New York Law Review

Tag: contracts

  • St. Lawrence Factory Stores v. Ogdensburg Bridge & Port Auth., 15 N.Y.3d 203 (2010): Recoverable Reliance Damages in Breach of Land Sale Contract

    St. Lawrence Factory Stores v. Ogdensburg Bridge & Port Auth., 15 N.Y.3d 203 (2010)

    In a breach of contract for the sale of land, the non-breaching party can recover reliance damages, including expenses reasonably incurred in preparing to perform the contract, not limited to typical costs like title searches, surveys, and attorney’s fees.

    Summary

    St. Lawrence Factory Stores sued Ogdensburg Bridge & Port Authority for breach of contract after the Authority failed to close on an agreement to sell land for a shopping center. St. Lawrence sought lost profits, benefit-of-the-bargain damages, and reliance damages (expenses incurred preparing for the project). The lower courts dismissed the lost profits and reliance damages claims. The New York Court of Appeals affirmed the dismissal of lost profit and benefit of bargain claims, finding them speculative. However, it reversed the dismissal of the reliance damages claim, holding that the plaintiff could recover expenses reasonably incurred preparing to perform the contract.

    Facts

    St. Lawrence Factory Stores entered into a contract to purchase land from Ogdensburg Bridge & Port Authority to construct a shopping center. St. Lawrence allegedly incurred expenses preparing for performance, including arranging financing and seeking tenants. Ogdensburg Bridge & Port Authority breached the contract by failing to close the sale.

    Procedural History

    The Supreme Court dismissed St. Lawrence’s claims for lost profits and reliance damages before trial. The Appellate Division affirmed that decision. St. Lawrence’s benefit-of-the-bargain claim was rejected at trial, and the Appellate Division affirmed. The New York Court of Appeals granted leave to appeal, reviewing both Appellate Division orders.

    Issue(s)

    Whether, in a breach of contract for the sale of land, the non-breaching party’s recoverable reliance damages are limited to expenses ordinarily incurred in such contracts, such as title searches, surveys, and attorney’s closing fees.

    Holding

    No, because a plaintiff may recover damages based on their reliance interest, including expenditures made in preparation for performance, less any loss the breaching party can prove the injured party would have suffered had the contract been performed.

    Court’s Reasoning

    The court stated the correct rule for reliance damages is found in Restatement (Second) of Contracts § 349, which allows recovery for “damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed.” This rule is consistent with New York law. The court explicitly rejected the Appellate Division’s narrow view of reliance damages in land sale contracts. The court noted that the plaintiff should be compensated for the expenses incurred in preparing to perform the contract. The court emphasized that the purpose of reliance damages is to put the non-breaching party in the position they would have been in had the contract never been made. The court quoted from the case: “reliance losses suffered … in making necessary preparations to perform’ would be recoverable ‘if foreseeable and ascertainable’.” The court remitted the case to the Supreme Court for further proceedings to determine the amount of recoverable reliance damages.

  • Norcon Power Partners, L.P. v. Niagara Mohawk Power Corp., 92 N.Y.2d 456 (1998): Right to Demand Adequate Assurance of Performance Under New York Common Law

    Norcon Power Partners, L.P. v. Niagara Mohawk Power Corp., 92 N.Y.2d 456 (1998)

    Under New York common law, a party to a complex, long-term commercial contract has the right to demand adequate assurance of future performance when reasonable grounds arise to believe the other party will breach, even if the contract is not governed by the Uniform Commercial Code (UCC) and the other party is solvent.

    Summary

    Norcon Power Partners and Niagara Mohawk Power Corporation entered into a 25-year contract for the purchase of electricity. After a few years, Niagara Mohawk projected substantial credits in its favor under the contract’s pricing terms and demanded assurance from Norcon that it could meet its future repayment obligations. Norcon sued, arguing Niagara Mohawk had no right to demand such assurance under New York law outside of insolvency or UCC Article 2 scenarios. The Second Circuit certified the question to the New York Court of Appeals, which held that in complex, long-term commercial contracts, a right to demand adequate assurance exists under common law, extending principles analogous to UCC § 2-609 to contracts outside the UCC’s scope.

    Facts

    In 1989, Norcon Power Partners, L.P. (Norcon) and Niagara Mohawk Power Corporation (Niagara Mohawk) entered into a 25-year contract where Niagara Mohawk would purchase electricity generated by Norcon. The contract contained three pricing periods with different rate calculation methods. In February 1994, Niagara Mohawk informed Norcon that it anticipated substantial credits in its favor, reaching over $610 million by the end of the second pricing period, and demanded assurance that Norcon would fulfill its future repayment obligations. Niagara Mohawk’s letter stated its belief, based on revised avoided cost estimates, that Norcon would be unable to satisfy the escalating credits in the third period.

    Procedural History

    Norcon sued Niagara Mohawk in the United States District Court, Southern District of New York, seeking a declaration that Niagara Mohawk had no contractual right to demand adequate assurance and a permanent injunction against Niagara Mohawk terminating the contract. Niagara Mohawk counterclaimed, seeking a declaration that it properly invoked a right to demand adequate assurance. The District Court granted summary judgment to Norcon, holding that New York law only recognized the right to demand adequate assurance in cases of insolvency or under UCC 2-609. The Second Circuit Court of Appeals certified the question of whether such a right exists under New York law for non-UCC contracts to the New York Court of Appeals.

    Issue(s)

    Whether a party has the right to demand adequate assurance of future performance when reasonable grounds arise to believe that the other party will commit a breach by non-performance of a contract governed by New York law, where the other party is solvent and the contract is not governed by the U.C.C.?

    Holding

    Yes, because in complex, long-term commercial contracts, a right to demand adequate assurance exists under common law, extending principles analogous to UCC § 2-609 to contracts outside the UCC’s scope.

    Court’s Reasoning

    The Court of Appeals recognized the evolution of the doctrine of demands for adequate assurance from the doctrine of anticipatory repudiation. The court acknowledged that UCC 2-609 provides a mechanism for demanding assurance in contracts for the sale of goods, and that this has been effective in quieting doubts and allowing non-breaching parties to take timely action. While New York had previously refrained from expanding this right beyond the UCC and insolvency, the court was persuaded to extend the policy underlying UCC 2-609 to complex, long-term commercial contracts. The court reasoned that the problems addressed by UCC 2-609 are not unique to contracts for the sale of goods. It noted that the Restatement (Second) of Contracts § 251 also recognizes this development. The court emphasized its preference for incremental common-law development. The court drew an analogy between the present contract and a contract for the sale of goods, noting that if the contract were for oil instead of electricity, UCC 2-609 would apply. The court found this extension prudent because it places commercial parties at “arm’s length equilibrium.” The court limited its holding to the specific type of contract before it—a long-term commercial contract between corporate entities that is complex and not reasonably susceptible of all security features being anticipated.

  • Bulova v. Manufacturers Hanover Trust Co., 301 N.Y.S.2d 359 (1969): Determining Ownership of Personal Property After Purchase

    Bulova v. Manufacturers Hanover Trust Co., 301 N.Y.S.2d 359 (1969)

    When a person independently contracts to purchase property, their subsequent payment by another party does not automatically transfer ownership to the payor, but can be construed as a gift or loan.

    Summary

    Mrs. Bulova purchased a sculpture at auction. Mr. Bulova, her husband, paid for it. After their separation, Mr. Bulova gifted the sculpture to the Guggenheim Museum. Mrs. Bulova sued the estate and the museum, claiming ownership. The court held that Mrs. Bulova owned the sculpture because she initially contracted to buy it. Mr. Bulova’s payment was considered either a gift or a loan, neither of which transferred title to him. This case clarifies that the act of initially contracting for a purchase is a key factor in determining ownership, even if another party provides the funds.

    Facts

    • December 7, 1955: Mrs. Bulova bid on and won a Brancusi sculpture at an auction.
    • Mrs. Bulova was listed as the purchaser in the auction records, and the invoice was sent to her.
    • Mr. Bulova, upon learning of the purchase, expressed surprise at the cost but paid the invoice two weeks later.
    • The sculpture was delivered to their apartment.
    • October 1957: The couple separated, and Mrs. Bulova demanded the return of the sculpture.
    • March 18, 1958: Mr. Bulova died, leaving his estate to his sisters.
    • March 28, 1958: One of Mr. Bulova’s sisters, acting as executrix, donated the sculpture to the Guggenheim Museum.

    Procedural History

    • Mrs. Bulova filed a claim against Mr. Bulova’s estate for the sculpture.
    • The claim was rejected, and Mrs. Bulova sued the estate and the Guggenheim Museum.
    • The trial court found for the defendants, stating title resided in the party supplying consideration.
    • The Appellate Division affirmed the judgment in favor of the Guggenheim Foundation.
    • The New York Court of Appeals granted leave to appeal.

    Issue(s)

    Whether a husband’s payment for an item purchased by his wife at auction, without any prior agreement, is sufficient to vest title in the husband.

    Holding

    No, because Mrs. Bulova contracted to purchase the sculpture before Mr. Bulova’s payment, establishing her ownership regardless of the source of funds.

    Court’s Reasoning

    The court reasoned that Mrs. Bulova initiated and completed the purchase contract when her bid was accepted. The auctioneer’s memorandum satisfied the Statute of Frauds, obligating the gallery to deliver the sculpture to Mrs. Bulova, making her solely liable for the price. Mr. Bulova’s payment was construed either as a gift or a loan to his wife. The court emphasized that Mrs. Bulova acted on her own initiative and had a personal connection to the artwork, differentiating her position from one of agency. The court cited Personal Property Law § 31, subd. 6 (now General Obligations Law, § 5.701, subd. 6) regarding the Statute of Frauds. The court also noted the inadmissibility of Mr. Bulova’s self-serving hearsay statements about owning the sculpture, quoting Matter of Berardini, 238 App. Div. 433, 435, stating “'[D]eclarations of a deceased person in his own favor are no more competent than those of a living person, particularly when they relate to a past event such as making a gift; and they are unavailing to divest a title.’” The court concluded that the lower courts erred in presuming title vested in the payor, especially where a prior contract existed. The court further suggested that even if the husband had contracted for the purchase in the wife’s name, the presumption would be a gift to her, absent evidence to the contrary.

  • Neumond v. Farmers Feed Co., 244 N.Y. 202 (1927): Effect of War on Contractual Obligations

    244 N.Y. 202 (1927)

    War suspends contractual obligations between belligerents if the contract is executory, and the obligations are discharged if resuming them after the war would thwart the contract’s essential purpose or materially impair its value.

    Summary

    This case concerns the impact of World War I on a contract between a New York company (Farmers Feed) and German citizens (the Neumonds) regarding a trademark option and restrictions on the Neumonds’ business activities. The court held that the war suspended the contract’s obligations, and because the plaintiffs’ obligations expired during the war, the defendant’s obligation to make payments was discharged. The court reasoned that reviving the payment obligation after the war would be inequitable, as the defendant did not receive the full benefit of the bargain due to the wartime suspension of the plaintiffs’ obligations.

    Facts

    The Neumonds, German citizens, had a partnership buying and selling grains in Germany and the US, owning the trademark “Goldnes Kalb.” They granted Farmers Feed an option to buy the trademark, contingent on the Neumonds discontinuing their grain business. Farmers Feed agreed to pay $2,000 annually for the option and the Neumonds’ agreement to restrict their business activities within a specific territory. The contract also included restrictions on Farmers Feed’s sourcing of grains. One of the Neumonds resided in Germany, and the other, initially in New York, was later interned after the US entered World War I.

    Procedural History

    Farmers Feed made the payment due shortly after the war began but then stopped making payments. The Neumonds sued to recover the unpaid installments. The lower courts ruled in favor of the plaintiffs, holding that the defendant must pay the stipulated consideration for the plaintiffs’ contractual obligations. This appeal followed.

    Issue(s)

    Whether the contractual obligation of Farmers Feed to make stipulated payments to the Neumonds revived at the close of World War I, after the Neumonds’ obligations under the contract had been suspended and expired during the war.

    Holding

    No, because the suspension of the Neumonds’ obligations during the war resulted in a failure of consideration, making it inequitable to require Farmers Feed to resume payments after the war.

    Court’s Reasoning

    The court reasoned that war suspends executory contracts between belligerents. If the contract’s essential purpose is thwarted by delay or its value materially impaired, the contract is terminated. Here, the Neumonds’ obligation to restrict their business and the contingent option to purchase the trademark were suspended during the war. By the time the war ended, the period for these obligations had expired. The court stated, “the truth is, that the doctrine of the revival of contracts suspended during the war is one based on considerations of equity and justice, and cannot be invoked to revive a contract which it would be unjust or inequitable to revive.” The consideration for Farmers Feed’s payment was the Neumonds’ promise to restrict their business and grant the option. Because the war suspended the Neumonds’ obligations, Farmers Feed did not receive the full benefit of the bargain. Although Farmers Feed’s option was contingent, it had potential value before the war. However, the suspension of the Neumonds’ obligations eliminated any chance of the contingency arising. The court concluded that it would be unfair to require Farmers Feed to pay for a “chance it never received.”