Kenford v.

County of Erie

Brief Fact Summary. Plaintiff Kenford Co. entered into a contract with Defendant, County of
Erie, to donate land for a new stadium. Plaintiff also owned land in the periphery of the
proposed stadium site. When Defendant decided not to build the stadium, Plaintiff sued to
recover for the loss of anticipated appreciation in the value of the land that Plaintiff owned in
the periphery of the proposed stadium site.

Synopsis of Rule of Law. A nonbreaching party is only entitled to damages within the
contemplation of the parties at the time of contracting.

Facts. Defendant passed a bond resolution to finance the construction of a stadium near the
City of Buffalo. Plaintiff agreed to donate the land for the proposed stadium in exchange for
Defendant permitting the management company of Dome Stadium, Inc. (DSI) to lease or
manage the facility. At about the time of contract negotiations, Plaintiff exercised options on
several parcels of land. The parties formed a contract that provided that Plaintiff would
donate 178 acres of land and Defendant would commence construction within 12 months
and negotiate a 40-year lease with DSI. Further, Defendant would receive, inter alia,
increased property taxes and other tax revenues generated by the peripheral lands owned
by Plaintiff. Subsequently, Defendant opted not to build the stadium, and Plaintiff sued to
recover its lost appreciation in the value of its peripheral lands.

Issue. Is Plaintiff entitled to recover damages for lost anticipated appreciation in the value of
its lands peripheral to the stadium site?

Held. No. A party to a contract may only recover damages that were within the
contemplation of the parties at the time of formation of the contract. In the present case,
Plaintiff purchased the peripheral lands in order to benefit from the expected appreciation in
the value of the lands. However, there is no evidence that the defendant agreed to assume
the risk that the lands would not appreciate due to the stadium not being built. In fact, the
evidence indicates that Plaintiff alone assumed this risk. Hence, Plaintiff is not entitled to
damages resulting from its lost anticipated appreciation in the value of its land.


Discussion. Damages awarded for breach of contract must be contemplated by the parties
at the time of formation.


Procedural Posture

Appellant county challenged a judgment of the Appellate Division of the Supreme
Court in the Fourth Judicial Department (New York), which affirmed a judgment in
favor of plaintiff corporate landowner, wherein it was awarded damages for loss of
anticipated profits from appreciation of the value of its land.


Overview

The landowner had entered into an agreement with the county wherein the
landowner agreed to donate land for a proposed stadium site. Thereafter, the
landowner bought property in the periphery of the site. When it was discovered that
the county underestimated the cost of building the stadium, the contract was
terminated. A jury awarded the landowner damages, but the court held that the
landowner was not so entitled. The court found that there was no provision in the
contract or evidence otherwise to demonstrate that the parties contemplated that
the county was undertaking a responsibility for the lack of appreciation in the
landowner's peripheral parcels in the event the stadium was not built. The landowner
assumed the risk that, if the stadium was not built, its financial gain expectations
would not be realized.


Outcome

The court reversed the judgment that the landowner was entitled to damages for the
loss of anticipated profits from the appreciation in value of his lands. The court
ordered the award stricken.


Fera v. Village Plaza

Brief Fact Summary. Plaintiffs entered into a lease with Defendants to open a book and
bottle shop in Defendants shopping center. When the leased space was ready for
occupancy, Plaintiffs were refused their space because the lease had been misplaced, and
the space had been rented to other tenants. Plaintiffs sued to recover anticipated lost profits.

Synopsis of Rule of Law. Where the evidence leads to a finding of anticipated profits within
a reasonable degree of certainty, an award of damages may include lost profits.

Facts. Plaintiffs and Defendants executed a ten-year lease for a book and bottle shop in
Defendants proposed shopping center. During construction, numerous complications arose,
including work stoppages. Defendants mortgagee received the deed in lieu of foreclosure
after Defendants defaulted, and Schostak Brothers took over the management of the
property. When the space finally became available, Plaintiffs were refused the space
because the lease had been misplaced. Plaintiffs were offered alternative space, but they
refused. Plaintiffs then initiated this action to recover their anticipated lost profits.

Issue. Can lost profits be permitted as a measure of damages for breach of a lease?

Held. Yes. Profits have generally been disallowed as an element of damages not because
they are profits but because they are speculative and uncertain. If the profits can be
established with reasonable certainty, they may be considered an element of damages. In
the case of a new business, precedent states that profits are often too uncertain for recovery.
In the present case, however, the issue of profits was thoroughly tried, and the jury, being
properly instructed concerning speculative damages, found that the evidence showed that
Plaintiffs were entitled to damages of $200,000. The Appellate courts must not disturb such a
finding.

Dissent. Even though, as the majority holds, anticipated profits from a new business may be
established with a reasonable degree of certainty, the evidence does not support a finding
regarding lost profits from liquor sales.
Concurrence. Anticipated profits from a new business may be established with a reasonable
degree of certainty.

Discussion. Lost profits from a new business may be permitted as an element of damages
provided they can be proved with certainty.

Procedural Posture

Plaintiffs appealed order of the Court of Appeals Division 1 (Michigan) reversing jury
award of damages in action for breach of lease agreement and anticipated lost
profits.


Overview

Plaintiffs entered into a commercial lease for space in defendants' shopping center.
Defendants breached the lease and plaintiffs sued, requesting damages that included
anticipated lost profits. The court held that future profits could be awarded as part of
damages if they could be established with reasonable certainty. In general a new
business could not recover lost profits because a reasonable prediction could not be
made as to its future where there was no past on which to base the prediction.
Plaintiffs provided proof of their anticipated lost profits, and the proof offered was
not speculative. The jury was properly instructed on the law concerning speculative
damages, and still included lost profits after weighing conflicting testimony. As
reasonable minds could disagree based on the factual record, the jury verdict was
affirmed.


Outcome

Order reversing jury award of damages reversed because future profits of new
business recoverable if established with reasonable certainty, and jury's verdict
including future profits was supported by evidence.


Wassermans v. Township of Middletown

Brief Fact Summary. Plaintiff Wassermans Inc, entered into a commercial lease with
Defendant Township of Middletown that contained a clause providing that if Defendant
cancelled the lease, it would pay Plaintiff a pro-rata reimbursement for any improvement
costs and damages of twenty-five percent of Plaintiffs average gross receipts for one year.
Defendant subsequently cancelled the lease but refused to pay the damages.

Synopsis of Rule of Law. Liquidated (or stipulated) damages clauses are enforceable if the
amount of damages fixed by the contract is a reasonable prediction of the actual harm
caused by the breach.

Facts. Plaintiff entered into a commercial lease with Defendant. The contract contained a
liquidated damages clause that provided that if Defendant cancelled the lease, it would pay
Plaintiff a pro-rata reimbursement for any improvement costs and damages of twenty-five
percent of Plaintiffs average gross receipts for one year. Subsequently, Defendant cancelled
the lease. When Defendant refused to pay, Plaintiff sued to recover under the agreement.

Issue. Is the liquidated damages clause enforceable?

Held. Not determined; remanded to the Law Division for resolution of factual issues. A
liquidated damages clause is a predetermined sum that a contracting party agrees to pay if
he breaches, said sum being a good faith estimate of the actual damages in the event of a
breach. By contrast, a penalty clause is a predetermined sum that a contracting party agrees
to pay if he breaches, said sum being a fixed amount, not meant to be an estimate of actual
damages, but rather a punishment intended to prevent breach. Liquidated damages clauses
are enforceable if the amount so fixed is a reasonable forecast of just compensation for the
harm that is caused by the breach. Such clauses are presumed to be reasonable, and the
burden is on the party challenging the clause to prove its unreasonableness. Notably, the
parties own characterization of the clause is in no way controlling, but rather, the courts
must look to the circumstances of the case. Here, even though the Supreme Court of New
Jerse
y stated that the enforceability of liquidated damages clauses is a question of law for the
court, it did not decide the ultimate issue of enforceability. Instead the case was remanded
for the resolution of certain factual issues.

Discussion. Liquidated damages clauses must be a reasonable forecast of actual damages
to be enforc


Procedural Posture

Defendant lessor challenged the order of the Superior Court, Appellate Division (New
Jersey), which affirmed the trial court's decision that a commercial lease with plaintiff
lessee for municipally owned property was valid and its cancellation clause with
stipulated damages was enforceable.


Overview

Plaintiff lessee and defendant lessor entered into a commercial lease for municipally
owned property. The agreement contained a cancellation clause that provided for
payment of improvement costs and damages. Defendant cancelled the lease but
refused to pay the damages. The trial court held that the lease and the cancellation
clause were enforceable and the appellate division affirmed. The court granted
certification and affirmed that lease was valid and enforceable. The court held N.J.
Stat. Ann. 40A:12-14 (1971), did not apply retroactively to the lease and that the
lease satisfied the requirements of the statute that controlled because the lease
amendments were not detrimental to defendant's interests and the executed lease
was substantially similar to the lease as described in the bid specifications. The court
affirmed the award of renovation costs and remanded to the trial court as to whether
the clause that required payment of stipulated damages based on plaintiff's gross
receipts was a reasonable and valid liquidated damages clause. Because the
stipulated damages clause was presumptively reasonable defendant had the burden
of production and of persuasion.


Outcome

The court affirmed that the lease was valid and enforceable because it complied with
the statute that controlled at the time, and remanded for a determination whether
the stipulated damages in the cancellation clause were reasonable.

Gustafson v. State

Rule of Law: An amount stated in a contract as liquidated damages indicates an
endeavor to fix fair compensation for the loss, inconvenience, added costs, and
deprivation of use cause by delay.

Facts:
-Gustafson (D) contracted with the state (P) to surface a highway.
-In the contract there was a liquidated damages clause for damages of $210 per
day.
-The construction was delayed 67 days; therefore the state is looking for $14,070 in
damages from D.

Issue: Whether the court erred by followed the liquidated damages clause?

Holding & Reason: No. The court found that the amount stipulated in the contract
bears a reasonable relation to probable damages and is not, as a matter of law,
disproportionate to any and all damages reasonably to be anticipated from the
unexcused delay in performance.

Disposition: Affirmed

Procedural Posture

Plaintiff contractor appealed a decision from the Circuit Court, Minnehaha County
(South Dakota), which ruled that a provision in a state highway construction contract
with defendant Highway Commission was one for liquidated damages, and not an
illegal penalty.


Overview

The disputed clause stipulated damages due to delay at $ 210.00 per day. On
review, the court held that the provision in question had to be considered one for
liquidated damages rather than a penalty for the following reasons: I. Damages for
delay in constructing a new highway were impossible of measurement. II. The
amount stated in the contract as liquidated damages indicated an endeavor to fix fair
compensation for the loss, inconvenience, added costs, and deprivation of use
caused by delay. The court concluded that the amount stipulated in the contract bore
a reasonable relation to probable damages and was not, as a matter of law,
disproportionate to any and all damage reasonably to be anticipated from the
unexcused delay in performance. Moreover, each day's delay, while unquestionably
injurious, was injurious frequently in ways that were difficult to estimate.


Outcome

The court affirmed the decision in favor of the state based on its finding that the
liquidated damages were not punitive.