Kenford Co., Inc. v. County of Erie, 67 N.Y.2d 905 (1986)

A party can be held liable for breach of contract if it fails to act in good faith and cooperate with the other party to fulfill the contract’s objectives, even if ultimate approval rests with a third party or the contract allows for termination.

Summary

Kenford Co. sued Erie County for breach of contract, alleging the county failed to cooperate in developing a Land Disposition Agreement (LDA) as designated. The county moved to dismiss for failure to state a cause of action. The Court of Appeals held that Kenford sufficiently pleaded causes of action for breach of contract. Even though the Board of Estimate had final approval and the county could terminate the agreement, the county had a contractual obligation to cooperate in good faith. The court found the allegation of bad faith ‘dedesignation’ sufficient to state a claim.

Facts

Erie County, through its Department of Housing Preservation and Development (HPD), selected Kenford Co. to negotiate a Land Disposition Agreement (LDA) for the sale and development of urban renewal areas. This selection was formalized through designation agreements. Kenford was to prepare the LDA for submission and approval, and the County agreed to cooperate in the process. Kenford alleges it fulfilled its obligations and incurred substantial expenses in preparing the LDA. However, the County, acting in bad faith and without good cause, “dedesignated” Kenford, thus breaching the agreement.

Procedural History

Kenford sued Erie County for breach of contract. The County moved to dismiss the complaint under CPLR 3211 (a) (7) for failure to state a cause of action. The trial court denied the motion. The Appellate Division affirmed the trial court’s decision. The County appealed to the New York Court of Appeals, which affirmed the Appellate Division’s order.

Issue(s)

Whether the plaintiff sufficiently pleaded a cause of action for breach of contract based on the defendant’s alleged failure to cooperate in good faith, despite the fact that final approval of the Land Disposition Agreement rested with a third party (the Board of Estimate) and the defendant had the right to terminate the agreement.

Holding

Yes, because the County undertook a contractual obligation to cooperate with Kenford in preparing the LDA for submission and approval, and the allegation that the County acted in bad faith by “dedesignating” Kenford without cause was sufficient to state a claim for breach of contract.

Court’s Reasoning

The Court of Appeals reasoned that the claims rested upon an alleged breach of the obligation undertaken by Erie County, acting through HPD, to cooperate with Kenford in preparing the necessary LDA for approval. The court stated that the fact that the city might have refused to continue negotiations, that only the Board of Estimate was authorized to finally approve the LDA, or that HPD could “dedesignate” Kenford before the LDA was approved were immaterial on a motion addressed to the face of the pleadings. “The allegation is that defendant acted without cause and for improper motives in ‘dedesignating’ plaintiff in violation of its good-faith contractual obligation to cooperate.”

The court acknowledged that Kenford might not be able to recover damages resulting from the County’s failure to sell the sites or approve the LDA because no agency with the authority to act on behalf of the city was bound by the designation agreement. However, the court emphasized that the County, through HPD, did undertake to cooperate with Kenford in the preparations and negotiations leading to the LDA submission and approval. The court stated that Kenford did not assume the risk of bad faith by the County or of its unexcused breach of its contractual obligation. The court stated that “Similarly immaterial on a motion addressed to the sufficiency of the pleading is defendant’s claim that plaintiff cannot recover all of the items of damage claimed.”