New York Law Review

Tag: Breach of Contract Damages

  • Freund v. Washington Square Press, Inc., 34 N.Y.2d 379 (1974): Recoverable Damages for Breach of a Publishing Contract

    Freund v. Washington Square Press, Inc., 34 N.Y.2d 379 (1974)

    Damages for breach of contract are intended to compensate the injured party for foreseeable losses caused by the breach, but not to put the injured party in a better position than they would have been in had the contract been fully performed; when anticipated profits, such as royalties, are too speculative, nominal damages may be awarded.

    Summary

    An author, Freund, sued Washington Square Press for breach of a publishing contract after the publisher failed to publish his manuscript. The contract stipulated an advance and royalties. The court held that Freund was only entitled to nominal damages because the cost of publication was not a proper measure of damages, and the anticipated royalties were too speculative. The court emphasized that damages should compensate for actual loss, not enrich the plaintiff, and that speculative profits cannot form the basis of a damage award.

    Facts

    Freund, an author, contracted with Washington Square Press to publish his work on modern drama. The agreement granted the publisher exclusive rights and stipulated a $2,000 non-returnable advance to the author. The publisher had the right to terminate the agreement within 60 days if the manuscript was unsuitable for publication. If not terminated, the publisher was obligated to publish the work in hardbound within 18 months, followed by a paperbound edition, paying royalties based on sales. The publisher merged with another company and ceased hardbound publishing without exercising its termination right, and refused to publish Freund’s manuscript.

    Procedural History

    Freund initially sought specific performance, which was denied. The trial court found a valid contract and breach, setting the matter for trial on monetary damages. The trial court awarded $10,000 for the cost of hardcover publication, but denied recovery for lost royalties and paperbound publication costs. The Appellate Division affirmed the award for publication costs. The New York Court of Appeals then reviewed the case.

    Issue(s)

    Whether the proper measure of damages for a publisher’s breach of contract by failing to publish a manuscript is the cost of publication to the author, or whether the author is limited to recovering lost royalties and other actual damages.

    Holding

    No, because the cost of publication would place the author in a better position than if the contract had been performed, and the author’s claim for lost royalties was too speculative to support a damage award beyond nominal damages.

    Court’s Reasoning

    The court reasoned that damages for breach of contract should compensate for the injury caused by the breach and put the injured party in as good a position as full performance would have, but not a better one. Awarding the cost of publication would enrich the plaintiff beyond what he would have gained from the contract’s performance, as his profit was tied to royalties, not ownership of the books themselves. The court distinguished this case from construction contracts, where the value of the promised performance is the completed building. Here, the value to the author was the royalties from book sales. Since the author could not prove anticipated royalties with reasonable certainty, he was only entitled to nominal damages. The court stated, “Damages are not measured, however, by what the defaulting party saved by the breach, but by the natural and probable consequences of the breach to the plaintiff.” The court further noted, “Though these are damages in name only and not at all compensatory, they are nevertheless awarded as a formal vindication of plaintiff’s legal right to compensation which has not been given a sufficiently certain monetary valuation.”

  • Simon v. Electrospace Corp., 28 N.Y.2d 136 (1971): Measuring Damages for Breach of a Finder’s Fee Agreement

    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.