New York Law Review

Tag: Contract Law

  • Blackmon v. Battcock, 69 N.Y.2d 735 (1987): Enforceability of Agreement Not to Change Will

    Blackmon v. Battcock, 69 N.Y.2d 735 (1987)

    An agreement not to change a will does not, by implication, prohibit the testator from creating Totten trusts or making inter vivos transfers unless the agreement explicitly states such a restriction.

    Summary

    Elizabeth Battcock agreed in 1971, as part of a settlement of her deceased husband’s estate, not to change her 1969 will. Subsequently, she created Totten trust accounts for beneficiaries not named in the will. Her daughter and grandchildren argued that this violated the 1971 agreement. The Court of Appeals held that the agreement, which only prohibited changes to the will and did not expressly forbid the creation of Totten trusts or other lifetime transfers, did not impliedly restrict Battcock’s actions during her lifetime. The court emphasized that restrictions on a testator’s ability to dispose of property must be clearly and unambiguously stated.

    Facts

    Elizabeth Battcock’s husband left her a minimal inheritance in his will, with the bulk going to their children. Elizabeth elected against the will and settled with the estate, receiving a portion of the assets. As part of the settlement, she agreed to “leave intact and without change” her 1969 will, which bequeathed her estate to her children or grandchildren. The settlement agreement made no mention of Totten trusts or inter vivos transfers. After her son’s death, Elizabeth created Totten trust accounts for various charities and executed new wills excluding her daughter and grandchildren.

    Procedural History

    Decedent’s daughter and grandchildren sued, arguing the Totten trusts violated the 1971 agreement. The Supreme Court, later transferred to Surrogate’s Court, granted summary judgment to the Totten trust beneficiaries, holding that the Statute of Frauds precluded implying a prohibition against Totten trusts. The Appellate Division reversed, implying a promise not to create Totten trusts. The Court of Appeals granted leave to appeal.

    Issue(s)

    Whether an agreement not to change a will implies a prohibition against the testator creating Totten trusts or making other inter vivos transfers, when the agreement is silent on such matters.

    Holding

    No, because an agreement not to change a will does not implicitly restrict the testator from creating Totten trusts or making inter vivos transfers unless such restrictions are expressly stated in the agreement.

    Court’s Reasoning

    The Court of Appeals emphasized that a will is typically revocable, and testators retain the right to dispose of property during their lifetimes. While individuals can surrender their power of revocation by agreement, such renunciations are strictly scrutinized, requiring clear and unambiguous evidence. In this case, the 1971 agreement only restricted changes to the will itself and was silent regarding other forms of property alienation. The court refused to imply a prohibition against Totten trusts, stating that it would constitute an unwarranted judicial alteration of the agreement. “In the absence of an express provision in the agreement or factors far more substantial within the four corners of the settlement agreement itself from which a judicial inference could comfortably and properly be drawn, courts should not innovate for parties after the fact.” The court also noted that, similar to contracts to establish a trust, a promise to refrain from creating trust accounts must be in writing to satisfy the Statute of Frauds. The court distinguished the case from joint will cases, where inconsistent dispositions defeat the mutuality of benefits. Since the agreement didn’t limit lifetime gifts or transfers, the decedent retained the right to create the Totten trusts.

  • W.W.W. Associates, Inc. v. Giancontieri, 77 N.Y.2d 157 (1990): Enforcing Unambiguous Contract Terms Over Extrinsic Evidence

    W.W.W. Associates, Inc. v. Giancontieri, 77 N.Y.2d 157 (1990)

    When parties set down their agreement in a clear, complete document, the writing should be enforced according to its terms, and extrinsic evidence is inadmissible to create an ambiguity in an otherwise unambiguous agreement.

    Summary

    W.W.W. Associates contracted to buy land from the Giancontieris. The contract included a clause allowing either party to cancel if ongoing litigation affecting the property wasn’t resolved by a specific date. W.W.W. argued this clause was solely for their benefit and could be waived. The Giancontieris sought to cancel the contract based on the clause. The Court of Appeals held that because the contract was unambiguous in granting cancellation rights to both parties, extrinsic evidence suggesting the clause was only for W.W.W.’s benefit was inadmissible, thus enforcing the contract as written.

    Facts

    The Giancontieris owned a two-acre parcel of land. On October 16, 1986, they contracted to sell it to W.W.W. Associates, a real estate developer, for $750,000. The contract included a clause (paragraph 31) stating that either party could cancel if litigation concerning the property was not resolved by June 1, 1987. The contract also contained a standard merger clause (paragraph 19), stating that the written agreement constituted the entire agreement between the parties. W.W.W. was also given the sole right to cancel within 10 days of signing, and the option to cancel if the sellers couldn’t deliver building permits at closing.

    Procedural History

    When the litigation remained unresolved close to the June 1, 1987 deadline, W.W.W. declared its intention to close and sued for specific performance. The Giancontieris then canceled the contract. The trial court granted summary judgment to the Giancontieris, dismissing the complaint. The Appellate Division reversed, granting summary judgment to W.W.W., ordering specific performance based on extrinsic evidence. The New York Court of Appeals reversed the Appellate Division’s decision, dismissing W.W.W.’s complaint and reinstating the trial court’s order.

    Issue(s)

    Whether extrinsic evidence should be considered to interpret an unambiguous contract and determine if a reciprocal cancellation provision was intended for the sole benefit of one party.

    Holding

    No, because when parties set down their agreement in a clear, complete document, their writing should be enforced according to its terms. Extrinsic evidence is inadmissible to create an ambiguity in a written agreement that is complete, clear, and unambiguous on its face.

    Court’s Reasoning

    The Court of Appeals emphasized the importance of enforcing clear and complete written agreements according to their terms. The court found the cancellation clause in question to be unambiguous, granting a reciprocal right to both parties. The Court reasoned that considering extrinsic evidence to create an ambiguity would undermine the stability of commercial transactions, particularly in real property dealings. The court stated, “When parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms. Evidence outside the four corners of the document as to what was really intended but unstated or misstated is generally inadmissible to add to or vary the writing.” The court also noted that the contract contained a merger clause, further solidifying the intent to integrate all prior understandings into the written agreement. The Court suggested a logical reason for the seller to want the option to cancel: “A seller taking back a purchase-money mortgage for two thirds of the purchase price might well wish to reserve its option to sell the property for cash on an ‘as is’ basis if third-party litigation affecting the property remained unresolved past a certain date.” The Court rejected W.W.W.’s bad faith claim, finding it was not supported by admissible evidence. In summary, the Court prioritized the written contract’s plain meaning over W.W.W.’s claims of a different intent based on outside evidence.

  • Whalen v. Gerzof, 76 N.Y.2d 914 (1990): Statute of Limitations and Accrual of Claims in Fiduciary Relationships

    Whalen v. Gerzof, 76 N.Y.2d 914 (1990)

    In cases involving alleged contractual or derivative fiduciary relationships, the statute of limitations may be tolled until the plaintiff becomes entitled to earnings or becomes aware of their accrued rights under the agreement.

    Summary

    This case concerns a dispute over a real estate enterprise agreement between Whalen and Gerzof. Whalen claimed entitlement to half of Gerzof’s interest in Pearcove Associates, with benefits accruing after Gerzof received over $50,000 in income. The lower courts granted summary judgment to Gerzof based on the statute of limitations. The Court of Appeals reversed, holding that the statute of limitations did not begin to run until Whalen became entitled to earnings or aware of her rights. Because the lawsuit was filed in the same year the cause of action accrued, it was timely.

    Facts

    In November 1975, Whalen and Gerzof exchanged letters outlining an agreement where Whalen would receive one-half of Gerzof’s partial interest in Pearcove Associates. According to the agreement, Whalen would receive benefits after Gerzof received the first $50,000 in income or sale proceeds. Whalen alleged she did not become entitled to earnings until 1983. She filed suit in 1983 claiming breach of contract and breach of fiduciary duty.

    Procedural History

    The trial court granted summary judgment in favor of Gerzof, dismissing Whalen’s claims based on the statute of limitations. The Appellate Division affirmed this decision. The New York Court of Appeals modified the Appellate Division’s order, denying Gerzof’s motion for summary judgment and remitting the case for further proceedings. The Court of Appeals affirmed the dismissal of claims against the other defendants.

    Issue(s)

    Whether the Statute of Limitations began to run in 1975 when the agreement was made, or at a later date when Whalen became entitled to earnings under the agreement.

    Holding

    No, because under the alleged agreement, the Statute of Limitations was tolled until Whalen became entitled to earnings from the partnership interest above the $50,000 threshold payment and until she demanded or became aware of her accrued rights to earnings under their agreement.

    Court’s Reasoning

    The Court of Appeals reasoned that the Statute of Limitations did not begin to run when the agreement was initially made in 1975. Instead, the court emphasized that the statute was “in repose” until the conditions precedent to Whalen’s entitlement to earnings were met. The court stated, “[U]nder the alleged agreement, the Statute of Limitations was in repose until Whalen became entitled to earnings from the partnership interest above the threshold $50,000 payment, and until she demanded or became aware of her accrued rights to earnings under their agreement.” Since these conditions allegedly occurred in 1983, the lawsuit, also begun in 1983, was deemed timely. The court highlighted the unique nature of the agreement between Whalen and Gerzof, implying that traditional Statute of Limitations principles would not automatically apply. The court considered the alleged fiduciary relationship and its impact on when the cause of action accrued. The Court affirmed the decision of the Appellate Division regarding the other defendants, but it did not provide any specific reasoning for their decision regarding those parties.

  • Matter of Silverman (Benkert), 63 N.Y.2d 781 (1984): Enforceability of Advisory Arbitration Agreements

    Matter of Silverman (Benkert), 63 N.Y.2d 781 (1984)

    When parties explicitly agree that an arbitration decision is advisory unless accepted by both, a court will not enforce the arbitrator’s decision if one party rejects it, as doing so would nullify the agreed-upon contractual terms.

    Summary

    A union sought to confirm an arbitration award reinstating a discharged employee with back pay. The employer rejected the award, arguing that the collective bargaining agreement specified that arbitration decisions were advisory unless both parties agreed to be bound. The New York Court of Appeals held that the arbitration award was not enforceable because the agreement clearly stated the award was advisory and the employer had rejected it. Enforcing the award would contradict the express terms of the contract and the parties’ intent.

    Facts

    A collective bargaining agreement between the petitioner union and the respondent center contained an arbitration clause. This clause stated that the arbitrator’s decision would be “advisory unless accepted by both parties, in which case it will become binding.” A union employee was discharged, and the union filed a grievance. The parties submitted the grievance to arbitration, framing the issue as whether the discharge was for just cause and, if not, what the remedy should be. The arbitrator sustained the grievance and recommended the employee’s reinstatement with back pay. The employer rejected the arbitrator’s proposed solution.

    Procedural History

    The union initiated a CPLR 7510 proceeding in Supreme Court to confirm the arbitration decision. The Supreme Court dismissed the proceeding, holding that the decision was advisory only and could not be confirmed. The Appellate Division affirmed the Supreme Court’s decision. The Court of Appeals granted leave to appeal.

    Issue(s)

    1. Whether a court is required to confirm an arbitration award under CPLR 7510 when the arbitration agreement explicitly states that the decision is advisory and one party has rejected it.

    2. Whether submitting the fashioning of a remedy to the arbitrator transforms an otherwise advisory arbitration decision into a binding one.

    Holding

    1. No, because statutory confirmation of an expressly rejected arbitration solution would nullify key provisions of the contract itself.

    2. No, because the arbitration clause explicitly made the award advisory “unless accepted by both parties.” The parties retained an express contractual option to accept or reject a decision after the arbitrator rendered it.

    Court’s Reasoning

    The Court of Appeals reasoned that enforcing the arbitration award would violate a cardinal rule of contract construction by nullifying key provisions of the agreement. The agreement explicitly stated that the arbitration decision was advisory unless both parties accepted it. The Court rejected the union’s argument that merely submitting the remedy to the arbitrator transformed the decision into a binding one. The Court distinguished this case from Board of Educ. v Yonkers Fedn. of Teachers, 46 NY2d 727, where the parties had waived the advisory nature of the arbitration by requesting a remedy without any limitation on the arbitrator’s power to bind them. In the present case, “the clause made the arbitration undeviatingly advisory unless the parties expressly and affirmatively elected to be bound.” To hold otherwise would render the advisory clause meaningless.

  • CBS, Inc. v. Ziff-Davis Publishing Co., 75 N.Y.2d 496 (1990): Reliance on Express Warranties as Part of the Bargain

    CBS, Inc. v. Ziff-Davis Publishing Co., 75 N.Y.2d 496 (1990)

    In a breach of express warranty claim, the buyer’s reliance is established if the express warranties were bargained-for terms of the contract, even if the buyer doubted the truth of the warranted facts before closing.

    Summary

    CBS sued Ziff-Davis for breach of express warranties concerning the profitability of magazines CBS purchased from Ziff-Davis. CBS, after signing the purchase agreement but before closing, discovered information suggesting the warranted financial statements were inaccurate. Despite these concerns, CBS closed the deal, reserving its rights. The New York Court of Appeals held that CBS could pursue its breach of warranty claim because the warranties were bargained-for terms of the contract. The court distinguished reliance in contract law from reliance in tort-based fraud claims, emphasizing that CBS relied on the warranty itself as part of the agreement, not necessarily on the truth of the underlying information.

    Facts

    1. Ziff-Davis, through Goldman Sachs, solicited bids for its consumer magazines, providing financial information.
    2. CBS submitted a bid based on Ziff-Davis’s representations.
    3. CBS and Ziff-Davis entered into a purchase agreement containing express warranties regarding the accuracy of the financial statements.
    4. CBS performed due diligence and discovered potential inaccuracies in Ziff-Davis’s financial reports.
    5. CBS notified Ziff-Davis of its concerns, but Ziff-Davis insisted on closing, threatening legal action if CBS failed to proceed.
    6. The parties closed the deal with a mutual understanding that the closing did not waive any rights or defenses.
    7. CBS then sued for breach of warranties.

    Procedural History

    1. The Supreme Court dismissed CBS’s breach of warranty claim, holding that CBS’s admission that it did not believe the representations were true was fatal to the claim.
    2. The Appellate Division affirmed for the reasons stated by the Supreme Court.
    3. The New York Court of Appeals granted leave to appeal.

    Issue(s)

    1. Whether a buyer must believe in the truth of warranted information to maintain a breach of express warranty claim, or whether it is sufficient that the warranty was a bargained-for term of the contract.

    Holding

    1. No, because the critical question is not whether the buyer believed in the truth of the warranted information, but whether it believed it was purchasing the seller’s promise as to its truth.

    Court’s Reasoning

    1. The court distinguished between reliance in tort (fraud) and reliance in contract (breach of warranty). In a contract for express warranty, reliance means that the warranty was a bargained-for term.
    2. The court cited Ainger v. Michigan General Corp., stating the crucial question is whether the buyer believed it was purchasing the seller’s promise.
    3. The court noted, “[Warranty] is intended precisely to relieve the promisee of any duty to ascertain the fact for himself; it amounts to a promise to indemnify the promisee for any loss if the fact warranted proves untrue.”
    4. The court emphasized that express warranties are integral to the contract, and the right to indemnification depends on proving the warranty was breached, not on proving the buyer believed in the truth of the warranted facts after the contract was formed.
    5. The court rejected Ziff-Davis’s argument that CBS’s disbelief in the truth of the warranted information relieved Ziff-Davis of its obligations, stating that such a holding would deprive the express warranties of their value.
    6. The court noted that the Uniform Commercial Code is instructive: Acceptance of goods doesn’t impair other remedies for nonconformity, including damages for breach of an express warranty.
    7. The court viewed the warranty as a continuing promise to indemnify CBS if the warranted facts proved untrue, regardless of CBS’s doubts before closing.

  • Columbia Asset Management Corp. v. Emerson Equities, 75 N.Y.2d 759 (1989): Bad Faith Termination of Broker Agreement

    Columbia Asset Management Corp. v. Emerson Equities, 75 N.Y.2d 759 (1989)

    A party to a contract may be liable for breach if it terminates the contract in bad faith, thereby depriving the other party of the opportunity to perform and earn compensation, even if the underlying transaction was not fully finalized.

    Summary

    Columbia Asset Management Corp. sued Emerson Equities for breach of contract and quantum meruit, alleging that Emerson prematurely and in bad faith terminated a broker agreement, depriving Columbia of the chance to earn commissions. Columbia, a licensed broker-dealer, had an agreement to solicit investors for Emerson’s real estate syndication projects. Columbia claimed to have found potential investors but Emerson discarded the plan and sold the property directly to others. The New York Court of Appeals reversed the lower court’s grant of summary judgment to Emerson, holding that Columbia’s allegations of bad faith raised a triable issue of fact, precluding summary judgment. The court emphasized that the suit was based on the prevention of earning commissions, not the failure to pay earned commissions.

    Facts

    Columbia Asset Management Corp., a licensed broker-dealer, entered into an agreement with Emerson Equities to solicit investors for Emerson’s real estate syndication projects. Emerson agreed to pay Columbia a commission and due diligence fees on investment units placed. Emerson provided Columbia with a preliminary broker-dealer sheet and a professional review kit outlining the terms of a syndication plan for Florida real estate. Columbia contacted independent sales representatives and obtained indications of interest from at least 16 qualified individuals. The terms of the investment plan were modified through conversations between representatives of both parties. Emerson ultimately discarded the syndication plan and sold the property directly to four private investors.

    Procedural History

    Columbia commenced an action against Emerson, asserting claims for quantum meruit and breach of contract. The trial court initially granted summary judgment for the defendant, dismissing the complaint. The Appellate Division affirmed. The New York Court of Appeals reversed the Appellate Division’s order, reinstating the complaint and finding a triable issue of fact.

    Issue(s)

    Whether summary judgment is appropriate where the plaintiff alleges that the defendant prematurely and in bad faith terminated a broker agreement, thereby depriving the plaintiff of the opportunity to earn commissions.

    Holding

    Yes, summary judgment is not appropriate because Columbia’s allegations of bad faith raised a triable question of fact, precluding summary judgment. The provisions of the Martin Act regulating the sale of securities within New York State do not require dismissal of the complaint on summary judgment on this record.

    Court’s Reasoning

    The Court of Appeals reasoned that Columbia’s claim was not based on the failure to pay earned commissions on units actually placed, but on Emerson’s alleged bad-faith termination of the syndication plan, which deprived Columbia of the opportunity to earn commissions. The court stated that Emerson’s assertion that the syndication plan had never been finalized was not inconsistent with Columbia’s claim that Emerson acted in bad faith. The court highlighted that the core of the dispute revolved around whether Emerson’s actions improperly prevented Columbia from fulfilling its role and earning commissions, irrespective of whether the syndication plan was in a final, legally marketable form. Thus, the question of Emerson’s bad faith presented a genuine issue of material fact that could only be resolved through a trial.

  • LIN Broadcasting Corp. v. Metromedia, Inc., 73 N.Y.2d 54 (1988): Revocability of First Refusal Offer After Third-Party Deal Fails

    LIN Broadcasting Corp. v. Metromedia, Inc., 73 N.Y.2d 54 (1988)

    A right of first refusal offer, triggered by a contract to sell to a third party, is revocable by the seller during the specified duration of the right if the third-party transaction is abandoned, unless the contract explicitly states otherwise.

    Summary

    LIN Broadcasting and Metromedia had agreements giving each other first refusal rights regarding the sale of their interests in cellular telephone ventures. When Metromedia contracted to sell assets, including these interests, to Southwestern Bell, it notified LIN of its first refusal rights. After negotiations, Metromedia and Bell amended their agreement, excluding the cellular interests. Metromedia then notified LIN that the first refusal offers were no longer valid. LIN attempted to exercise its first refusal rights. The court held that the offers were revocable because a right of first refusal does not create a binding option and the underlying third-party transaction had been abandoned. This case clarifies the distinction between a right of first refusal and an option, emphasizing that a first refusal offer is not irrevocable unless explicitly stated in the agreement.

    Facts

    LIN and Metromedia formed partnerships and corporations to provide cellular telephone service in New York City and Philadelphia. The New York agreement provided LIN a 45-day right of first refusal, and the Philadelphia agreement had a 10-day right to request appraisal of shares with 30 days to purchase at appraised value. In June 1986, Metromedia agreed to sell various assets, including its cellular interests, to Southwestern Bell for $1.65 billion, conditioned on waivers of first refusal rights. Metromedia notified LIN of the proposed sale and its first refusal rights. After some discussion and extensions, Metromedia and Bell amended their agreement in September 1986, with Metromedia retaining the cellular interests and reducing the purchase price by $453 million. Metromedia then notified LIN that the first refusal offers were no longer valid.

    Procedural History

    LIN sued Metromedia for specific performance to compel the sale of the New York interests and initiated a proceeding to expedite the appraisal of the Philadelphia interests. The trial court denied Metromedia’s motions to dismiss and granted LIN’s petition for appraisal. The Appellate Division reversed, concluding that neither agreement conferred an irrevocable right to compel a sale, and that Metromedia could change its mind about selling before the right of first refusal was invoked.

    Issue(s)

    Whether a contractual right of first refusal, triggered by a contract to sell to a third party, may be exercised during the specified duration of the right but after the third-party transaction has been abandoned?

    Holding

    No, because a right of first refusal does not create a binding option requiring the offer to remain open after the third-party transaction is abandoned, unless the contract explicitly states otherwise.

    Court’s Reasoning

    The court emphasized the distinction between a right of first refusal and an option. A right of first refusal requires the owner, when and if they decide to sell, to offer the property first to the holder of the right, allowing them to match a third-party offer. An option, on the other hand, is an offer that is contractually kept open. The court stated that “[t]he effect of a right of first refusal…is to bind the party who desires to sell not to sell without first giving the other party the opportunity to purchase the property at the price specified.” Since neither the New York nor Philadelphia agreement bestowed an irrevocable right to compel a sale, LIN only had a standard right of first refusal. The court reasoned that requiring the selling party to keep the offer open after the third-party sale was abandoned would give the first refusal offer all the attributes of an option, which was not the intent of the agreement. The court noted the clause itself operates as a restriction by preventing a party from making a sale without first making the first refusal offer. The court stated, “When, as here, the selling party has fully complied with its obligations under the first refusal clause by not selling without first making the required offer, the nonselling party has received the bargained-for performance.” The court further reasoned that imposing an irrevocable option on the seller carries substantial risks, as the buyer could wait until the end of the option period to buy only if the price is advantageous. The court concluded that unless the parties explicitly agree to such an allocation of risks and benefits, the law should not impose it. The court found that other jurisdictions supported this conclusion.

  • MGM Court Reporting Service, Inc. v. Greenberg, 74 N.Y.2d 691 (1989): Express Contract Terms Override Implied Covenants

    MGM Court Reporting Service, Inc. v. Greenberg, 74 N.Y.2d 691 (1989)

    When parties expressly define the limits of a non-solicitation restriction in a contract, a court will not imply a broader restriction, even if one party sought a more general prohibition during negotiations.

    Summary

    This case addresses whether a non-solicitation covenant can be implied when the parties have already negotiated and expressly defined the limits of such a restriction in a contract. MGM Court Reporting Service sued Stanley Greenberg, a former shareholder, alleging he breached an implied restrictive covenant by soliciting MGM’s clients after selling his shares back to the company. The New York Court of Appeals held that because the parties had explicitly limited the non-solicitation restriction to three specific customers, a broader limitation could not be implied. The court affirmed the dismissal of MGM’s claims, emphasizing that express contractual terms take precedence over implied covenants.

    Facts

    Stanley Greenberg, a 40% shareholder in MGM Court Reporting Service, commenced dissolution proceedings against the corporation, alleging oppressive actions by the majority shareholder, Michael Yesner. Yesner and MGM then elected to purchase Greenberg’s shares. During settlement negotiations, Yesner attempted to secure a general prohibition against Greenberg soliciting MGM customers. The final settlement agreement, however, contained a specific non-solicitation clause that restricted Greenberg from performing services for only three named companies for a period of five years. Greenberg later started his own court reporting business and allegedly began soliciting MGM’s clients. MGM then sued Greenberg for breach of an implied covenant against impairment of goodwill.

    Procedural History

    MGM Court Reporting Service sued Stanley Greenberg in New York State court, alleging breach of an implied restrictive covenant and breach of fiduciary duty. The trial court’s decision is not specified in the provided text. The Appellate Division granted Greenberg’s motion for summary judgment, concluding that a non-solicitation covenant could not be implied because the sale of Greenberg’s shares was akin to a sale “under compulsion.” MGM appealed to the New York Court of Appeals.

    Issue(s)

    Whether a court can imply a broader non-solicitation restriction when the parties have expressly defined the limits of such a restriction in a written contract.

    Holding

    No, because the parties expressly limited the non-solicitation restriction to three specific customers, a more general limitation may not be implied.

    Court’s Reasoning

    The Court of Appeals reasoned that the parties’ explicit agreement regarding the non-solicitation restriction precluded implying a broader restriction. The court emphasized that the parties had negotiated and expressly defined the reach of the limitation on solicitation. The court stated, “The parties having thus negotiated and expressly defined the reach of the limitation on solicitation, a more general limitation may not be implied.” There was no claim that the agreed restriction was anything other than a specific non-solicitation covenant limited to three customers. The court distinguished the case from situations where the agreed restriction is not what it appears to be. Because the parties had the opportunity to include a broader restriction and did not, the court declined to imply one. The court did not reach the issue of whether the sale of shares was “under compulsion,” as the Appellate Division had.

  • Kenford Co. v. County of Erie, 73 N.Y.2d 312 (1989): Foreseeability of Consequential Damages in Contract Law

    Kenford Co. v. County of Erie, 73 N.Y.2d 312 (1989)

    In breach of contract cases, consequential damages are recoverable only if they were reasonably foreseeable or contemplated by both parties at the time the contract was executed.

    Summary

    Kenford Co. sued Erie County for breach of contract after the County failed to build a domed stadium, resulting in Kenford’s loss of anticipated appreciation in the value of its surrounding land. The New York Court of Appeals held that Kenford could not recover these damages because the County’s liability for Kenford’s lost land appreciation was not within the contemplation of both parties when they entered into the contract. The court emphasized that the damages recoverable are limited to those that were reasonably foreseeable at the time of contracting to limit unassumed risks.

    Facts

    Kenford owned land near a proposed stadium site. Kenford offered to donate land to Erie County for the stadium in exchange for the County allowing Kenford’s affiliate, Dome Stadium, Inc. (DSI), to manage the stadium. The agreement stipulated that DSI would lease and manage the stadium for 40 years, generating revenues for the County, including taxes from the peripheral lands owned by Kenford. After the County solicited construction bids that exceeded its budget, it terminated the contract. Kenford sued for breach of contract, seeking damages for lost land appreciation.

    Procedural History

    The trial court awarded Kenford $18 million for lost land appreciation. The Appellate Division affirmed the finding of liability but ordered a new trial on damages for land appreciation, finding the appraisal evidence improper. On appeal concerning DSI’s claim, the Court of Appeals held that DSI’s lost profits were not recoverable because they were not foreseeable and were too speculative (67 N.Y.2d 257). Following the Appellate Division’s decision, a retrial on Kenford’s land appreciation damages resulted in a $6.5 million award, which the Appellate Division affirmed based on law of the case. The County appealed.

    Issue(s)

    1. Whether Erie County could be held liable for Kenford’s lost appreciation in the value of land near the proposed stadium site due to the County’s breach of contract.

    Holding

    1. No, because there was no indication that the parties contemplated that the County would assume liability for Kenford’s loss of anticipated appreciation in the value of its peripheral lands if the stadium were not built.

    Court’s Reasoning

    The Court of Appeals reversed the damage award, applying the principle that contract damages are limited to those reasonably foreseen or contemplated by the parties at the time of contracting. The court reasoned that while both parties expected the stadium to increase land values, this expectation did not mean the County assumed liability for Kenford’s lost appreciation if the stadium wasn’t built. The court emphasized that there was no contractual provision or evidence suggesting the County agreed to be responsible for Kenford’s land appreciation expectations. Quoting their previous decision on DSI’s lost profits, the court reiterated that “the commonsense rule to apply is to consider what the parties would have concluded had they considered the subject.” The court distinguished “bare notice of special consequences” from circumstances implying that liability for those consequences formed the basis of the agreement. The court emphasized the importance of limiting liability to assumed risks, citing Hadley v. Baxendale, to promote business enterprise. Therefore, Kenford voluntarily assumed the risk that the stadium might not be built, and the County had not agreed to insure Kenford against this risk.

  • Kalisch-Jarcho, Inc. v. City of New York, 72 N.Y.2d 727 (1988): Enforceability of ‘Disputed Work’ Clause in Public Contracts

    Kalisch-Jarcho, Inc. v. City of New York, 72 N.Y.2d 727 (1988)

    A ‘disputed work’ clause in a public construction contract, requiring the contractor to perform work directed by the municipality and postpone claims for additional compensation until project completion, is enforceable so long as the disputed work is arguably within the contract and the municipality’s directive is made in good faith.

    Summary

    Kalisch-Jarcho, a plumbing contractor, disputed whether it was responsible for installing concrete pads under fuel tanks in a project for New York City. The city insisted it was. Instead of following the contract’s ‘disputed work’ clause, Kalisch-Jarcho sought a declaratory judgment. The Court of Appeals reversed the lower courts, holding that the clause was enforceable. The court distinguished this case from Borough Constr. Co. v. City of New York, emphasizing that the disputed work was arguably within the contract’s scope, and the city acted in good faith. The court upheld the contract’s procedure for resolving disputes, designed to prevent project delays while preserving the contractor’s right to seek compensation later.

    Facts

    The City of New York contracted with Kalisch-Jarcho for plumbing work on a new sanitation depot. A dispute arose immediately regarding the responsibility for excavating and installing concrete pads beneath underground fuel tanks. Kalisch-Jarcho argued this fell under the general construction contract, while the City insisted it was the plumbing contractor’s duty. The project architect and the Commissioner of the Department of Sanitation both determined the work was Kalisch-Jarcho’s responsibility, directing them to proceed under the contract’s dispute resolution clause.

    Procedural History

    Kalisch-Jarcho bypassed the contract’s dispute resolution mechanism and filed a lawsuit seeking a declaratory judgment that it was not obligated to perform the disputed work. The trial court granted summary judgment to Kalisch-Jarcho. The Appellate Division affirmed. The New York Court of Appeals reversed the Appellate Division’s order, holding that Kalisch-Jarcho was obligated to comply with the contract’s dispute resolution clause.

    Issue(s)

    Whether a ‘disputed work’ clause in a municipal contract, requiring a contractor to perform disputed work and postpone claims for additional compensation, is enforceable, or whether it violates public policy as articulated in Borough Constr. Co. v. City of New York.

    Holding

    No, because the public policy concerns defined in Borough Constr. Co. v City of New York are not implicated when the disputed work is arguably within the contract’s scope and the municipality is acting in good faith.

    Court’s Reasoning

    The Court of Appeals reasoned that while declaratory judgment actions are generally permissible for settling contract disputes, they are inappropriate when the contract specifies a different, reasonable means for resolution. Article 27 of the contract outlined such a procedure. The court distinguished this case from Borough Constr. Co. v City of New York, which protected against collusive claims for extra work. Here, the work was arguably within the contract, the City acted in good faith, and the contract provision served the legitimate public interest of avoiding project delays. The court emphasized the importance of honoring contracts negotiated at arm’s length by sophisticated parties. The court stated: “The principle is surely fundamental that a rule developed to govern a situation not addressed in the parties’ contract does not ordinarily preclude parties from agreeing in a contract to resolve the problem in a different manner from the rule that would otherwise apply.” The court also noted that concerns about Administrative Code of the City of New York § 6-110 and article 25 of the contract prohibiting extra work increasing the price by more than 10% do not apply because the Commissioner determined the work was required by the contract, not extra work.