Facts
- RMI, Inc. (RMI) contracted with Western Steel and Ship Repair, Inc. (Western Steel) for ship repair/overhaul work at an agreed price in connection with work on a vessel used in connection with U.S. Navy operations.
- Disputes developed during performance concerning the progress of the work, delays, and compensation for additional work or changed conditions.
- Before the project was completed, RMI cancelled/repudiated the contract, preventing Western Steel from finishing the remaining work and earning the full contract price.
- Western Steel sued RMI for contract damages, seeking (1) amounts due for work performed and (2) anticipated profit on the portion of the contract it was not allowed to complete.
- After trial, the superior court awarded Western Steel the unpaid balance attributable to work actually performed.
- The trial court denied Western Steel’s request for anticipated profits on the unperformed portion, concluding the profits had not been shown with sufficient certainty (and/or expressing doubt that completion would have been profitable given the project’s problems).
- Western Steel appealed from the judgment to the extent it denied recovery of anticipated profits.
Issues
- When a contractor’s fixed-price ship-repair contract is repudiated after partial performance, may the contractor recover anticipated profits on the unperformed work as part of expectation damages?
- What level of proof is required to establish anticipated profits with “reasonable certainty,” and did Western Steel’s cost and accounting evidence satisfy that standard?
Decision
- The Court of Appeal reversed the judgment insofar as it denied Western Steel recovery of anticipated profits.
- The court held that anticipated profits are recoverable in an appropriate contract case when supported by evidence providing a reasonable basis to calculate the loss.
- The court concluded the trial court applied too demanding a standard by effectively requiring near certainty rather than the “reasonable certainty” required under California law.
- The case was remanded for entry of a judgment that includes an award of anticipated profits consistent with the appellate court’s analysis.
Legal Principles
- Contract damages seek to place the injured party in the position it would have occupied had the contract been performed, which can include recovery of anticipated profits.
- Anticipated profits are not barred merely because they cannot be computed with exact precision; the law requires a reasonable basis for computation, not a perfectly certain figure.
- A key distinction controls: uncertainty about whether damages occurred defeats recovery, but uncertainty only as to the amount generally affects the weight of the evidence, not the right to recover.
- For an established business performing work of a type it regularly undertakes, anticipated profits may be proved through project-specific bid data, job-cost records, accounting testimony, and comparable experience.
- Disputes about delays, efficiency, or whether actual completion costs might have exceeded estimates commonly present fact questions bearing on the amount of profit, not categorical reasons to deny any profit recovery where a reasonable calculation is supported by the record.
Conclusion
Western Steel partially performed a fixed-price ship-repair contract that RMI repudiated before completion, and Western Steel sought both payment for work done and the profit it expected to earn on the remaining work. Although the trial court awarded payment for completed work, it denied anticipated profits as too uncertain. The Court of Appeal reversed, holding that expected profits are recoverable when the fact of loss is shown and the record supplies a reasonable basis—through bids, job-cost information, and accounting evidence—to compute the amount with reasonable certainty, and it remanded for entry of judgment including lost profits.