Kenford Co. v. County of Erie

New York Court of Appeals
73 N.Y.2d 312 (1989)

ELI5:

Rule of Law:

In a breach of contract action, a party may not recover damages for loss of anticipated profits or appreciation unless it is demonstrated that such damages were within the contemplation of the parties as a probable result of the breach at the time of or prior to contracting.

Facts:

In 1968, the County of Erie planned to finance and construct a domed sports stadium.
Kenford Company, Inc. (Kenford) acquired options on various parcels of land in the proposed stadium area.
Kenford offered to donate 178 acres of its land to the County for the stadium site.
In August 1969, Kenford and the County executed a contract where Kenford would donate the land, and the County agreed to commence stadium construction within 12 months.
The contract stipulated that the County's revenues would include increased real property taxes generated by the development of 'peripheral lands' owned by Kenford surrounding the stadium site.
Kenford owned and intended to acquire additional 'peripheral lands' in the expectation that their value would increase significantly upon the stadium's completion.
Construction bids for the stadium came in $22 million over the County's approved financing.
After failing to secure additional funding, the County terminated the contract in January 1971.

Procedural Posture:

Kenford and Dome Stadium, Inc. (DSI) sued the County of Erie in a New York trial court for breach of contract.
The trial court granted summary judgment in favor of the plaintiffs on the issue of liability.
A jury trial on damages resulted in an award to Kenford of $18 million for lost land appreciation and over $6 million for out-of-pocket expenses.
The County appealed to the Appellate Division, an intermediate appellate court.
The Appellate Division reversed the land appreciation award and ordered a new trial on those damages, finding them recoverable in principle but improperly calculated.
A retrial was held on the sole issue of Kenford's damages for lost appreciation, resulting in a jury award of $6.5 million.
The County appealed this new award to the Appellate Division, which affirmed.
The County of Erie appealed to the New York Court of Appeals, the state's highest court.

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Issue:

Is a party that breached a contract to build a sports stadium liable for damages representing the other party's lost anticipated appreciation in the value of its surrounding lands, when the contract does not explicitly provide for such liability?

Opinions:

Majority - Mollen, J.

No. A party that breaches a contract is not liable for lost anticipated land appreciation unless the assumption of liability for such damages was contemplated by both parties at the time of contracting. While both parties hoped the stadium would increase peripheral land values, this shared expectation does not mean they contemplated that the County would assume liability for Kenford's lost appreciation if the project failed. The contract contained no provision for this heavy responsibility, and there is no evidence the parties would have agreed to it had they considered the subject. Mere knowledge by the County that Kenford owned peripheral lands and hoped they would appreciate is insufficient to impose liability for these special damages. Kenford voluntarily assumed the business risk that its investment in these lands would not be realized, and the County did not contractually assume or guarantee that risk.

Analysis:

This decision reinforces the traditional contract law principle from Hadley v. Baxendale that consequential damages must be within the reasonable contemplation of the parties at the time of formation. It clarifies that a party's unilateral business expectation, even if known to the other party, does not automatically translate into recoverable damages upon breach. The ruling sets a high bar for recovering such 'special' damages, requiring evidence that the breaching party consciously assumed the specific risk of that loss, thereby protecting contracting parties from liability for unassumed, potentially limitless, and speculative damages.

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