New York Law Review

Tag: Agreement to Negotiate

  • Goodstein Construction Corp. v. City of New York, 80 N.Y.2d 366 (1992): Damages for Breach of Agreement to Negotiate

    Goodstein Construction Corp. v. City of New York, 80 N.Y.2d 366 (1992)

    A party cannot recover lost profits for breach of an agreement to negotiate a contract when the final contract was contingent on discretionary approvals and the agreement to negotiate was terminable.

    Summary

    Goodstein Construction Corp. sued the City of New York for breach of contract and tortious interference, seeking damages including lost profits, after the City terminated Goodstein’s exclusive right to negotiate a land disposition agreement (LDA). The court held that Goodstein could not recover lost profits because the City’s obligation was only to negotiate in good faith, not to finalize an LDA, and any LDA required discretionary approval by the Board of Estimate. Awarding lost profits would transform an agreement to negotiate into a binding contract and would be speculative.

    Facts

    Goodstein and the City entered into letter agreements granting Goodstein the exclusive right to negotiate an LDA for two development sites. The agreements required Goodstein to incur costs for designs and financial projections. The City retained the right to terminate negotiations. Any LDA was contingent on approval by the Community Board, City Planning Commission, and the Board of Estimate. The City terminated Goodstein’s exclusive negotiator status, stating it was in the City’s best interest to reserve the sites for commercial development.

    Procedural History

    Goodstein sued, seeking damages including lost profits. The City’s motion to dismiss for facial insufficiency was initially denied, a decision affirmed by the Appellate Division and the Court of Appeals. The City then moved for summary judgment, which was granted in part by the IAS Court, dismissing the claims for lost profits. The Appellate Division reversed, allowing the lost profits claim. The Court of Appeals granted leave to appeal.

    Issue(s)

    Whether a party can recover lost profits for breach of an agreement to negotiate a land disposition agreement, when the final agreement required discretionary governmental approvals and the agreement to negotiate was terminable.

    Holding

    No, because the City’s sole obligation was to negotiate in good faith, not to guarantee the completion of an LDA, which was contingent on discretionary political approvals. Allowing lost profits would transform the agreement to negotiate into a binding contract, and such damages were not within the contemplation of the parties.

    Court’s Reasoning

    The court emphasized that the City’s obligation arose from the agreement to negotiate, not a finalized LDA. The Board of Estimate’s approval was a discretionary, political act, not a mere formality. Contract damages aim to put the injured party in as good a position as if the contract had been performed, but here, the City was only obligated to negotiate in good faith. Awarding lost profits would base damages on a nonexistent contract the City could reject. Quoting Goodstein Constr. Corp. v City of New York, 145 Misc 2d 870, 876, the court noted that “a party’s ‘alleged failure to bargain in good faith is not a but-for cause of [plaintiff’s] lost profits, since even with the best faith on both sides the deal might not have been closed [and] attributing [plaintiff’s] lost profits to [defendant’s] bad faith may be speculative at best’.” Furthermore, under Hadley v Baxendale, the damages must be within the contemplation of the parties when the contract was made. It was not reasonably contemplated that the City would guarantee profits from a project that required multiple approvals and that Goodstein never had to build. Citing Kenford Co. v County of Erie, 73 NY2d 312, the court found that awarding lost profits would be “irrational” where the claims were founded only on an agreement to negotiate.

  • Cobble Hill Nursing Home, Inc. v. Henry and Warren Corp., 74 N.Y.2d 475 (1989): Enforceability of Agreements to Negotiate Under the Statute of Frauds

    Cobble Hill Nursing Home, Inc. v. Henry and Warren Corp., 74 N.Y.2d 475 (1989)

    An agreement to negotiate the terms of a future contract is unenforceable under the Statute of Frauds if it lacks material terms and provides no objective method for determining those terms.

    Summary

    Cobble Hill Nursing Home sued Henry and Warren Corporation, alleging breach of a termination agreement. The defendants moved to dismiss, arguing that the alleged agreement was unenforceable under the Statute of Frauds. The New York Court of Appeals affirmed the dismissal, holding that the letter agreement between the parties was merely an agreement to negotiate future terms and lacked essential terms necessary for enforcement, especially regarding the division of commissions. The court emphasized that it could not supply the missing terms, as there were no objective criteria for determining the parties’ intent.

    Facts

    Plaintiff joined HBS, Ltd., an agency, and brought personal clients with him. A letter agreement dated January 31, 1963, outlined terms regarding these clients and commissions should the plaintiff leave HBS, Ltd. The letter stated that clients signed by plaintiff could request release upon his departure. Commissions from contracts negotiated for plaintiff’s clients would go to HBS, Ltd., with the extent of sharing to be negotiated upon his departure, with HBS, Ltd. receiving a minimum of 5%. If deals were in progress when plaintiff left, an arrangement would be made regarding commissions. Plaintiff left in 1972 and sued, alleging breach of the termination agreement.

    Procedural History

    The trial court initially heard the case. The defendants moved to dismiss the complaint based on the Statute of Frauds. The Appellate Division affirmed the lower court’s decision to dismiss the claims against the individual defendants (corporate officers), and the Court of Appeals affirmed the Appellate Division’s order.

    Issue(s)

    Whether the letter of January 31, 1963, constituted an enforceable agreement regarding the division of commissions upon the plaintiff’s departure from HBS, Ltd., or merely an unenforceable agreement to negotiate future terms.

    Holding

    No, because the letter agreement lacked material terms, specifically regarding the division of commissions, and provided no objective method for determining those terms, rendering it an unenforceable agreement to negotiate.

    Court’s Reasoning

    The court reasoned that the letter expressly contemplated future negotiations to determine the division of termination commissions. Paragraph 2 required agreement on the plaintiff’s share of commissions on contracts already negotiated (ranging from 0% to 50%), while paragraph 3 required agreement on commissions from ongoing negotiations (ranging from 0% to 100%). The court found that the letter failed to include a material element—the extent of the plaintiff’s right to commissions. The court could not fill this void because there were no objective criteria to determine the intended fraction, amount, or payment period. “At best there is but an agreement to negotiate at some future date.” Even if a 50% division was allegedly negotiated orally, the Statute of Frauds bars adding such oral understandings to the written letter to create an enforceable contract. The court emphasized that without written proof of a negotiated division, there was no enforceable obligation. The absence of key terms prevents the enforcement of the alleged agreement.