New York Law Review

Tag: Kenford Co. v. County of Erie

  • 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.

  • Kenford Co., Inc. v. County of Erie, 67 N.Y.2d 905 (1986): Enforceability of Agreement to Cooperate in Contract Law

    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.”

  • Kenford Co. v. County of Erie, 67 N.Y.2d 266 (1986): Recovering Lost Profits for New Businesses

    67 N.Y.2d 266 (1986)

    A new business seeking to recover lost future profits faces a stricter standard of proof, as there is often no reasonable basis of experience to estimate profits with reasonable certainty.

    Summary

    Kenford Co. sued Erie County for breach of contract after the county failed to build a domed stadium. Kenford sought damages for lost profits it expected to earn over 20 years managing the stadium. The New York Court of Appeals held that Kenford’s proof of lost profits was too speculative, given the newness of the business and the lack of certainty that the stadium would be built and successfully operated as planned. The court emphasized the need for certainty and foreseeability in proving lost profits, particularly for new ventures.

    Facts

    Erie County contracted with Kenford and Dome Stadium, Inc. (DSI) to build and lease a domed stadium. The contract stipulated the County would start construction within 12 months and negotiate a 40-year lease with DSI. If a lease wasn’t agreed upon, a 20-year management contract appended to the agreement would take effect. The parties failed to agree on a lease, and the County never commenced construction, breaching the contract. DSI sought damages for lost profits it anticipated earning over the 20-year management period.

    Procedural History

    Kenford and DSI sued Erie County for breach of contract. The trial court granted summary judgment against the County on liability. A trial on damages resulted in a large jury verdict for the plaintiffs. The Appellate Division reversed the damages award for lost profits, finding the projections too speculative, and ordered a new trial on other issues. The Court of Appeals reviewed the Appellate Division’s decision regarding lost profits.

    Issue(s)

    Whether DSI presented sufficient evidence to recover lost profits for a 20-year period for a stadium that was never built or operated, considering the business was new and lacked an established earnings record.

    Holding

    No, because the damages were too speculative and not within the contemplation of the parties when the contract was formed. Furthermore, the multitude of assumptions required to establish projections of profitability over the life of the contract require speculation and conjecture, making it beyond the capability of even the most sophisticated procedures to satisfy the legal requirements of proof with reasonable certainty.

    Court’s Reasoning

    The court emphasized that loss of future profits must be proven with reasonable certainty and must have been within the contemplation of the parties at the time of the contract. The court acknowledged that DSI’s methodology was sound but, it found the economic model’s foundations undermined the certainty of the projections. The court stated, “If it is a new business seeking to recover for loss of future profits, a stricter standard is imposed for the obvious reason that there does not exist a reasonable basis of experience upon which to estimate lost profits with the requisite degree of reasonable certainty.”

    The court noted the speculative nature of projecting profits over 20 years for a facility that never existed, stating, “Quite simply, the multitude of assumptions required to establish projections of profitability over the life of this contract require speculation and conjecture, making it beyond the capability of even the most sophisticated procedures to satisfy the legal requirements of proof with reasonable certainty.”

    Furthermore, the court stated, “The economic facts of life, the whim of the general public and the fickle nature of popular support for professional athletic endeavors must be given great weight in attempting to ascertain damages 20 years in the future.”

    The court rejected the “rational basis” test used by the Appellate Division, reaffirming the stricter standard for proving lost profits for new businesses articulated in Cramer v Grand Rapids Show Case Co., 223 NY 63.