Freund v. Washington Square Press, Inc.

Court of Appeals of the State of New York
34 N.Y.2d 379 (1974)

ELI5:

Rule of Law:

Damages for a breach of contract are intended to compensate the injured party for their foreseeable and provable losses, placing them in the position they would have been in had the contract been performed, not to enrich them by awarding the cost of performance to the breaching party.

Facts:

In 1965, an author (plaintiff) and Washington Square Press, Inc. (defendant) entered into a written agreement for the publication of the plaintiff's manuscript on modern drama.
The plaintiff granted the defendant exclusive rights to publish and sell the work in exchange for a $2,000 nonreturnable advance and a percentage of sales as royalties.
The contract required the defendant to publish the book in a hardbound edition within 18 months of receiving the manuscript.
The contract stipulated that if the defendant failed to publish within 18 months, the agreement would terminate and all rights would revert to the author, without prejudice to any other remedies.
The plaintiff delivered the manuscript and received the $2,000 advance.
The defendant, after merging with another company, ceased its hardcover publishing operations and refused to publish the manuscript.
The defendant did not exercise its contractual right to terminate the agreement within 60 days by deeming the manuscript unsuitable.

Procedural Posture:

The plaintiff sued Washington Square Press, Inc. in a New York trial court, initially seeking specific performance of the contract.
The trial court denied specific performance but found the defendant had breached the contract and set the matter for a trial on monetary damages.
Following the trial, the court awarded the plaintiff $10,000, finding this to be the cost of hardcover publication, which it deemed the natural consequence of the breach.
The defendant (appellant) appealed the damage award to the Appellate Division, an intermediate appellate court.
The Appellate Division affirmed the trial court's $10,000 judgment in a 3-2 decision.
The case was then appealed to the Court of Appeals of New York, the state's highest court, for a final determination on the measure of damages.

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Issue:

Does the proper measure of damages for a publisher's breach of its promise to publish a book include the cost for the author to self-publish the work?

Opinions:

Majority - Rabin, J.

No. The proper measure of damages for a publisher's breach of contract is not the cost of self-publication, but the actual loss sustained by the author, which is typically the value of the lost royalties. The fundamental purpose of contract damages is to compensate the injured party for the benefit of their bargain, not to confer a windfall that places them in a better position than full performance would have. Here, the value of the promised performance to the plaintiff was the potential royalties from book sales, not the physical books themselves. Awarding the cost of publication would be an improper measure because it focuses on the cost to the defendant to perform rather than the value of that performance to the plaintiff. Because the plaintiff failed to prove the amount of prospective royalties with reasonable certainty, his recovery is limited to nominal damages for the vindication of his legal right.

Analysis:

This decision reinforces the core principle of expectation damages in contract law, clarifying that damages must compensate for the plaintiff's actual, provable loss, not the defendant's cost to perform. It sets a significant precedent for publishing and other creative contracts where the value of performance (e.g., royalties, ticket sales) is inherently speculative. By rejecting the 'cost of completion' analogy from construction cases and requiring a stable foundation for estimating lost profits, the court makes it substantially more difficult for plaintiffs in such cases to recover more than nominal damages for a breach unless they can provide concrete evidence of likely earnings.

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