market demand.
- Wells-Whitehead Tobacco Co. breached the agreement by failing to provide the promised exhibition space for the machine.
- As a direct result of the breach, Winston Cigarette Machine Co. was unable to display its new machine at the exposition.
Procedural Posture:
- Winston Cigarette Machine Co. sued Wells-Whitehead Tobacco Co. in a state trial court for breach of contract.
- The case was tried before a jury, which was presented with four issues.
- The jury found for Winston Cigarette Machine Co. on all four issues, including an award of damages for lost future profits under the fourth issue.
- Wells-Whitehead Tobacco Co. (appellant) appealed the trial court's judgment to the state's highest court.
- The appeal specifically challenged the trial court's jury instructions regarding the recoverability of lost profits under the fourth issue.
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Issue:
Are speculative future profits from a new, unestablished business venture recoverable as damages for a breach of contract?
Opinions:
Majority - Walker, J.
No. The law does not permit the recovery of anticipated profits from a new business as damages for breach of contract because such profits are too speculative, remote, and uncertain to be ascertained. While lost profits can be recovered if they are a proximate result of a breach and can be calculated with reasonable certainty, profits from a business 'never begun' lack a reliable standard for calculation. The court reasoned that such an estimate would be based on contingencies, conjectures, and the chances of business, rather than on facts. Unlike profits on existing contracts or from an established business with a performance history, profits from a purely prospective venture depend on too many variables, such as market acceptance and operational skill, to be anything but illusory. Allowing such claims would be dangerous, potentially bringing ruin upon a defaulting party for losses that were never contemplated and cannot be reliably proven.
Analysis:
This decision solidifies the 'new business rule,' which creates a significant barrier for new enterprises seeking damages for lost profits. It reinforces the legal doctrine that damages must be proven with reasonable certainty, drawing a clear line between ascertainable profits from an established business and non-recoverable, speculative profits from a new venture. The case establishes a strong precedent that courts should not engage in conjecture about the potential success of an unproven business idea. This principle encourages parties contracting with new businesses to explicitly define liability for breaches, such as through liquidated damages clauses, rather than leaving damages to the unpredictable discretion of a jury.
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