Simon v. Electrospace Corp., 28 N.Y.2d 136 (1971)
The proper measure of damages for breach of contract is the loss sustained or gain prevented at the time and place of breach, and this rule applies to the non-delivery of shares of stock.
Summary
Simon, a finder of business opportunities, sued Electrospace Corp. for commissions due under a written agreement for arranging a merger. The key issues were whether the merger fell within the scope of the retainer agreement and whether Simon was responsible for the merger. The Court of Appeals affirmed liability, finding sufficient evidence of a continuing connection between Simon’s initial efforts and the eventual merger. However, the Court significantly reduced the damages award, holding that the damages should be measured by the value of the stock at the time of the breach, not at a later date reflecting increased value due to market fluctuations.
Facts
In 1964, Electrospace Corp. retained Simon via a letter agreement to arrange a sale of stock, assets, or a merger, promising a 5% commission on the gross value of the transaction. Simon introduced Electrospace to Taxin, a principal in Bobosonics. No deal materialized immediately. Later, Taxin and Wolf of Electrospace independently negotiated a merger between Bobosonics and Electrospace. The merger occurred in 1967. Electrospace merged into Bobosonics, which then changed its name to Electrospace. Simon was excluded from the later negotiations. Simon then sued Electrospace for his commission.
Procedural History
The trial court initially awarded Simon 5% of Electrospace’s net assets. The Appellate Division affirmed liability but overturned the damages award, applying a rule based on a conversion case and valuing the stock at the time of trial, resulting in a much larger award. The case then went through limited issue trials and another appeal to the Appellate Division. The defendant then appealed directly to the New York Court of Appeals from the final trial court judgment, bringing up for review the intermediate orders of the Appellate Division.
Issue(s)
1. Whether the merger between Electrospace and Bobosonics fell within the scope of the retainer agreement between Simon and Electrospace.
2. Whether Simon was responsible for the merger, entitling him to a commission, despite being excluded from the final negotiations.
3. What is the proper measure of damages for breach of the finder’s fee agreement, specifically regarding the valuation of stock that was to be paid as a commission?
Holding
1. Yes, because there was sufficient evidence to support the finding that the merger, though structured differently than initially contemplated, was within the scope of the retainer agreement.
2. Yes, because Electrospace interfered with Simon’s opportunity to complete his services by excluding him from the final negotiations.
3. The proper measure of damages is the value of the stock at the time of the breach (i.e., when the stock should have been delivered), not at a later date reflecting market fluctuations, because the stock was not unique and had a readily determinable market value.
Court’s Reasoning
The Court found that the evidence supported the conclusion that the merger was within the scope of the retainer, even though the final structure differed from initial discussions. The Court cited Seckendorff v. Halsey, Stuart & Co. Incorporated, stating, “The fact that a ‘ different ’ set-up from that originally discussed at the initial meetings finally eventuated is ‘ a matter of no materiality whatever.’” The Court also held that Electrospace could not avoid paying the commission by excluding Simon from the final negotiations. The Court applied the principle that “interference with the opportunity of a broker to complete his services does not bar his right to commissions.” Regarding damages, the Court criticized the Appellate Division’s reliance on Menzel v. List, a case involving the conversion of a unique painting, as inappropriate for valuing readily available stock. The Court emphasized that “the proper measure of damages for breach of contract is determined by the loss sustained or gain prevented at the time and place of breach.” Because Electrospace stock was traded on the public market, its value was readily determinable at the time of the breach ($10 per share). The Court rejected the notion that Simon was entitled to the increased value of the stock at the time of trial, stating that “plaintiff’s cause of action should not and may not be converted into carrying a market “call” or “warrant” to acquire the stock on demand if the price rose above its value as reflected in his cause of action.” The court calculated damages based on 5% of the stock issued to Electrospace shareholders at the time of the merger, valued at $10 per share.