                 IN THE COURT OF APPEALS OF TENNESSEE
                              AT JACKSON
                                 September 19, 2002 Session

                 WATSON & SON LANDSCAPING, PARTNERS,
                  JAMES T. WATSON, GENERAL PARTNER
                                  v.
                     POWER EQUIPMENT COMPANY

                     Appeal from the Chancery Court for Madison County
                           No. 51954   Joe C. Morris, Chancellor



                     No. W2002-00136-COA-R3-CV - Filed April 29, 2003


This is a sales/UCC case. A landscaper contracted to purchase a used piece of machinery, an
excavator, from an equipment company. The excavator had a defective hydraulic system. Under
the terms of the sales contract, the equipment company was to repair the defective hydraulic system.
The equipment company attempted to do so and delivered the excavator to the landscaper. The
hydraulic system, however, did not work properly and the equipment company was unable to repair
the excavator to the landscaper’s satisfaction. The landscaper then had the excavator repaired by a
third party. The landscaper sued the equipment company for failure to satisfy a condition precedent
to the contract, and for breach of contract. The trial court awarded actual damages for the difference
in value between the excavator bargained for and the excavator actually received, as well as
consequential damages. The equipment company appeals. We modify the actual damages to the
cost to repair the excavator, and we reverse the award of consequential damages, finding that the
proof of consequential damages was too speculative to support such an award.

 Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Modified in Part
                                   and Reversed in Part

HOLLY KIRBY LILLARD, J., delivered the opinion of the court, in which W. FRANK CRAWFORD , P.J.,
W.S., and DAVID R. FARMER , J., joined.

Charles C. Exum, Jackson, Tennessee, for appellant, Power Equipment Company.

P. Kevin Carter and Bradley G. Kirk, Lexington, Tennessee, for appellee, Watson & Son
Landscaping, Partners, James T. Watson, General Partner.
                                              OPINION

        On April 3, 1995, Watson & Son Landscaping (“Watson”) contracted to purchase a used
piece of landscaping machinery, an excavator, from Power Equipment Company (“Power
Equipment”). The purchase price was $57,000. It is undisputed that the excavator had hydraulic
problems at the time the parties entered into the sales contract. Indeed, the contract stipulated that
Power Equipment would “check . . . [and] correct” the hydraulic system prior to delivery of the
excavator. The contract, entitled “Retail Order Form,” was signed by Watson. The Retail Order
Form included on its face a merger, or “entire agreement,” clause, stating: “ENTIRE AGREEMENT:
Purchaser agrees that this order including the ADDITIONAL PROVISIONS PRINTED ON THE
REVERSE hereof, which he has read and to which he agrees, contains the entire agreement relating
to the sale of said property.”

        A week after Power Equipment delivered the excavator, it sent Watson an additional
document. Power Equipment calls the document a “Final Invoice” and Watson calls it a “Billing
Ticket.” Regardless of how it is characterized, the reverse side of the document contained a clause
stating that: “THE LESSOR SHALL NOT IN ANY EVENT BE HELD LIABLE FOR ANY
SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR RESULTING
FROM THE DEMONSTRATION, OPERATION AND/OR USE OF THE EQUIPMENT LEASED
HEREIN.”

       After the excavator was delivered, it continued to have hydraulic problems. Power
Equipment expended over $20,000 attempting to repair the excavator. For a six-week period while
Power Equipment attempted to repair the excavator, it loaned another excavator to Watson. On
November 9, 1995, Watson, through counsel, attempted to revoke acceptance of the excavator.
Power Equipment refused to take the excavator back. Later, in 1996, Watson had a third party repair
the hydraulic system, at a cost of $16,899.42.

        In June 1996, Watson filed suit against Power Equipment. Watson alleged that proper repair
of the excavator’s hydraulic system was a condition precedent to the formation of the contract, and
asserted that Power Equipment had never satisfied the condition precedent. In the alternative,
Watson alleged that Power Equipment’s failure to repair the hydraulic system constituted a breach
of contract. Watson sought actual damages, loss of profits and business, reasonable attorney’s fees,
and court costs.

        A bench trial was held on December 4, 2000. At the trial, James Watson, a partner in Watson
& Son Landscaping, testified that, after Power Equipment was unable to repair the excavator, he
spent over $18,000 having a third party repair it. He also testified that, approximately two years after
the purchase, another equipment dealer offered him a $20,000 trade-in allowance for the excavator.
He asserted that because of the defective excavator, he was unable to complete a job on which he
had been working, a land development partnership project fell through, and he had to forego work
for a railroad. With regard to the railroad work, Watson testified that he would have worked forty
hours per week for three months at a net profit of $50 per hour. There was no testimony or other


                                                  -2-
evidence regarding monies lost from the land development project or the job that he was forced to
quit working because of the defective excavator. Finally, he testified that his business profits for the
years 1994-1997 were $75,741, $18,258, ($57,641),1 and $97,301 respectively. He asserted that the
drop in income from 1994 to 1995 was due solely to the defective excavator.

        Watson also called the owner of a construction company, Andy Autry (“Autry”), as a witness.
Autry testified that, in September 1995, he asked Watson to assist him in doing work for a railroad
that he estimated would have taken three months to complete at $75 per hour. Autry said that he
“did not get the job,” and later explained that he “had to give the job up, because [Watson] could
never come help me.”

        At the conclusion of the trial, the trial judge awarded Watson $37,000 in actual damages,
the difference between what Watson paid for the excavator in 1995 and the trade-in value offered
to Watson in 1997. The trial court stated:

         . . . . At the time of the repairs, the Plaintiff tried to trade the excavator and was
         offered $20,000.00 as a trade in. . . . The Plaintiff paid $57,000 for the excavator,
         incurring actual damages of $37,000 between the purchase price and the resulting
         value of the excavator without the Defendants satisfying the condition of repairing
         the hydraulic stalling.

The trial court found that the waiver of consequential damages in the Final Invoice/Billing Ticket
was not part of the contract between the parties because “[the] provision was not in the original
handwritten contract, nor was it initialed or pointed out to the Plaintiffs when they signed the
invoice. . . . The type was small and not easy to read, therefore, it is not part of the contract.” Hence,
the trial court awarded Watson $57,483 in consequential damages, measured by the drop in Watson’s
profits from 1994 to 1995, as reflected in his income tax returns. The trial judge stated: “The year
[Watson] began using the excavator, his income dropped from $75,741 to $18,258, because of the
problems with the excavator. . . . The Plaintiffs were damaged as a result of the Defendants’ failure
to repair the excavator or return their money in the amount of $57,483, in 1995.” Finally, the trial
court concluded:

         The Defendants breached their contract by failing to satisfy the stated condition in
         the contract of repairing and correcting the stalling problem. The Defendants’ breach
         resulted in actual damages of $37,000 for the drop in the value of the excavator,
         determined at the time the plaintiffs notified the Defendants they had not repaired or
         corrected the stalling problem and demanded a refund of their money. The Plaintiffs




         1
         The trial judge indicated that W atson’s 199 6 profits were $57 ,641 . W hen asked at trial what his 199 6 profits
were, James W atson respo nded: “T his is not go od. T his is minus $57 ,641 .” Additionally, Watson’s IRS Form 1065 for
1996 indicates his profits were actually a loss, that is, ($57,641), not $57,641.

                                                           -3-
       incurred consequential damages of $57,483, resulting from a loss of jobs and down
       time from the failure of the Defendants to repair and correct the stalling problem.

Power Equipment later moved to alter or amend the judgment or for a new trial. This motion was
denied. Power Equipment now appeals the decision of the trial court.

        On appeal, Power Equipment argues that the trial court incorrectly measured the damages
and that the waiver of consequential damages included in the Final Invoice/Billing Ticket was valid.
In the alternative, if consequential damages are appropriate, Power Equipment contends that
Watson’s proof of lost profits was speculative, and therefore insufficient to support an award.

        Because this case was heard by the trial court sitting without a jury, it is reviewed de novo
upon the record with a presumption of the correctness of the findings of fact by the trial court, unless
the evidence preponderates against them. See Tenn. R. App. P. 13(d); Wright v. City of Knoxville,
898 S.W.2d 177, 181 (Tenn. 1995). Questions of law, however, are reviewed de novo with no
presumption of correctness. Burlew v. Burlew, 40 S.W.3d 465, 470 (Tenn. 2001) (citation omitted).
        Power Equipment first argues that the trial court erred in awarding Watson actual damages
in the amount of $37,000. It is undisputed that this case involves the sale of goods as defined in the
Tennessee Uniform Commercial Code (“UCC”). Power Equipment asserts that the trial court should
have awarded damages based on breach of warranty because its promise to repair the hydraulic
system was an express warranty under section 47-2-313 of the UCC. Section 47-2-313 states in part:

        (1) Express warranties by the seller are created as follows:

          (a) Any affirmation of fact or promise made by the seller to the buyer which relates
        to the goods and becomes part of the basis of the bargain creates an express warranty
        that the goods shall conform to the affirmation or promise.

Tenn. Code Ann. § 47-2-313 (2001). Watson, on the other hand, argues that the proof was of a
breach of contract, in that Watson did not receive the excavator for which it had bargained.
Consequently, Watson contends that the trial court’s award of damages was appropriate under
section 47-2-608 of the UCC,2 which invokes section 47-2-713. Section 47-2-713 provides for

       2
           Section 47-2-608 states:

       (1) The buyer may revoke his acceptanc e of a lot or commercial unit whose nonconform ity
       substantially impairs its value to him if he has accepted it:

          (a) on the reasonable assumption that its nonconformity would be cured and it has not been
       seasonably cured; or

          (b) witho ut disco very of such no nconform ity if his acceptance was reasonably induced either by
       the difficulty o f discovery before acceptanc e or b y the seller’s assurances.

                                                                                                       (continued...)

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damages in the amount of “the market price at the time when the buyer learned of the breach and the
contract price together with any incidental and consequential damages . . . .” Tenn. Code Ann. § 47-
2-713 (2001).

        In examining the sales contract in this case, it is clear that, under Section 47-2-313 of the
UCC, Power Equipment’s promise to repair the excavator’s hydraulic system was an “affirmation
of fact or promise made by the seller to the buyer which relate[d] to the goods and [became] part of
the basis of the bargain . . . .” Thus, the promise to repair the hydraulic system of the excavator was
an express warranty. The express warranty was breached when Power Equipment failed to properly
repair the hydraulic system.

        The damages recoverable for breach of an express warranty are set forth in section 47-2-
714(2) of the UCC. This provision states that: “The measure of damages for breach of warranty is
the difference at the time and place of acceptance between the value of the goods accepted and the
value they would have had if they had been as warranted, unless special circumstances show
proximate damages of a different amount.” As evidenced by the Retail Order Form, the value of the
excavator as warranted was $57,000. As to the value of the excavator as received by Watson, the
only proof adduced by Watson was the trade-in value offered by an equipment dealer two years after
the purchase, during which time Watson had the excavator repaired and used it. This proof is
insufficient to ascertain the difference in value between what was bargained for and what was
received at the time the parties executed the contract. On the other hand, the proof of the cost to
Watson of having a third party do what Power Equipment warranted, that is, repair the excavator’s
hydraulic system, was definite. See Simpson v. Beaverwood Mobile Home Sales, Inc., Ca No. 141,
1990 Tenn. App. LEXIS 350, at *13-14 (Tenn. Ct. App. May 15, 1990) (using repair cost to
determine value of the good as delivered); 1 White and Summers, Uniform Commercial Code § 10-
2, at 554-55 (4th ed. 1995).3 The proof at trial indicates that it cost Watson $16,899.42 to have the



         2
          (...continued)
         (2) Revocation of acceptance must occur within a reasonable time after the buyer discovers or should
         have discovered the ground for it and before any substantial change in condition of the goods which
         is not caused by their o wn de fects. It is not effective until the buyer notifies the seller of it.

         (3) A buyer who so revokes has the same rights and duties with regard to the goods involved as if he
         had rejected them.

Tenn. Co de A nn. § 4 7-2-6 08 (200 1).


         3
             W hite and Sum mers states:

         A commo n objective measurement of the difference in value as is and as warranted is the cost of repair
         or replacement. If a buyer accepts a truck with a defective radiator, a good measure of the difference
         between the value of the truck as warranted and its value as delivered is the price of a new rad iator. . . .

1 W hite and Summers, Uniform Comm ercial Code § 10 -2, at 55 4-55 (4th ed . 199 5) (footnotes om itted).

                                                             -5-
excavator’s hydraulic problems repaired.4 Consequently, the award of actual damages must be
modified from $37,000 to $16,899.42.

        Power Equipment argues next that Watson’s proof of lost profits at trial was speculative, and
therefore insufficient to support an award of consequential damages. Under Tennessee law, lost
profits are recoverable for breach of contract when they can be proven with reasonable certainty and
are not remote or speculative. Gen. Constr. Contractors Ass’n, Inc. v. Greater St. Thomas Baptist
Church, No. W2001-01588-COA-R3-CV, 2002 Tenn. App. LEXIS 874, at *25 (Tenn. Ct. App. Dec.
10, 2002); Morristown Linconln-Mercury, Inc. v. Roy N. Lotspeich Publ’g Co., 298 S.W.2d 788,
793 (Tenn. Ct. App. 1956). “No recovery can be had for loss of profits where it is uncertain whether
any profit at all would have been made by the plaintiff.” Morristown Lincoln-Mercury, Inc., 298
S.W.2d at 793 (citation omitted). “The reasonable certainty requirement does not require
mathematical precision, but rather sufficient proof to enable the trier of fact to make a fair and
reasonable assessment of the damages.” E. Sky Prods. v. Ram Graphics, Inc., No.
01-A-01-9305-CH-00215, 1994 Tenn. App. LEXIS 654, at *10 (Tenn. Ct. App. Nov. 16, 1994)
(citations omitted).

        At the trial, James Watson testified that he was prevented from participating in a land
development project because of the failure of the excavator’s hydraulic system. He acknowledged,
however, that he would not have made money until the land was resold, and that he could not know
whether he would have made any money on the project. With regard to the job that Watson had to
quit because of the excavator’s failure, James Watson estimated that he lost two to three weeks of
work, but did not indicate what his hourly rate was for this job, nor what his profits would have been.
Moreover, during a portion of the time in which Power Equipment was attempting to repair the
excavator, Watson had the use of a loaned excavator. Under all of these circumstances, the proof
is simply too speculative to support Watson’s assertion that the entire difference in its income
between 1994 and 1995 is attributable to Power Equipment’s failure to repair the excavator’s
hydraulic system. Accordingly, the trial court’s award of consequential damages in the form of lost
profits must be reversed.

       Based on this determination, it is unnecessary to address the issue of the validity of the
waiver of consequential damages clause in Power Equipment’s Final Invoice/Billing Ticket.




         4
           The trial court found that Watson repaired the excavator for $19,069.15. James W atson testified, however,
that invoices offere d into proof in the amounts of $2,101.03 and $65.70 were not related to the hydrau lic system; thus,
the total repair cost of $16,899.42.

                                                          -6-
         The judgment of the trial court is modified in part and reversed in part as set forth above.
Costs are taxed equally to appellant, Power Equipment Company, and its surety, and appellee,
Watson & Son Landscaping, Partners, James T. Watson, General Partner, for which execution may
issue, if necessary.




                                                      ___________________________________
                                                      HOLLY KIRBY LILLARD, JUDGE




                                                -7-
