Kenford Co. v. County of Erie

New York Court of Appeals · 1986 · Contracts

ContractsExpectation damagesLost profitsbreach of contractlost profitsprospective profitsreasonable certaintycontemplation of the parties

Facts

In 1969, Erie County contracted with Kenford and Dome Stadium, Inc. for construction and operation of a domed stadium near Buffalo. The agreement required the County to begin construction within 12 months and provided that if the parties could not agree on a 40-year lease, an appended 20-year management contract for DSI would be executed once the stadium was completed and available for use. The parties never agreed on a lease, and the County never began construction, resulting in a breach. DSI sought damages for the profits it claimed it would have earned operating the stadium for 20 years.

Issue

May a plaintiff recover lost prospective profits for a contemplated 20-year operation of a stadium where the facility was never built and the proof of profits rested on expert economic projections? More specifically, were such profits within the parties' contemplation and capable of proof with reasonable certainty?

Rule

Loss of future profits for breach of contract may be recovered only when the plaintiff shows with certainty that the damages were caused by the breach, that the alleged loss is capable of proof with reasonable certainty rather than speculation, and that the particular damages were fairly within the contemplation of the parties when the contract was made. When the claimant is a new business, a stricter standard applies because there is no established track record from which profits can be estimated with the required certainty.

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The City of Cleveland contracted with Lakefront Events LLC to build a new indoor festival hall and, if later lease negotiations failed, to let Lakefront manage the hall for 18 years under an attached management form. The city then repudiated before construction began. Lakefront sues for 18 years of lost management profits, but the contract’s default clause mentions only return of deposits and reimbursement of design costs.

Under the governing rule, what is the strongest reason a court should deny Lakefront’s claim for lost future profits?

Explanation. Lost future profits are recoverable only if caused by the breach, provable with reasonable certainty, and fairly within the contemplation of the parties at contracting. The majority emphasized that default-remedy provisions that do not suggest liability for decades of operating profits are strong evidence that such damages were not contemplated. The rule is not that unbuilt facilities, public defendants, or any unstated damages are categorically barred.