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V.A.L. Floors, Inc. v. Westminster Communities, Inc.

355 N.J. Super. 416, 810 A.2d 625 (App. Div. 2002)

CONTRACTS; BREACHES; DAMAGES— The rule against awarding speculative damages goes to whether there will be damages; therefore, once it is clear that a party has been damaged, that party may prove an uncertainty in damages by estimation.

A developer solicited bids for the installation and upgrading of flooring materials. One contractor prepared a base bid by soliciting prices from its own subcontractors and material suppliers over the phone. Using that information, it estimated the per unit cost for each material to be installed in each of the condominium units and also estimated the labor cost for each unit based upon standard unit rates at that time. As was customary, using those prices, it determined what profit it would seek in preparing its bid. Then, together with a joint venture partner, it met with the developer and its bid was verbally accepted. Discussions ensued with the developer concerning various upgrade programs which would be offered to prospective unit buyers in lieu of the builder’s base program. Based upon its past experience, the flooring contractor estimated what portion of unit buyers would order upgrades and then estimated the amount of the total contract. Apparently, “upgrade work is highly profitable in comparison to base contract work,” and the flooring contractor was satisfied that it would make at least a thirty-three percent overall profit on the job. Numerous construction work orders for various units were issued to the flooring contractor. In addition, it “constructed on site a showroom containing samples of base grade items and the various upgrades of flooring materials which would be available to prospective purchasers of the units.” The developer then made “a decision to use another supplier.” The flooring contractor sued for both its out of pocket expenses “for labor, services and materials,” as well as for lost profits. It made two estimates of its lost profits based upon its feeling about how much profit it would have made on the base flooring contract and how much profit it would have made through upgrades purchased by individual unit buyers. At trial, the contractor argued that there was no enforceable oral contract and also that the flooring contractor’s “claim for lost profits was speculative as a matter of law.” The lower court “rejected the argument that no enforceable oral contract existed.” On the other hand, it “found that the inherent problem of price quotes upon which [the joint venturer’s] based their costs was that ‘even though [they] served [their] immediate business needs…, it does not lock in the price for a particular period of time.’” Basically, it was concerned that two years had elapsed between the time that the contractor had made its initial estimates and the time that the contract was terminated. In the mind of the lower court, it was possible “market forces” operating “during those two years would have significantly affected” the profit calculation.

There was no question that “where a plaintiff is a supplier, producer, or contractor who has been prevented by the defendant from completing its contract, the plaintiff is entitled to the profit that would have been realized if performance had been completed. This is generally measured by the difference between the contract price and the cost of performance or production.” On appeal, the flooring contractor was permitted to use its own estimate as the basis to calculate its lost profit. According to the Court, “[i]n fact, we do permit considerable speculation by the trier of fact as to damages.” Case law states that “[t]he rule relating to the uncertainty of damages applies to the uncertainty as to the fact of damage and not to its amount, and where it is certain that damages have resulted, mere uncertainty as to the amount will not preclude the right of recovery.” Consequently, the Court rejected the developer’s suggestion that the flooring contractor should “be required to produce each of its suppliers to testify to the prices of the materials needed for the project at the time the materials were actually supplied.” The Court, recognizing that there is uncertainty in the concept of lost profits, found it “only fair to lay that uncertainty ‘at the door of wrongdoer who altered the proper course of events, instead of at the door of the injured party.’” Essentially, where the contractor’s “wrongdoing created the risk of uncertainty, [it could not] complain about imprecision.’” In essence, the Appellate Division concluded that the flooring contractor had shown “a reasonably accurate and fair basis for the competition of lost profits.” It felt that “[a] jury could find that a contract existed between the parties and that [the developer] canceled its contract with [the flooring contractor], thus breaching that contract.


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