Is the disclaimer of any consequential damages contained in the Purchase Order Acknowledgment part of the agreement between Burger and Pine?

Is the disclaimer of any consequential damages contained in the Purchase Order Acknowledgment part of the agreement between Burger and Pine?

PINE TREES, INC. – QUESTIONS

Before Ms. Marcus replies to Mr. Washington, write an objective report to her (refer to the report guidelines on the Gateway web site), addressing the following questions. (Assume that the applicable precedent is from the fictional jurisdiction of the state of Gould).

Q. 1.    Is the disclaimer of any consequential damages contained in the Purchase Order     Acknowledgment part of the agreement between Burger and Pine?

PINE TREES, INC. ?
Memo
To: Daniel Martinez, Manager of Risk Management Department
From: Erica Marcus, Supervisor, Sales Department
Date: February 20, 2006
Re: Burger Ranch
__________________________________________________________________________________
As you may remember, PINE Trees, Inc. (“Pine”) has recently entered into one of our largest contracts yet
with Burger Ranch (Burger), whereby Pine is to supply and decorate a Christmas tree in each of Burger’s
one hundred and thirty-seven fast food restaurants in Gould each year in December. The first year of the
contract was 2005.
You undoubtedly remember the December 2, 2005 disaster. On that day one of the Christmas trees that
we had delivered and decorated in early December to one of Burger’s restaurants in Canoga Hills, Gould
caught on fire. The fire then severely damaged the restaurant’s premises, including the kitchen and dining
areas. Earlier today, I received an angry call from Marc Washington, the president of Burger, updating me
on the recent calculations of losses from the disaster.
Our records indicate that the Christmas tree was delivered to Burger’s Canoga Hills site on time and in
good order on the morning of Friday, December 2nd, 2005. As the manager on site requested our delivery
crew, they placed the tree inside the restaurant in an area next to the ordering counter. The crew then
spent the next two hours, as they routinely do, decorating the tree to the satisfaction of the on site
manager, Richard Simon. Mr. Simon then initialed the receipt provided to him by our delivery crew,
acknowledging receipt and full satisfaction from the decorated tree. Mr. Simon then fully paid for the tree
and the services with a company check.
The fire broke out inside the Canoga Hills restaurant just as the last employee was leaving at
approximately 11:37 p.m. on December 2nd. Fortunately, there were no customers in the restaurant at that
time as the store generally closes at 11:00 p.m. on weekdays. Mr. Washington indicated to me during the
phone conversation that a report he received yesterday from the local fire department tentatively
concluded that the fire originated from the Christmas tree. He went on to say that the report indicates that
the lights on the tree required too much power for the one outlet they were plugged into, causing an
electrical short. The spark from this instantly ignited the tree. The employee, who had been about to
unplug the tree and turn off the lights in the restaurant, was so shocked that he instantly ran out of the
restaurant. He then searched for a phone to call the fire department (in his haste he had left his cell
phone inside). It took a few minutes to find a phone, giving the fire a chance to spread.
Mr. Washington also said that as a result of the fire, the restaurant has been completely shut down for the
past three months and that he does not expect the restaurant to be open for at least another three
months pending complete renovation of the damaged areas.

? Copyright 2009, Dr. Rafi Efrat, Dr. Kenneth Klassen, and Dr. Richard Gunther
Mr. Washington then demanded compensation for the losses that Burger’s restaurant sustained as a
result of the fire. He faxed to me a copy of the construction bid Burger’s restaurant accepted to
reconstruct the premises, which came out to $464,900. In addition to the reconstruction costs, he also
demands compensation for the potential profits the restaurant could have generated during the downtime.
I am attaching the documents I asked him to fax me, which include some of Burger’s financial data
regarding revenues and expenses during 2004 and 2005.
I told Mr. Washington that I sympathize with the lost profits sustained by the Canoga Hills Burger Ranch,
but that according to the agreement we entered with Burger, Burger agreed to waive all claims against us
for any consequential damages. After he quickly looked at the Purchase Order Acknowledgment, he said
that while there was such a clause in the document, it was not part of the contract since Burger never
agreed to it or signed it. I replied that I would look it over and get back to him soon.
Required
In addition to the financial data provided by Mr. Washington below, please read parts of the Gould
Commercial Code and the cases attached in the legal library. Before Ms. Marcus replies to Mr.
Washington, write an objective report to her (refer to the report guidelines on the Gateway web site).
(Assume that the applicable precedent is from the fictional jurisdiction of the state of Gould).
In preparing your report you may wish to review business law concepts 1, 2 and 10 and statistics
concepts 1, 2, 3 and 9.
PURCHASE ORDER
Number: 865
San Sur, Gould 93400
(874) 788-7000
Date: September 20, 2005
_______________________________________________________________________
SELLER: PINE Trees, Inc. SHIP TO: See Instructions below
18500 First Blvd.
Canoga Hills, Gould 75356
_______________________________________________________________________
Per our discussion from earlier today, Burger Ranch orders one hundred thirty seven (137)
PINE Christmas Trees – Evergreen style.
The trees are to be delivered before December 12, 2005 to each of Burger Ranch’s 137
restaurants (attached please find a list). Pine delivery crew shall decorate each tree on the
site per sample shown by your sales representative, Ms. Westbrook.
Price: $150 per tree, all-inclusive, per quote from Jill Westbrook. Payable net upon delivery
and decoration.
General Conditions
Seller warrants all goods are of merchantable quality and fit for the intended purpose. Seller warrants that all goods are free and clear of
all liens and claims by third party and that Seller possesses all rights to sell said goods free and clear.
____________________________________________________________________________________________________________
Authorized Signature: ___________________
Ruben Sanchez
4
PURCHASE ORDER ACKNOWLEDGMENT
18500 First Blvd.
Canoga Hills, Gould 75356
(818) 995-6500
September 25, 2005
Buyer: Burger Ranch, Inc. Ship To: Per instructions
1990 Century City Boulevard
San Sur, Gould 93400
(874) 788-7000
Contact: Ruben Sanchez
We have received your purchase order number 865 dated September 20,
2005.
-137 Christmas trees-Evergreen style;
-Decorations to be added upon delivery;
-unit price $150
-We will ship first unit to your store in Canoga Hills, Gould.
-Payable net upon delivery.
____________________
Alexa Rubin
Department of Procurement
CONDITIONS APPLICABLE TO ALL SALES:
Late charges at 10% per month for past due payments; minimum late charge $10. Shipment travel at the risk and cost of Buyer. Risk of
loss passes to Buyer at the time of identification. Seller warrants that all goods are of merchantable quality and fit for the intended
purpose. To the extent defect is identified in any tree delivered, Seller shall promptly deliver a replacement tree to Buyer. Buyer waives
any claims for consequential damages arising out of this purchase order, including, but not limited to lost profits.
5
BURGER FINANCIAL DATA FROM THE PRIOR YEAR OF OPERATION*
Week
Of
Expenses
($)
Revenues
($)
Week
Of
Expenses
($)
Revenues
($)
6-Dec-04 103,084 122,533 6-Jun-05 101,201 153,171
13-Dec-04 99,584 131,036 13-Jun-05 99,726 136,244
20-Dec-04 94,936 137,813 20-Jun-05 96,206 101,012
27-Dec-04 100,757 114,495 27-Jun-05 100,878 156,135
3-Jan-05 102,736 120,579 4-Jul-05 99,439 125,567
10-Jan-05 94,866 182,122 11-Jul-05 95,537 154,901
17-Jan-05 96,158 137,983 18-Jul-05 105,354 128,439
24-Jan-05 97,013 104,668 25-Jul-05 89,897 116,745
31-Jan-05 97,796 117,807 1-Aug-05 91,257 168,639
7-Feb-05 106,315 157,735 8-Aug-05 104,675 148,706
14-Feb-05 92,307 145,685 15-Aug-05 93,216 141,687
21-Feb-05 89,923 129,758 22-Aug-05 102,284 141,879
28-Feb-05 100,546 130,642 29-Aug-05 103,959 106,889
7-Mar-05 99,270 85,895 5-Sep-05 97,823 169,328
14-Mar-05 98,632 125,994 12-Sep-05 97,765 126,747
21-Mar-05 100,273 113,194 19-Sep-05 108,032 154,728
28-Mar-05 100,006 127,209 26-Sep-05 101,433 162,576
4-Apr-05 105,531 114,713 3-Oct-05 96,548 138,661
11-Apr-05 92,774 145,468 10-Oct-05 93,295 158,689
18-Apr-05 103,169 151,959 17-Oct-05 100,227 135,165
25-Apr-05 105,794 68,623 24-Oct-05 97,876 112,240
2-May-05 98,534 126,485 31-Oct-05 102,985 118,904
9-May-05 97,474 97,000 7-Nov-05 100,099 141,778
16-May-05 102,492 121,350 14-Nov-05 102,245 161,104
23-May-05 105,295 137,074 21-Nov-05 102,353 140,226
30-May-05 99,640 152,589 28-Nov-05 105,811 133,108
* All figures are after tax
6
PINE TREES, INC. LIBRARY?
Library of Legal Information
1. AGUILAR MANUFACTURING, INC., Plaintiff and Appellant, v. RICHFIELD, INC., Defendant and
Respondent
2. KIDS’ WORLD INC., Plaintiff and appellant v. LABS ETC. INC., Defendant and respondent.
3. GOULD Commercial Code
AGUILAR MANUFACTURING, INC.,
Plaintiff and Appellant, v. RICHFIELD, INC.,
Defendant and Respondent
Civ. No. 87546

? Copyright 2009, Dr. Rafi Efrat, Dr. Kenneth Klassen, and Dr. Richard Gunther
Court of Appeal of Gould, Third
Appellate District, Division Three
April 24, 1998 filed
7
PRIOR HISTORY:
Superior Court of San Dimes County, No. SD
9563466, Elizabeth Westbrook, Judge.
DISPOSITION: The judgment is affirmed.
COUNSEL: Warren & Warren for Plaintiff and
Appellant.
Gibson & Anderson for Defendant and
Respondent.
OPINION BY: KAUFMAN
OPINION: This appeal presents for the first time
in this state an occasion to interpret section
2207 of the Commercial Code (infra) as it
operates to permit an offeree seller to accept an
offer to purchase on terms not contained in the
offer, which are yet binding on the offeror buyer,
provided such terms do not represent a “material
alteration” of the contract. Here the offeree
seller’s invoices contained a printed limitation of
one year within which the buyer could
commence an action “under this contract” after
such action had accrued. On the facts before it,
the trial court ruled that a suit brought by the
buyer twenty-one months after all of its causes
of action had accrued, including those for breach
of warranty fraud and negligent
misrepresentation, was barred by this one-year
limitation provision which had become a term of
the contract in the manner noted. In our view,
the trial court properly ruled on the issues before
it, and the judgment of dismissal will be affirmed.
Synopsis of the Trial Court Proceedings:
Aguilar Manufacturing, Inc., a Nebraska
corporation (plaintiff) filed its initial complaint in
the underlying action on March 30, 1979 for
breach of warranty, fraud, and negligent
misrepresentation. The suit was brought against
Richfield Inc. a Gould corporation (defendant).
The prayer asked for $ 2 million in general
damages, for damages for loss of good will and
reputation according to proof, for attorney’s fees
in the action, plus costs and other proper relief.

In defendant’s answer to the complaint, it
pleaded 16 affirmative defenses, one of which
alleged “. . . that plaintiff failed to commence the
within action within the one-year limitation period
expressly agreed to by the parties in writing.”
After the case was at issue, the parties
stipulated in writing “that the question of
whether, as a matter of law, plaintiff’s claims are
barred by the applicable statute of limitations on
contractual limitations period may, and should,
be determined in advance of impaneling a jury to
determine the remaining factual issues in
respect of the trial set for January 30, 1984. The
reason for this stipulated order of proceeding is
that if, as defendant contends but plaintiff
disputes, the action is time-barred as a matter of
law, defendant would be entitled to judgment
without the need for further proceedings.”
With reference to the agreed upon issue of fact,
the pretrial conference order included recitations
that:
“3. The procedure for all sales of emulsions
purchased by plaintiff from [defendant], including
all sales of Polyco 2151, was as follows: A
representative of plaintiff would telephone
[defendant’s] facility and place an oral order for a
quantity of emulsion at [defendant’s] standard
price for delivery at plaintiff’s facilities in Colton.
On several occasions plaintiff would also
thereafter send to [defendant] a written purchase
order identifying the product to be purchased,
stating the quantity required and the place and
means of shipment, the price per pound, the
date and place of requested delivery.
“4. Plaintiff made at least seventeen purchases
of Polyco 2151 between May 1976 and July
1977, inclusive.
“5. Plaintiff’s oral and/or written offers to
purchase Polyco 2151 did not limit acceptance
to their terms.
“6. [Defendant’s] sales documents in respect of
the shipments of Polyco 2151 to plaintiff
contained the following limitation of action
provision, which constituted a proposal for
addition to the contract: “‘2. . . . Any action
by Buyer hereunder shall be commenced within
one year after receipt of said products.’
“8. On each occasion that plaintiff ordered a
shipment of Polyco 2151, [defendant] sent to
plaintiff sales documents containing the
limitation of action provision discussed in
paragraph 6 at the same time or shortly after
each shipment of Polyco 2151. Plaintiff received
each of the foregoing sales documents in due
course.
8
“9. Plaintiff at no time notified [defendant] of an
objection to the one-year limitation of action
provision contained in [defendant’s] sales
documents for the sale of Polyco 2151.
Discussion
Defendant’s motion was brought and granted
on the grounds that the one-year limitation
periods in the sales documents were additional
terms which became part of the contracts,
pursuant to Gould’s Commercial Code section
2207. Section 2207 provides in relevant part:
“(1) A definite and seasonable expression of
acceptance or a written confirmation which is
sent within a reasonable time operates as an
acceptance even though it states terms
additional to or different from those offered or
agreed upon, unless acceptance is expressly
made conditional on assent to the additional or
different terms. (2) The additional terms are to
be construed as proposals for addition to the
contract. Between merchants such terms
become part of the contract unless: (a) The offer
expressly limits acceptance to the terms of the
offer; (b) They materially alter it; or (c)
Notification of objection to them has already
been given or is given within a reasonable time
after notice of them is received.”
The trial court ruled that limiting the period
contained in the sales documents was not a
material alteration, and further that the one-year
period of such limitation was not unreasonable.
Plaintiff does not dispute the applicability of
section 2207, and concedes, as to subdivision
(2) thereof, that its own offers to purchase did
not limit acceptance to the terms of the offers,
and that it did not object to the one-year
limitation provisions. Plaintiff argues, however,
that those provisions materially altered the
contracts, and therefore did not become part of
the contracts.
On the material alteration issue, comment 4 to
section 2-207 provides in pertinent part:
“Examples of typical clauses which would
normally ‘materially alter’ the contract and so
result in surprise or hardship if incorporated
without express awareness by the other party
are: a clause negating such standard warranties
as that of merchantability or fitness for a
particular purpose in circumstances in which
either warranty normally attaches . . . [to] a
clause requiring that complaints be made in a
time materially shorter than customary or
reasonable or to a provision which require
arbitration, or otherwise contain terms limiting
remedies.” However, Comment 5 to section 2-
207 provides in pertinent part: “Examples of
clauses which involve no element of
unreasonable surprise and which therefore are
to be incorporated in the contract unless notice
of objection is seasonably given are: . . . a
clause fixing a reasonable time for complaints
within customary limits.”
On the issue of whether, between merchants, a
one-year limitation period is normal, customary,
or reasonable, there seem to be no Gould cases
directly on point. However, the Gould
Commercial Code section 2725, subdivision (1)
provides that the parties to a sales contract may
reduce the statutory four-year period of
limitations to one year. A district court in New
York has recently found that a one-year
limitation provision is not an unreasonable or
material alteration of a contract pursuant to
Uniform Commercial Code section 2-207.
(Aceros Industrials, S.A. de C.V. v. Florida Steel,
supra, 528 F.Supp. 1156, 1158.)
In view of all the above, particularly comment 5
under the corresponding section of the Gould
Commercial Code, we hold that the trial court
correctly determined that the limitation periods
here in question were not material alterations of
the contracts, and further in view of section
2725, subdivision (1) of the Gould Commercial
Code, that the one-year period was not
unreasonable. As a consequence, the provisions
are legally enforceable.
Plaintiff’s attempts to distinguish Aceros, and to
analogize defendant’s one-year limitation
provisions to provisions which require
arbitration, disclaim warranties, or otherwise
contain terms “limiting remedies” ( Album
Graphics, Inc. v. Beatrice Foods Co. (1980) are
without merit. The one-year limitation provisions
here do not limit plaintiff’s remedy, but limit the
time within which it may pursue that remedy,
and, moreover, do so in a way which is
statutorily and judicially acceptable.
The judgment is affirmed.
9
KIDS’ WORLD INC., Plaintiff and appellant v.
LABS ETC. INC., Defendant and respondent.
EZ7868765
COURT OF APPEAL OF GOULD,
FOURTH APPELLATE DISTRICT, DIVISION
NINE

February 3, 2000, filed
PRIOR HISTORY: APPEAL from a judgment of
the Superior Court of San Ramon County No.
DE287345. Timothy
L. Barr, Judge.
DISPOSITION: Affirmed.
COUNSEL: Law Offices of James A. Davidson,
for Plaintiff and Appellant.
Maria Helfing for Defendant and Respondent
OPINION BY: MARCUS
OPINION:
I. FACTS
The material facts are undisputed. Two brothers,
Howard and Lew Rudzkis, founded Kids’ World
in 1992. Kids’ World is a retailer of toys,
educational products, and computer training
services for children. Kids’ World operates a
retail store in Beverly Rolls.
Defendant leased office space directly above the
Kids’ World store. On November 18, 1997, one
of defendant’s employees left water running in a
sink overnight, causing a flood in plaintiff’s store.
The store remained closed due to flood damage
for two weeks. When the store reopened, many
of its shelves were empty. Further, computer
classes, an important factor in the store’s
profitability, could not be resumed until January
1998. The store was not operating at its
previous level until April 1998. Defendant,
through its insurer, paid plaintiffs $200,000 for
damage to the retail store.
Defendant presented evidence that Kids’ World
had no line of credit available to it during 1997
and 1998. Kids’ World had never attracted any
investors. At the time of the flood, Kids’ World
had five employees, only one of whom had a
sales position.
Kids’ World had started a Web site in the spring
of 1995. Howard described the Web site as a
“test” site; a way to learn about the internet and
e-commerce; to experiment with Web designs
and to “debug” the internet Web page. Howard
stated the online business originally was not
intended to be profitable. In fact, the online
business generated less than $ 500 per year
with the exception of one order for
approximately $17,000. Between 1995 and
1997, Kids’ World repeatedly revised its Web
site.
Plaintiff presented evidence that by November
1997, when the flood occurred, the Rudzkis had
developed a sophisticated Web site. As
described by Lew, the new Web site “had one of
the first online ‘shopping carts’ on the Web (this
was the beginning of ‘e-commerce’), a state of
the art navigational system, and was a full
functioning site.” Plaintiff had incurred significant
time and expense in drafting the programming
code for and designing their “state of the art”
Web site. They had hired a Web site design
company and a development programmer. The
new Kids’ World Web site was “very similar” to
the eToys site. The new Web site was
scheduled to go online on Thanksgiving Day
1997, the start of the holiday shopping season
and the most profitable time of year in the toy
business.
In addition, prior to the flood, plaintiffs had
signed a one-year contract with MindSpring,
described as one of the “fastest growing”
Internet service providers with “a relatively
wealthy base of subscribers.” Plaintiffs
presented evidence of an agreement between
MindSpring and Kids’ World. Under the terms of
the agreement, MindSpring’s 200,000
subscribers would have direct, one-click access
from its homepage to three toy Web sites–
eToys, F.A.O. Schwartz, and Kids’ World.
According to Howard: “This was a key place to
be because Kids’ World would be highly visible
to people who entered the site. Just as location
has always been critical for a retail business, the
same holds true for the internet.” Further, Kids’
World would not have been required to
make any upfront payment to MindSpring.
Instead, Kids’ World would have paid
commissions to MindSpring “based on a
10
percentage of sales made from the MindSpring
placement.”
At the time of the flood, Kids’ World was also
negotiating an arrangement with
WeatherChannel.com to establish a link similar
to the MindSpring link. WeatherChannel.com
was then one of the “highest trafficked sites” on
the Internet. Howard opined, “For Kids’ World to
have placement on the Weather Channel site
would assuredly guarantee a very high number
of visitors to the Kids’ World [Web site].”
Kids’ World also intended to market its Web site
through contacts at magazines as well as radio
and television stations. Kids’ World was
prepared to fill orders placed over the Internet. It
had “drop shipment” agreements with numerous
suppliers, i.e. the manufacturers agreed to ship
products directly to Kids’ World’s customers. In
addition, Kids’ World was prepared to ship
products directly from the retail store.
However, the flood caused extensive damage to
the retail store. The Rudzkis were forced to
devote their time to rebuilding and restocking the
store. For a variety of reasons, they were unable
to both rebuild the store and launch the Web
site. Unable to launch their new Web site,
plaintiffs withdrew their contract with MindSpring
and did not follow through on the Weather
Channel agreement.
Prior to the flood, plaintiffs were able to obtain
revenue sharing agreements with Web site
portals such as MindSpring without paying
money up-front. According to Lew, this was
because “the [Web site] portals had not yet
recognized their value.” In March 1998, the Kids’
World retail store was reestablished and
plaintiffs once again set their sights on ecommerce.
By that time, however, revenue
sharing Web portal arrangements were no
longer available. Following the success of ecommerce
retailers like eToys and Amazon,
large amounts of cash up-front were demanded
in return for access to Web site portals. The fees
often exceeded $ 1 million. Plaintiffs were
financially unable to proceed; the Web portal
costs were “exorbitant.” Without links on popular
Web site portals, plaintiffs were unable to attract
customers to the Kids’ World Web site.
In March 1999, Richard X. Hanson, a forensic
economist, prepared at plaintiffs’ request a
“preliminary analysis of losses suffered by [Kids’
World] as a result of the flooding incident . . . .” It
is apparent the analysis was prepared for
settlement purposes. Dr. Hanson opined in
pertinent part: “At the present time, eToys is far
and away the industry leader. This is due to its
early positioning that would have been identical
to Kids’ World. . . . eToys recently filed for an
Initial Public Offering (IPO) expected to draw $
115 million. This implies that the market predicts
long-term annual profit in the $15 million per
year range. This is a reasonable forecast for a
firm with annual revenue currently at just under
$30 million that is expected to double or triple
every year for the next three to five years.
Assuming that eToys and Kids’ World would
have been roughly equal competitors, the capital
value of Kids’ World could have been in excess
of $50 million. This is therefore an estimate of
the present value of lost profits to Kids’ World
from the possibility that the market will have
grown sufficiently to foreclose effective market
presentation.” Dr. Hanson concluded if no
settlement was reached between the parties to
this action “by the time Toys ‘R’ Us or Mattel
makes the expected entry into e-commerce,”
Kids’ World’s loss would probably be valued at $
50 million. Dr. Hanson cautioned: “This latter
estimate is preliminary, however. If the market
continues to astound, market valuations may
argue for even larger damages in the near
future.” Dr. Hanson relied on news articles as
the source of his information about eToys.
Two years after the flood, plaintiffs brought this
action against defendants to recover profits lost
not from the operation of the retail store, but
because of the inability to launch the Web site at
an optimal time. Plaintiffs alleged one cause of
action for negligence. The trial court entered a
judgment in favor of the defendant.
II. DISCUSSION
The Supreme Court set forth the law concerning
lost profits as damages in Grupe v. Glick (1945)
as follows: “Where the operation of an
established business is prevented or interrupted,
as by a tort or breach of contract or warranty,
damages for the loss of prospective profits that
otherwise might have been made from its
operation are generally recoverable for the
reason that their occurrence and extent may be
ascertained with reasonable certainty from the
past volume of business and other provable data
relevant to the probable future sales. On the
other hand, where the operation of an
11
unestablished business is prevented or
interrupted, damages for prospective profits that
might otherwise have been made from its
operation are not recoverable for the reason that
their occurrence is uncertain, contingent and
speculative. But although generally
objectionable for the reason that their estimation
is conjectural and speculative, anticipated profits
dependent upon future events are allowed
where their nature and occurrence can be
shown by evidence of reasonable reliability. All
of these cases recognize and apply the general
principle that damages for the loss of
prospective profits are recoverable where the
evidence makes reasonably certain their
occurrence and extent.” (Italics added; accord,
e.g., Shade Foods, Inc. v. Innovative Products
Sales & Marketing, Inc. (2000) Resort Video,
Ltd. v. Laser Video, Inc. (1995) Maggio, Inc. v.
United Farm Workers (1991); Gerwin v.
Southeastern Gould Assn. of Seventh Day
Adventists (1971). In Natural Soda Prod. Co. v.
City of L. A. (1943), the Supreme Court held:
“The award of damages for loss of profits
depends upon whether there is a satisfactory
basis for estimating what the probable earnings
would have been had there been no tort. A
satisfactory basis for an existing basis may
include reliance on specific economic or
statistical models based on past financial
records. If no such basis exists, as in cases
where the establishment of a business is
prevented, it may be necessary to deny such
recovery. If, however, there has been operating
experience sufficient to permit a reasonable
estimate of probable income and expense,
damages for loss of prospective profits are
awarded.” Contrary to plaintiff’s assertion, the
rule regarding proof of lost profits from a
business applies in tort as well as contract
cases. (Grupe v. Glick, supra, at pp. 692-693;
Piscitelli v. Friedenberg (2001)) Uncertainty as
to the amount of profits is not fatal to such a
claim. (Continental Car-Na-Var Corp. v. Moseley
(1944); Berge v. International Harvester Co.
(1983); Fisher v. Hampton (1975);
Engle v. City of Oroville (1965) As the Court of
Appeal explained in S.C. Anderson, Inc. v. Bank
of America (1994) “Lost anticipated profits
cannot be recovered if it is uncertain whether
any profit would have been derived at all from
the proposed undertaking. But lost prospective
net profits may be recovered if the evidence
shows, with reasonable certainty, both their
occurrence and extent. It is enough to
demonstrate a reasonable probability that profits
would have been earned except for the
defendant’s conduct.” Moreover, the court held,
a plaintiff is “not required to establish the amount
of its damages with absolute precision, and [is]
only obliged to demonstrate its loss with
reasonable certainty.” (Id. at pp. 536-537;
accord, Natural Soda Prod. Co. v. City of L. A.,
supra, at p. 200 [“Since defendant made it
impossible for plaintiff to realize any profits, it
cannot complain if the probable profits are of
necessity estimated”]; Sanchez-Corea v. Bank
of America (1985); Rest.2d Torts, § 912, com.
a.) The Restatement Second of Torts provides in
this regard: “It is desirable . . . that there be
definiteness of proof of the amount of damage
as far as is reasonably possible. It is even more
desirable . . . that an injured person not be
deprived of substantial compensation merely
because he cannot prove with complete
certainty the extent of harm he has suffered.
Particularly is this true in situations . . . where
the harm is of such a nature as necessarily to
prevent anything approximating accuracy of
proof, as when anticipated profits of a business
have been prevented.” (Rest.2d Torts,
§ 912, com. a.)
When the operation of an unestablished
business is prevented, as here, prospective
profits may be shown in various ways. The
Restatement Second of Contracts, section 352,
comment b, provides, “If the business is a new
one or if it is a speculative one . . .,damages
may be established with reasonable certainty
with the aid of expert testimony, economic and
financial data, market surveys and analyses,
business records of similar enterprises, and the
like.” Similarly, the Restatement Second of
Torts, section 912, comment d states, “When the
tortfeasor has prevented the beginning of a new
business . . . all factors relevant to the likelihood
of the success or lack of success of the
business or transaction that are reasonably
provable are to be considered, including general
business conditions and the degree of success
of similar enterprises.”
Our Courts of Appeal have held, consistent with
the Restatement Second of Torts, that the
experience of similar businesses is one way to
prove prospective profits. (Resort Video, Ltd. v.
Laser Video, Inc., supra, at p. 1699.
We turn to the case before us. Given Kids’
World’s state-of-the-art Web site, and its
expected favorable one-click Web portal
12
placement on the fast-growing MindSpring site,
and perhaps the “highly trafficked” Weather
Channel Web site as well, it would have
attracted a very high number of relatively
wealthy potential customers to its online store.
Kids’ World was prepared to meet customers’
online orders through drop-shipment
agreements with manufacturers as well as direct
shipments from its Beverly Hills retail store.
Once the Rudzkis proved they could significantly
attract customers and had a viable online
business, the Kids’ World Web site would have
attracted significant venture capital, i.e., “funds
invested in a new enterprise that has high risk
and the potential for a high return.” (Black’s Law
Dict. (7th ed. 1999) Westlaw, Blacks.) Further,
given the timing of the venture, both in terms of
the approaching holidays, and the emerging
Internet business, coupled with the availability of
Web portal placement without any up-front fees,
Kids’ World would have been in a position to be
a financially successful leader in the ecommerce
sale of toys. Finally, based on a
comparison with eToys’ status in 1999 and
assuming Kids’ World and eToys would have
been roughly equal competitors, Kids’ World’s
capital value money or assets invested, or
available for investment, in the business (Black’s
Law Dict. (7th ed. 1999)) could have been in
excess of $ 50 million.
As substantial as plaintiffs’ evidence sounds on
the surface, we conclude it does not suffice. The
evidence is not sufficient to find with reasonable
certainty lost net profits from the unlaunched
Web site by a preponderance of the evidence.
(Lugtu v. Gould Highway Patrol, supra, at p.
722; Aguilar v. Atlantic Richfield Co., supra, at p.
850.) This is because the evidence, while
suggesting the Web site would have been
viable, is not of a type necessary to demonstrate
that a triable controversy exists as to a
reasonable certainty that the unestablished
business would have made a profit. Although
plaintiffs had five years’ experience as toy
retailers, and had operated a Web site since
1995, they had not previously operated their
Web site as a profit-producing venture. Plaintiffs’
operation of the Kids’ World Web site had in the
past resulted in negligible revenues and
therefore would not support an inference there
was lost prospective profits. In addition, the
online market for toys was not an established
one. Further, the whole scenario presented by
plaintiffs is rife with speculation. The following
undisputed contingencies existed so as to bar
the computation of potential lost profits: Kids’
World would be competing with two other toy
retailers on the MindSpring portal; it would be
necessary for Kids’ World to attract not only
sufficient viewers from the MindSpring portal but
customers who actually made purchases; the
amount of purchases would have to be of
sufficient quantity to make the site financially
viable; venture capital in an unknown amount
might have been available; and plaintiffs might
have produced profits in some amount.
Moreover, plaintiffs presented no evidence to
the effect it was reasonably probable the venture
would have been profitable, i.e., gains from
online sales would have exceeded the costs of
operating the Web site business.
Plaintiffs presented no evidence of a satisfactory
basis for estimating what the probable earnings
would have been. They failed to assert any
method for determining lost profits. Plaintiffs
presented no specific economic, statistical, or
financial data, market survey, or analysis based
on the business records or operating histories of
similar enterprises. That the eToys venture was
successful up to 1999, as set forth in Dr.
Hanson’s declaration, does not suffice in and of
itself to establish the Plaintiffs’ claim of lost
profits. Dr. Hanson’s comments about eToys’
success were based on news articles and not on
any actual data. Dr. Hanson’s conclusion that
plaintiffs’ online business would have resulted in
profits was based on an unanalyzed assumption
the Kids’ World Web site would have been a
roughly equal competitor with eToys. Further,
Dr. Hanson’s conclusion about plaintiffs lost
profits is based on his unexplained projected
capital value of Kids’ World without any analysis
of its net worth.
Therefore, the trial court properly entered a
judgment in favor of the defendant.
III. DISPOSITION
Judgment is affirmed. Defendant is to recover its
costs on appeal from Plaintiff.
13
GOULD COMMERCIAL CODE
SECTION 2-207: Additional Terms in Acceptance or Confirmation
(1) A definite and seasonable expression of acceptance or a written confirmation which is sent
within a reasonable time operates as an acceptance even though it states terms additional to
or different form those offered or agreed upon, unless acceptance is expressly made
conditional on assent to the additional or different terms.
(2) The additional terms are to be construed as proposals for addition to the contract. Between
merchants such terms become part of the contract unless:
a. The offer expressly limits acceptance to the terms of the offer;
b. They materially alter it; or
c. Notification of objection to them has already been given or is given within a reasonable
time after notice of them is received.
SECTION 2-104: Definitions
(1) “Merchant” means a person who deals in goods of the kind or otherwise by his occupation holds
himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to
whom such knowledge or skill peculiar to the practices or goods involved in the transaction or to whom
such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary
who by his occupation holds himself out as having such knowledge or skill.
….