Rancho Pescado, Inc. v. Northwestern Mutual Life Ins. Co., 140 Ariz. 174

Arizona Court of Appeals

1984

Chapter

20

Title

Contract Remedies

Page

778

Topic

Limitations On Recovery of Expectation Damages

Quick Notes

Damages are NOT recoverable UNLESS they are reasonably certain.  Damages requires proof of reasonable certainty.  Once the fact of damages has been shown, the amount of damages may be established with proof of a lesser degree of certainty than required to establish the fact of damages.

Book Name

Contracts Cases, Discussions, and Problems.  Blum Bushaw, Second Edition.  ISBN:  978-0-7355-7069-6.

Issue

o         Whether the trial court erred by reducing the jury's award of damages to appellant from $ 2,500,000 to $ 101,510, by denying the damages awarded for loss of future profits?  No.

Procedure

Trial

o         Jury Verdict against Northwestern for $2,500,000.   Trial Court Granted JNOV.  Reduced amount to $101,510

Appellant

o         Affirmed.  We view the evidence as a whole as amounting to nothing more than conjecture and speculation.

Facts

Rules

Reason

Pl Rancho Pescado

Df Northwestern Mutual Life

What happened?

o         Jones, the president of Rancho Rescado, wanted to get into the catfish business.

o         Northwestern used the Gila Bend Canal to deliver underground water to a large ranch operated by Painted Rock Development Co.

o         Jones decided that Gila Bend Canal would be the ideal place to raise catfish.

o         The Canal was owned by Northwestern.

o         Several of Jones proposals were rejected and on December 1973, it was finally accepted.

License Agreement

o         A license agreement, granting Rancho Pescado the exclusive right to raise fish in a five mile portion of the canal for a period of five years, was entered into between Northwestern and Rancho Pescado.

Holiday Canal Shutoff

o         Water flow was shut off over the holiday because it was not needed for Painted Rocks cattle operation.

o         Rancho demanded the water be turned back on.

o         Northwestern concluded that this demand constituted a serious interference with the ranch operation.

Termination Notification

o         Notified by letter that it was terminating the license agreement because Ranchos demand for continuous water flow which interfered with the ranching operations.

o         Violation of paragraph two of the license agreement.

Ranchos Complaint for Damages

o         Loss of future profits.

o         Beach of License Agreement.

Trial Jury

o         Verdict against Northwestern for $2,500,000.

Northwestern Motions

o         New Trial

o         Motion for Summary Judgment Notwithstanding the verdict.

Trial Court

o         Granted JNOV.

o         Reduced amount to $101,510

o         This amount reflected the loss of future profits.

Rancho Appealed

Ranchos Argument

o         the court erred by eliminating the jury's award of damages

o         Contends the jury's award of damages for anticipated future profits was soundly supported by the evidence.

Northwestern Contends

o         Arizona has adopted a per se rule which prohibits an award of damages for loss of future profits to a new business.

o         Northwestern further contends that even if a per se rule is not used, Rancho Pescado failed to sustain its burden of proving loss of future profits with reasonable certainty.

Recovering Damages Rule

o         Damages are NOT recoverable UNLESS they are REASONABLY CERTAIN.

Lost Profits Rule (Modern Trend)

o         Allows recovery for lost profits IF they can be proven with reasonable certainty.

o         We approve, where evidence is available to furnish a reasonably certain factual basis for computation of problem losses even where a new business is involved.

Courts Belief for New Businesses

o         We believe it would be patently unfair to deny damages to a business where they have been proved with reasonable certainty merely because the business venture was newly established.

Lost Profits Rule

o         Once the fact of damages has been shown, the amount of damages may be established with proof of a lesser degree of certainty than required to establish the fact of damages.

o         Damages Requires reasonable certainty.

o         Amount of Damages Requires a lesser degree of certainty.  Absolute certainty is not required.

Methods to Calculate Reasonable Certainty

o         Profit history from a similar business operated by the Pl at a different location.

o         Profit history from the business in question if it was successfully operated by someone else before the Pl took over.

o         Or, reasonably certainty may be provided when the Pl devices some reasonable method of computing his net loss.

Courts Response to Pl - Burden

o         Rancho had the burden of proving with reasonable certainty the fact that it could raise catfish in the canal and that it could thereafter market them at a profit as well as proving with reasonable certainty how much profit it would have realized.

o         The Court does not agree that Ranchos evidence was proven with reasonable certainty.

Risks

o         95% of catfish farmers fail.

o         Rancho would be raising fish with waste products.

Market Burden

o         Ranchos production and projection number of 8 million pounds was inordinately high.

o         The most successful rancher produced 400,000 pounds.

o         Frost Fishy had trouble selling catfish.

o         Rancho had never canned fish or heard of anybody that has canned fish.

Courts Reasoning (Conjecture and Speculation)

o         We view the evidence as a whole as amounting to nothing more than conjecture and speculation.

o         The evidence is insufficient to prove that he would have succeeded in this highly risky industry, despite his vast research.

o         Ranchos experiments were woefully inadequate.

o         The Jury did not have sufficient evidence to make a rational judgment.

Affirmed.

Class Notes