Caseflicks

New York Court of Appeals • 1989

Kenford Co. v. County of Erie

73 N.Y.2d 312 | 540 N.Y.S.2d 1 | 537 N.E.2d 176 | 1989 N.Y. LEXIS 257

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Takeaway

In short, this case holds that foreseeable economic hopes do not become recoverable contract damages unless the parties reasonably contemplated that the breaching party had assumed liability for their loss.

Background

Erie County agreed in 1969 to build a domed stadium on 178 acres that Kenford would donate. The agreement required the County to begin construction within 12 months and contemplated that the stadium’s operation could generate tax revenues, including increased taxes from nearby “peripheral lands” owned or later acquired by Kenford or its principal. Kenford expected that its surrounding land would rise in value if the stadium were built.

Construction bids substantially exceeded the County’s authorized financing. After unsuccessful efforts to obtain additional funding, the County terminated the agreement in 1971. Kenford and Dome Stadium, Inc. (DSI), the proposed stadium manager, sued for breach of contract.

After liability was resolved in plaintiffs’ favor, a jury awarded Kenford damages for lost appreciation of its peripheral land, reliance and mitigation expenses, and awarded DSI lost management profits. The Appellate Division set aside DSI’s lost-profit award and ordered a new trial on Kenford’s land-appreciation damages. The Court of Appeals later affirmed the denial of DSI’s lost profits in a prior appeal. On retrial, a jury awarded Kenford $6.5 million for lost appreciation, and the Appellate Division affirmed. Erie County appealed.

Issues

Issue #1

Whether the Court of Appeals could review the Appellate Division’s earlier, nonfinal ruling that Kenford could recover for lost appreciation of its peripheral lands.

Holding

Yes. The earlier 1985 ruling was reviewable because it necessarily affected the final 1988 judgment affirming the retrial award.

Reasoning

The County’s appeal from the final 1988 order brought up for review the relevant portion of the Appellate Division’s 1985 nonfinal order. That earlier order had held that lost appreciation was a recoverable category of damages and directed a new trial only to calculate it. Because that determination necessarily shaped the later final judgment, the Court could review it on the appeal from that judgment.

Issue #2

Whether Kenford could recover damages for the anticipated appreciation in value of land surrounding the proposed stadium site after the County breached its agreement to build the stadium.

Holding

No. The lost appreciation was not recoverable because the record did not show that the parties contemplated, when they contracted, that the County would assume liability for that loss if the stadium was not built.

Reasoning

Contract damages ordinarily include the natural and probable consequences of a breach. But damages that are unusual or extraordinary are recoverable only when the parties contemplated them as a probable result of breach at or before the time of contracting. The inquiry considers the contract’s nature, purpose, and known circumstances, but it ultimately asks what liability the breaching party fairly can be said to have consciously assumed.

The parties plainly expected the stadium to stimulate economic development, raise peripheral land values, and increase local tax revenues. The contract’s reference to increased taxes from peripheral lands confirmed that shared expectation. But an expectation that a project will be economically successful is not the same as an agreement that one party will insure the other against losing the hoped-for gains if the project fails to materialize.

Neither the contract nor the surrounding evidence provided for County liability for Kenford’s unrealized appreciation. The agreement contained no remedy allocating that risk to the County, and nothing showed that the parties would have assigned the County such a substantial obligation had they expressly considered the question.

The County knew that Kenford owned and intended to acquire land near the stadium, but mere knowledge of possible special consequences does not establish assumed responsibility for them. Special damages require notice under circumstances showing that the potential loss formed part of the bargain; bare awareness of Kenford’s investment plans was insufficient.

Kenford had no contractual duty to acquire or retain the peripheral lands. It chose to make that investment in the hope that the stadium would increase the land’s value, and it therefore assumed the commercial risk that the anticipated increase would not occur. Treating the County as liable would effectively give Kenford all of the expected benefits of a completed stadium even if no stadium was ever built, a result unsupported by the agreement and contrary to the rule limiting liability for unassumed business risks.