Lost Profits Recoverable as Damages for a Contractual Breach, Bad Faith or Contractual Interference Claim

October 15, 2012 | No Comments
Posted by Timothy Lyons

Whether a cause of action may be maintained to recover lost profits for breach of contract, bad faith performance, or contractual interference is an issue typically encountered by companies, small business owners and contractors.  New Jersey courts have determined that “lost profits” may be recoverable if established within a reasonable degree of certainty.  Courts have defined lost profits as the difference between gross income realized and the costs or expenses which would have been incurred to produce that income.  See V.A.L. Floors, Inc. and 3L Company, Inc. v. Westminster Communities, Inc., 355 N.J. Super. 416 (App. Div 2002); Cromarti v. Carteret Savings and Loan, 277 N.J. Super. 88 (App. Div. 1994).
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A common defense to a lost profits claim is that such revenues, as an element of damages, are too speculative and cannot be ascertained without particular proofs.  As a result, proving the claim typically requires expert opinion testimony of a financial professional, whether it be an accountant or other economic expert.  The profits claimed to be lost by reason of the breach of the contract or other contractual interference may be recovered only where profits can be estimated with reasonable certainty.  Past experience of a continuing and on-going, successful business provides the best evidence for the computation of lost profits with a satisfactory degree of definitiveness.  Past profit/loss experience on other contracts, projects or commercial transactions is a relevant, and persuasive approach to determine a damages award based on a lost profits claim.  Where the claimant is a “new business” and does not have a historical record of gross revenue, expense or net revenue, a lost profits claim may be more difficult.  A new business claimant may use evidence of pricing margins and cost/expense ratios common to the industry or similar businesses to establish what its revenue, expenses and profits would have been but for the contractual breach, bad faith or interference. To that extent, the computation of lost profits as damages, although not specially reduced to a particular dollar amount must simply be reasonable, accurate and have a fair basis for recovery in order to be sufficiently established.  The fact that a plaintiff party may not be able to fix its lost profits claim with precise exactitude will not, in and of itself, preclude recovery of those lost profits as damages.  Inter-Medical Supplies v. EBI Medical Systems, 181 F.3d 446 (3rd Cir. 1999).  Thus, a claim for lost profits, even on a verbal or oral contract, remains a viable remedy where the damages can be determined and calculated upon evidence of the company’s historical and reasonable business practices, profit estimates and industry formulations.

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