between the parties would suggest, absent contrary language, that each would reap its own profits or incur its own losses were the transaction aborted prior to any commitments by Four Points binding it to pay for a vessel it purchased or chartered. Four Points, an entity with neither a vessel title nor leasehold, acted in the role of a shipping broker who had an exclusive arrangement permitting it to earn its profit if the contemplated arrangement between the shipper and a vessel owner or charterer (the broker itself or another party) was effectuated.
Were Poloron and Four Points treated as joint venturers both would, absent a contrary provision which is not present here, bear its own losses resulting from the negative outcome of a speculative venture. See generally "International Joint Ventures in the United States," 22 Columbia J Transnational Law 505 (1984); Weissberg, "Reviewing the Law of Joint Ventures With an Eye to the Future," 63 Southern Calif L Rev 487 (1990); C. Nachmias & J. Nasuti, Joint Ventures: Structuring Alternatives (1988); Practising Law Institute, Corporate Partnering (1988).
Four Points was alerted by the rider to the Poloron - Four points contract that Poloron's agreement with the manufacturer had to become "effective" before Poloron's agreement with Four Points agreement would become operational. Consequently, Four Points had, and was alerted to, a clear interest in investigating what problems if any the manufacturer confronted. If the manufacturer declined to cooperate with an inquiry by Four Points, for instance by refusing to reveal its financial condition, or if the information given was unfavorable, Four Points could draw the appropriate inference and decline to enter into its agreement with Poloron. Thus, both parties rather than merely Poloron were in a position to evaluate the risk. Under such circumstances it would be inappropriate to assume that given the contract and rider language quoted above, the parties' intent was to place that risk solely on Poloron. See TIAA v. Coaxial Communications, 799 F. Supp. 16 (SDNY 1992) and authorities cited.
Interpreting the Poloron - Four Points contract and rider so as to permit Four Points to recover lost profits where it had no vessel, made no binding commitments to secure a vessel for the shipment and took no other irrevocable steps to implement the contemplated shipment, is a drastic remedy. It would create a one-sided allocation of risk where an event harmful to the financial interests of all parties aborted the transaction. To be sure, equally sophisticated business entities contracting at arm's length may agree to such a disposition if they wish, and absent public policy to the contrary, their agreement will be enforced. See Overmyer v. Frick, 405 U.S. 174, 31 L. Ed. 2d 124, 92 S. Ct. 775 (1972); Swarb v. Lennox, 405 U.S. 191, 31 L. Ed. 2d 138, 92 S. Ct. 767 (1972); Lone Star Industries v. Nelstad, 811 F. Supp. 147 (SDNY 1993).
Here, by contrast, after completion of all discovery desired by any party there is no evidence in any document, alleged conversion, or background circumstances suggesting that such an implausible uneven result was intended. See Matsushita, supra; Friedman v. Egan, 64 A.D.2d 70, 407 N.Y.S.2d 999 (2d Dept 1978).
Thus, even absent the specific exculpatory clause in the Poloron - Four Points contract and its accompanying rider of May 6, 1991, interpretation of that contract on the assumption that each party was alert to its interests and would not agree to a position placing it at a disadvantage, yields a result protecting Four Points from loss of out-of-pocket expenses if the manufacturer failed to manufacture the cargo, but would not entitle Four Points to recover unliquidated potential lost profits from Poloron should that event occur. See generally Jones, "The Jurisprudence of Contracts," 44 U Cinc L Rev 43 (1975); Farnsworth, "Disputes Over Omission in Contracts," 68 Colum L Rev 860 (1968).
Where damage is incurred because of a violation of legal norms, an award can be made based on the best estimate that can be made even though precise computation is not possible. Texaco v. Hasbrouck, 496 U.S. 543, 110 L. Ed. 2d 492, 110 S. Ct. 2535 (1990); Bigelow v. RKO Pictures, 327 U.S. 251, 90 L. Ed. 652, 66 S. Ct. 574 (1946). In contrast, where ta damage claim is completely speculative, none can be awarded. J. Truett Payne Co v. Chrysler Motors, 451 U.S. 557, 68 L. Ed. 2d 442, 101 S. Ct. 1923 (1981). No damages can be recovered if there is "no basis for a rational estimation" of the amount, if any. Olympia Equipment Leasing v. Western Union, 797 F.2d 370, 383 (7th Cir 1986). This is particularly so in contract cases:
Contract law has long been held to preclude recovery for speculative damages.
Roseburg Lumber Co v. Madigan, 978 F.2d 660, 667 (Fed Cir 1992), citing Story Parchment Co v. Paterson Parchment Paper Co, 282 U.S. 555, 562-63, 75 L. Ed. 544, 51 S. Ct. 248 (1931).
Four Points does not assert that any fixed cost-plus profit or liquidated damages is available to it under its contract with Poloron. Instead, it seeks losses of profits the existence and amount of which would have to be estimated without a reliable starting point.
Since Four Points did not own or charter a vessel, there is no way to know whether or not it would have been able to earn a profit. To do so, Four Points would have to find and successfully bid for a charter of a reliable properly insured vessel in good condition with a qualified crew, willing to go to the desired destination, with known outgoing cargo from that destination or in spite of its absence, available at the right time at a price which would produce a profit for Four Points. Any assumption as to whether or not this would have occurred if the manufacturer had produced the prefabricated housing parts is speculative, and would launch the court into an inquiry with no defined boundaries - a result not favored. Compare United States v. Trenton Potteries, 273 U.S. 392, 397-98, 71 L. Ed. 700, 47 S. Ct. 377 (1927) (Stone, J.).
While interpretation of the Poloron - Four Points contract on the assumption that both parties were equally sophisticated indicates that Poloron may be liable to Four Points for the latter's out-of-pocket expenses, the parties have not separately addressed this question or the amount of out-of-pocket expenses which might be awarded.
The denial of both parties' motions for summary judgment with respect to that issue is without prejudice to renewal upon submissions directed to that subject.
The cumbersome process of litigation is not necessarily the optimal one for resolving the remaining open question of Four Points' entitlement to out-of-pocket expenses. The parties are directed to consider use of alternate dispute resolution mechanisms, including selection by name of an impartial umpire with plenary authority to mediate or if necessary arbitrate the matter, utilizing such informal as well as formal means of factfinding as the umpire may find appropriate.
Dated: White Plains, New York
March 22, 1994
/s/ Gerard L. Goettel, USDJ
in the absence of
VINCENT L. BRODERICK, U.S.D.J.