Summary
holding that, "in order for a plaintiff to recover [damages] in a breach of contract action that amount ... as well as their existence, must be demonstrated with reasonable certainty."
Summary of this case from Am. Mun. Power v. Voith Hydro, Inc.Opinion
No. 87-563
Decided April 13, 1988.
Contracts — Breach — Damages — Amount and existence of lost profits — Proof by reasonable certainty required.
O.Jur 3d Damages §§ 90, 112.
In order for a plaintiff to recover lost profits in a breach of contract action, the amount of the lost profits, as well as their existence, must be demonstrated with reasonable certainty. ( Charles R. Combs Trucking, Inc. v. International Harvester Co., 12 Ohio St.3d 241, 12 OBR 322, 466 N.E.2d 883, explained.)
APPEAL from the Court of Appeals for Franklin County.
On July 25, 1980, the appellant, Eastgate Properties, Inc. ("Eastgate"), and the appellee, the city of Gahanna ("Gahanna"), entered into an agreement whereby Eastgate was to lease property in the Gahanna Industrial Zone for the purpose of constructing and operating a self-storage facility and a mini-office and warehouse complex. When the lease was executed there were no similar facilities in the Gahanna area; however, Eastgate was operating a large self-storage facility in nearby Columbus, Ohio. At the end of the lease period Eastgate would have been able to purchase the property for a nominal sum.
The cost of Eastgate's Gahanna complex was estimated to be 1.75 million dollars. However, the prime interest rate rose while Eastgate was attempting to finance the project and construction was delayed. Gahanna sought to terminate the lease, as of January 21, 1982, on the ground that Eastgate breached paragraph 7.02 of the lease, which provided that Eastgate expected to begin construction sixty days after commencement of the lease term or after obtaining all necessary permits, whichever came later.
Paragraph 7.02 states:
"7.02 Construction Period. Lessee expects to commence construction with [ sic] sixty (60) days after commencement of the lease term or after issuance of all necessary permits and authorizations whichever is later. Lessee shall complete construction within 12 months thereafter."
Thus, in April 1982 Gahanna filed a forcible entry and detainer action in the Franklin County Municipal Court. Eastgate answered and counterclaimed for damages for wrongful termination of the lease. The counterclaim exceeded the jurisdictional limit of the municipal court, and the cause was transferred to the Court of Common Pleas of Franklin County. The trial court found for Gahanna.
The court of appeals reversed, concluding that Eastgate was not in breach of the agreement because the lease did not contain a provision making time of the essence. The matter was remanded to the trial court for a determination of Eastgate's damages for wrongful termination of the agreement.
On remand, the trial court ruled that Eastgate was entitled to certain damages, including attorney fees. However, the trial court denied Eastgate's claim for lost profits and appreciation of the property value (hereinafter collectively "lost profits"), holding that Eastgate had failed to prove those amounts with reasonable certainty.
Gahanna appealed from the trial court's award of attorney fees, and Eastgate cross-appealed from the trial court's failure to award damages for lost profits. The court of appeals reversed the trial court on the issue of attorney fees, holding that a party may not recover attorney fees as part of the costs of litigation absent statutory authorization. The appellate court further stated that this court has determined that attorney fees are not recoverable in contract actions unless the breaching party has acted in bad faith, vexatiously, wantonly, obdurately or for oppressive reasons. Finally, the court of appeals held that the trial court applied the proper standard and correctly found that Eastgate had not proven its lost profits with reasonable certainty.
The cause is now before this court pursuant to the allowance of a motion to certify the record.
Murphey, Young Smith and William A. Klatt, for appellee.
Kagay, Albert Diehl, Jon R. Philbrick and David K. Lowe, for appellant.
Eastgate initially challenges the appellate court's reversal of the award of attorney fees. Generally, a prevailing party may not recover attorney fees as costs of litigation in the absence of statutory authority unless the breaching party has acted in bad faith, vexatiously, wantonly, obdurately or for oppressive reasons. Sorin v. Bd. of Edn. (1976), 46 Ohio St.2d 177, 75 O.O. 2d 224, 347 N.E.2d 527. This is commonly known as the "American rule." However, Eastgate maintains that it is entitled to an award of attorney fees, as damages in defending against Gahanna's forcible entry and detainer action, because the action amounted to a breach of the covenants of warranty of ownership and/or quiet enjoyment contained in the lease. Basically, Eastgate cites McAlpin v. Woodruff (1860), 11 Ohio St. 120, and Lane v. Fury (1877), 31 Ohio St. 574, in support of its contention.
Paragraphs 1.02 and 1.03 of the lease read, respectively:
" 1.02 Lessor Warranty of Ownership. Lessor hereby represents and warrants that Lessor is the owner in fee simple absolute of the Premises free of all liens and encumbrances other than restrictions in respect to the use and operation of the Premises and easements as such restrictions and easements exist of record as of the date of execution of this lease, a copy of which has been furnished by Lessor to Lessee. Lessee accepts the Premises, subject to such restrictions and easements.
" 1.03 Quiet Enjoyment. Lessor covenants and agrees that Lessee on paying the rent and other charges herein provided for and observing and keeping the covenants, conditions and terms of this lease on Lessee's part shall lawfully and quietly hold, occupy, and enjoy the Premises during the term of the lease without hindrance or molestation of Lessor or any person claiming under Lessor."
In McAlpin, supra, the trial court awarded a lessee attorney fees for defending a dower claim brought by the lessor's widow. The lessor's estate was held liable because the lessee was forced to defend the lessor's title to the property. While the lease included a covenant of quiet enjoyment, the specific rationale for the award of attorney fees was not stated.
After a careful reading of McAlpin, supra, it does not appear that the trial court's award of attorney fees was appealed. However, this court did observe that "* * * [the trial court] also rightfully gave the plaintiff his costs and counsel fees in defending against the claim of the widow." Id. at 130.
In Lane, supra, Mary Ward and her husband sold real estate to John Lane. However, the deed was fatally defective due to an improper acknowledgement by Mrs. Ward. John Lane subsequently conveyed the property to Cornelius Lane, who in turn sold it to Anna Fury. This conveyance included the grantor's warranty to defend the premises against the claims of others. After Mary Ward's death, her heirs brought a suit for possession of the real estate, prompting Mrs. Fury to bring an action which successfully corrected Mrs. Ward's acknowledgement. Mrs. Fury then sued her grantor, and obtained a judgment for her expenses, including attorney fees, incurred as a result of her action to quiet title. This court refused to reverse that portion of the judgment awarding attorney fees.
Both McAlpin and Lane, supra, are distinguishable from the cause sub judice. Those cases stand for the proposition that where a party is "* * * evicted by reason of a paramount title, * * * his damages for the breach may include an allowance for counsel fees." (Citations omitted and emphasis added.) Gates v. Toledo (1897), 57 Ohio St. 105, 48 N.E. 500. Here, there is no allegation that paramount title resided in anyone other than Gahanna. Both McAlpin and Lane, supra, concern the situation where an individual is compelled to defend his grantor's title in the land. That is not the case here. Accordingly, McAlpin and Lane are not applicable to the case at hand.
Gahanna initiated the instant forcible entry and detainer action because it believed Eastgate breached the terms of the lease. The lease contains no provision which would render Gahanna liable for attorney fees in the event that it was unsuccessful in a forcible entry and detainer proceeding. Further, there is no statutory basis for such an award. Eastgate does not contend that Gahanna acted in bad faith, vexatiously, wantonly, obdurately or for oppressive reasons. Accordingly, we hold that Eastgate was not entitled to an award of attorney fees because of its defense of Gahanna's forcible entry and detainer suit.
Eastgate also challenges the lower court's denial of damages for lost profits. This contention fails because Eastgate did not present sufficient evidence to establish these damages. The only testimony regarding lost profits came from Eastgate's president, Robert Delaplane. He testified that his company sustained lost profits of $137,999 from July 1983 through September 1985; in addition, he testified that the Gahanna site would have appreciated $240,000 in value during the term of the lease. To arrive at these figures, Delaplane compared the Gahanna project to his existing Columbus self-storage facility. Delaplane opined that the marketability of the Columbus facility would be comparable to the nonexistent Gahanna facility. He noted, however, that the proposed Gahanna operation differed from the Columbus facility in that the mini-office and warehouse complex would have been unique to the Gahanna facility. While there were competing self-storage facilities in the vicinity of the Gahanna site, there was no evidence presented concerning the profitability or appreciation in value of those complexes.
Delaplane testified as follows concerning the appreciation in the value of the Gahanna site:
"I took an increase in value and approximately the same percentage on Eastgate and then toned it down for a lot of potential variables to come up with $240,000.00 if it had been allowed to be completed in '83 to the worth today. The $240,000.00 compares to the $440,000.00 that the * * * [Columbus facility] has increased in value."
In Charles R. Combs Trucking, Inc. v. International Harvester Co. (1984), 12 Ohio St.3d 241, 12 OBR 322, 466 N.E.2d 883, this court set forth the following three-pronged test for recovery of lost profits in contract actions, stating in paragraph two of the syllabus:
"Lost profits may be recovered by the plaintiff in a breach of contract action if: (1) profits were within the contemplation of the parties at the time the contract was made, (2) the loss of profits is the probable result of the breach of contract, and (3) the profits are not remote and speculative and may be shown with reasonable certainty."
Eastgate argues that all that must be shown with reasonable certainty is the existence of future profits. Thus, Eastgate further argues, the courts below erred when they required the amount of the lost profits to be proven with reasonable certainty. Presumably, some other lower standard should be applied to determine the amount of the lost profits.
We disagree. Eastgate's contention would divide the final prong of the test into separate parts. First, the existence of some lost profits would have to be shown with reasonable certainty and, second, the amount of those profits could then be shown by applying a lesser standard. However, the third prong is but a single hurdle. We hold that in order for a plaintiff to recover lost profits in a breach of contract action the amount of the lost profits, as well as their existence, must be demonstrated with reasonable certainty.
Eastgate argues that Delaplane's testimony is sufficient evidence of both the existence and the amount of damages. We disagree. Under the facts of the instant case we concur with the trial court and the court of appeals that Eastgate failed to prove its lost profits with reasonable certainty.
Accordingly, the judgment of the court of appeals is affirmed.
Judgment affirmed.
SWEENEY, Acting C.J., LOCHER, HOLMES, WRIGHT and H. BROWN, JJ., concur.
DOUGLAS, J., concurs in judgment only.
HILDEBRANDT, J., of the First Appellate District, sitting for MOYER, C.J.