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Docket Number

No. 73-167.

Attorney(S)

Croxton Boyer, for appellant. Davis, Reed Douglas, for appellee.

Judges

FRANK HOLT, Justice.

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Willard K. Robertson v. Dennis Ceola

Citation / Court / Date: No. 73-167; Supreme Court of Arkansas; Opinion delivered December 10, 1973.

Procedural Posture: Appeal from Benton Circuit Court, W. H. Enfield, Judge; reversed and remanded.

Counsel: Croxton Boyer, for appellant; Davis, Reed Douglas, for appellee.

Factual and Procedural Background

Appellee sued appellant for breach of an oral contract concerning the purchase and installation of certain materials during construction of appellant's house. A jury awarded appellee $5,000. On appeal, appellant challenged the award principally on the ground that the damages (lost profits) were speculative. The Supreme Court of Arkansas reviewed the sufficiency of the proof of damages and other related defenses raised by appellant, and concluded that appellee failed to prove his damages with the required certainty. The judgment was reversed and the case remanded.

Legal Issues Presented

Whether the plaintiff (appellee) proved lost profits with the reasonable certainty required by Arkansas law, or whether the award was based on speculation and conjecture.
Whether the evidence was sufficient to establish the existence of an oral contract between the parties.
Whether the alleged contract was barred by the statute of frauds because it could not be performed within one year.
Whether Ark. Stat. Ann. 85-2-201 (the statute governing sales of goods in excess of $500) rendered the agreement unenforceable because the cost of materials exceeded $15,000.
Whether the damages claimed (lost profits) were unforeseeable or not the proximate result of appellant's breach.

Arguments of the Parties

Appellant's Arguments

The jury award of $5,000 for lost profits was speculative and unsupported by evidence making lost profits reasonably certain.
Appellee failed to prove the existence of an enforceable contract.
The contract would be prohibited by the statute of frauds (Ark. Stat. Ann. 38-101) because it could not be performed within one year.
The agreement involved the sale of goods (materials exceeding $15,000) and therefore is unenforceable under Ark. Stat. Ann. 85-2-201 absent a writing.
The damages alleged were not in the contemplation of the parties and were not the proximate result of appellant's conduct.

Appellee's Arguments (as reflected in the opinion)

Testimony (uncontradicted in the record) established that appellant agreed to $12 per hour for labor plus 15% of the cost of certain materials, and confirmed "this is the way we will do the job," with an understanding as to time and method of payment — supporting a finding that a contract existed.
The contract was capable of performance within one year if additional help were employed, so the statute of frauds did not bar enforcement.
The essence of the agreement was a service contract (installation), so Ark. Stat. Ann. 85-2-201 governing sales of goods did not apply even though materials were to be purchased.
Lost profits were the natural and foreseeable consequence of a breach and thus constituted recoverable damages.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Farmers Cooperative Assn. v. Phillips, 241 Ark. 28, 405 S.W.2d 939 (1966)	Proof of lost profits must make it reasonably certain what plaintiff would have made.	Used to state the governing standard for proof of lost profits and to support reversal where evidence did not meet that standard.
Black v. Hogsett, 145 Ark. 178, 224 S.W. 439 (1920)	Authority supporting the requirement that lost profits be shown with reasonable certainty.	Cited as additional precedent for the standard on proof of lost profits.
Sumlin v. Woodson, 211 Ark. 214, 199 S.W.2d 936 (1947)	Plaintiff must produce a reasonably complete set of figures and not leave the jury to speculate as to whether there would have been any profits.	Cited to explain that appellee failed to present figures sufficient to remove profits from speculation.
Reed v. Williams, 247 Ark. 314, 445 S.W.2d 90 (1969)	Proof must be sufficient to remove the question of profits from the realm of speculation and conjecture.	Affirmed the requirement for non-speculative proof of profits; cited to support reversal for inadequate proof.
Gibney v. Turner, 52 Ark. 117, 12 S.W. 201 (1889)	The value of a party's own services in completing a contract is a necessary element in computing the cost of performance.	Applied to hold that appellee's failure to offer evidence as to the value of his own services was a fatal defect in proving lost profits.
Columbus Mining Co. v. Ross, 218 Ky. 58, 290 S.W. 1052 (1927)	Supporting authority regarding valuation of services or costs in profit computations (cited as "see also").	Cited as supplementary authority related to the valuation of services in computing damages.
Jowers v. Bysard Construction Co., 113 S.C. 84, 100 S.E. 892 (1919)	Supporting authority regarding valuation of services or costs in profit computations (cited as "see also").	Cited as additional supporting authority for the proposition that a party's services must be valued in computing costs and profits.
Bush v. Wofford, 139 Ark. 330, 213 S.W. 751 (1919)	A factual dispute as to the existence of a contract is a question properly submitted to the jury.	Applied to find that appellee's uncontradicted testimony created a jury question on contract existence.
Honey v. Caldwell, 35 Ark. 156 (1879)	Same principle: existence of a contract where facts are in dispute is for the jury.	Cited with Bush to support submission of contract existence to the jury.
Frieder v. Schleuter, 105 Ark. 580, 151 S.W. 696 (1912)	A contract capable of performance within one year is not prohibited by the statute of frauds.	Applied to hold that the evidence (e.g., possibility of hiring additional help to finish in six months) made the contract capable of performance within one year, thus not barred by the statute of frauds.
Huyler Paper Stock Co. v. Information Supplier Corp., 117 N.J. Super. 353, 284 A.2d 568 (1971)	Illustrates that a statute like 85-2-201 addresses sale of goods and is inapplicable where the principal object of the agreement is a service contract.	Cited to support the Court's conclusion that Ark. Stat. Ann. 85-2-201 did not apply because the essence of the parties' agreement was a service (installation), not a sale of goods.

Court's Reasoning and Analysis

The Court's analysis proceeded in discrete steps tied closely to the record evidence and established Arkansas authority:

Standard for lost-profits proof: The Court reiterated established precedent that lost profits must be proven with reasonable certainty. It cited multiple Arkansas cases holding that plaintiffs must present a "reasonably complete set of figures" so that profits are not left to speculation or conjecture.
Application of the standard to the record: The Court described the contract here as a cost-plus arrangement under which appellee's profit would be derived from (a) 15% of certain materials purchased and (b) whatever profit appellee would make on labor billed at $12 per hour. The opinion set out the known labor components: the helper's pay would be $2.75 per hour, leaving $9.25 per hour as labor cost attributable to the setter's labor. However, there was no testimony as to the monetary value of appellee's own time (i.e., his hourly wage or valuation of his services). Because the valuation of the appellee's own labor was an essential element to compute cost of performance and thereby profit, the Court concluded the necessary figure was missing and damages remained speculative.
Contract existence: The Court examined appellee's uncontradicted testimony that appellant agreed to $12 per hour plus 15% of materials and expressly affirmed "this is the way we will do the job," including agreement on payment timing and method. On that basis and citing authority, the Court held the evidence was sufficient to create a factual question for the jury as to the existence of a contract.
Statute of frauds (one-year rule): The Court addressed appellant's claim that the contract was barred because it could not be performed within one year. The opinion noted evidence that appellee could have completed the job in six months by employing additional help. Because the contract was capable of performance within one year, the statute of frauds did not render it unenforceable.
UCC sale-of-goods statute (Ark. Stat. Ann. 85-2-201): Although the cost of materials exceeded $15,000, the Court analyzed whether 85-2-201 applied. It concluded that the statute addresses contracts whose principal object is the sale of goods and is inapplicable where the essence of the agreement is for services (installation). Thus, even if materials were "goods," the agreement’s principal object was performance of installation services and 85-2-201 did not bar enforcement.
Foreseeability and proximate cause: Finally, the Court rejected appellant's contention that lost profits were not in the parties' contemplation or were not the proximate result of appellant's wrongdoing. The Court explained that loss of profits is the natural and foreseeable proximate consequence of a breach of contract and therefore recoverable when proven with the required certainty.

Holding and Implications

HOLDING: The Supreme Court of Arkansas reversed the jury's award and remanded the case.

Implications for the parties: The reversal means the jury award of $5,000 was vacated and the case was returned to the trial court for further proceedings consistent with the opinion (i.e., the inadequacy of appellee's proof of lost profits requires that the damages award not stand as entered). The Court sustained that a jury question existed as to contract formation and rejected defenses based on the one-year statute of frauds and Ark. Stat. Ann. 85-2-201, but the specific damages awarded could not be upheld because appellee failed to prove the value of his own labor and thus failed to establish lost profits with reasonable certainty.

Broader legal implications: The opinion applies existing Arkansas precedent regarding proof of lost profits, valuation of a plaintiff's own services, the statute of frauds, and the distinction between service contracts and sales-of-goods rules. The Court did not announce a new rule of law beyond applying and reiterating these established principles.

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Willard K. ROBERTSON v. Dennis CEOLA

1. DAMAGES — PROOF OF LOST PROFITS — SUFFICIENCY OF EVIDENCE. — Proof of lost profits must be shown by evidence which makes it reasonably certain what plaintiff would have made; and plaintiff must produce a reasonably complete set of figures and not leave the jury to speculate as to whether there would have been any profits. 2. DAMAGES — PROOF OF LOST PROFITS — ELEMENTS. — The value of a party's own services in completing a contract is a necessary element in computing the cost of performance. 3. DAMAGES — PROOF OF LOST PROFITS — SUFFICIENCY OF EVIDENCE. — Where the profit was on a cost plus contract, and rested upon is per cent of certain materials purchased and whatever profit appellee would make on $12 per hour labor for installation, it could not be ascertained how much profit was to be made on the labor cost because of the defect in appellee's proof as to the value of his own services in performing a construction contract. 4. CONTRACTS — EVIDENCE OF AGREEMENT — QUESTIONS FOR JURY. — Evidence held sufficient to create a question of fact for the jury as to the existence of a contract. 5. FRAUDS, STATUTE OF — AGREEMENTS TO BE PERFORMED WITHIN ONE YEAR. — A contract which is capable of performance Within one year is not prohibited by the statute of frauds. 6. FRAUDS, STATUTE OF — NATURE OF AGREEMENT — APPLICATION OF STATUTE. — Provisions of Ark. Stat. Ann. 85-2-201 pertains to an agreement having as its principal object the sale of goods and is inapplicable where the essence of an agreement is a service contract. 7. DAMAGES — GROUNDS — PROSPECTIVE CONSEQUENCES. — Contention that damages alleged by appellee could not have been in contemplation of the parties at the time the contract was made or that such damages were the proximate result of appellant's wrongs held without merit since loss of profits was the proximate result of a breach of contract and the type of forseeable loss that would be within reasonable contemplation of the parties at the making of the contract.

FRANK HOLT, Justice.

Appellee sued appellant for breach of an oral contract for the purchase and installation of certain materials during the construction of appellant's house. Appellee was awarded $5,000 by a jury. For reversal of the judgment appellant asserts the jury's award of damages was based upon speculation and conjecture. We must agree that appellee did not sufficiently prove his damages or loss of potential profits with reasonable certainty.

The proof of lost profits must be shown by evidence which makes it "reasonably certain" what the plaintiff would have made. Farmers Cooperative Assn. v. Phillips, 241 Ark. 28, 405 S.W.2d 939 (1966), Black v. Hogsett, 145 Ark. 178, 224 S.W. 439 (1920). The plaintiff must produce a "reasonably complete set of figures, and not leave the jury to speculate as, to whether there would have been any profits." Sumlin v. Woodson, 211 Ark. 214, 199 S.W.2d 936 (1947). The proof must be sufficient to remove the question of profits from the realm of speculation and conjecture. Reed v. Williams, 247 Ark. 314, 445 S.W.2d 90 (1969). The value of appellee's own services in completing the contract is a necessary element in computing the cost of performance. Gibney v. Turner, 52 Ark. 117, 12 S.W. 201 (1889). See also Columbus Mining Co. v. Ross, 218 Ky. 58, 290 S.W. 1052 (1927, and Jowers v. Bysard Construction Co., 113 S.C. 84, 100 S.E. 892 (1919). In the case at bar, the defect in appellee's proof is his failure to offer evidence as to the value of his own services in the performance of the construction contract.

Lost profits, which are the basis for the award of damages here, are determined by the formula: contract price minus cost of performance equals profit. The profit in this case, a cost plus contract, rests upon 15% of certain materials purchased and whatever profit appellee would make on the $12 per hour labor for installation.

The actual labor cost consists of the cost of a the setter and helper. The helper was to be paid at the rate of $2.75 per hour, leaving $9.25 per hour in labor cost. Appellee was to be the the setter and there is no testimony as to what his hourly wage was worth. Without evidence as to the value of appellee's individual time, we have no way of ascertaining how much profit was to be made on the remaining $9.25 an hour of labor cost. Without that figure, damages are speculative.

Appellant next contends that appellee failed to prove a contract. The uncontradicted testimony of appellee (appellant did not testify) is that when he asked appellant if $12 per hour for labor plus 15% of the cost of certain materials would be satisfactory, appellant said "yes." Appellee also testified that when they completed their negotiations appellant said "[V]ery good, this is the way we will do the job." There was also an understanding as to the time and method of payment. A factual dispute as to the existence of a contract properly presents a question for the jury. Bush v. Wofford, 139 Ark. 330, 213 S.W. 751 (1919), Honey v. Caldwell, 35 Ark. 156 (1879). The evidence in the instant case was certainly sufficient to create a question of fact for the jury as to the existence of a contract.

Appellant next contends that the contract would be prohibited by the statute of frauds, Ark. Stat. Ann. 38-101 (Repl. 1962), since it could not be performed within one year. However, there was evidence that by employing additional help, appellee could have completed the job in six months. Since the contract was capable of performance within one year, it was not prohibited by the statute of frauds. Frieder v. Schleuter, 105 Ark. 580, 151 S.W. 696 (1912).

Appellant next cites Ark. Stat., Ann. 85-2-201 (Add. 1961) which renders unenforceable an agreement for sale of goods in excess of $500 absent some writing. The cost of the materials appellee was to furnish exceeded $15,000. 85-2-201 deals with the "sale of goods" and is inapplicable to personal service contracts. Even though it be said that the material appellee was to purchase and furnished constitutes goods within the definition of 85-2-105 and part of appellee's profit is to be gained on cost plus 15% on the material, nevertheless, the essence of the agreement is a service contract for appellee to install the in appellant's home. Unless the principal object of the agreement is for sale of goods, then 85-2-201 is inapplicable. See Huyler Paper Stock Co. v. Information Supplier Corp., 117 N.J. Super. 353, 284 A.2d 568 (1971).

Appellant's final contention for a directed verdict is that "the damages alleged by the appellee could not hive been in contemplation of the parties at the time the contract was made, or that such damages were the proximate result of appellant's wrongs." This contention is meritless. In the case at bar, loss of profits is naturally the proximate result of a breach of contract. Appellee's loss of profits is also the type of a foreseeable loss that would be within the reasonable contemplation of the parties at the making of the contract.

Reversed and remanded.

ROBERTSON v. CEOLA