World of Boxing v. King

United States District Court for the Southern District of New York · Contracts

ContractsDamagesReliance damagesExpectation damagesEscrowbreach of contractreliance damagesexpectation damages

Facts

WOB contracted with King for a boxing match and paid $800,000 into escrow, with $250,000 immediately payable to King under the agreement. WOB also spent about $1 million preparing for the bout on items such as transportation, lodging, facilities, and promotion. After the bout did not occur and King was found to have breached, WOB sought reliance damages because its lost profits could not be reasonably quantified. King conceded that the escrow balance, adjusted for fees and interest, should be returned, but argued that the $250,000 was non-refundable and that WOB's preparatory expenditures should be reduced because WOB would have lost money even if the bout had happened.

Issue

When expectation damages are too speculative, may the nonbreaching party recover reliance damages consisting of preparatory expenditures, and how should those damages be offset under New York law? Also, may the nonbreaching party recover a contractually designated non-refundable payment that was immediately payable to the breaching party?

Rule

Under New York law, if expectation damages cannot be reasonably quantified, the injured party may recover reliance damages equal to expenditures made in preparation for performance or in performance, minus any loss the injured party would have suffered had the contract been performed. The breaching party bears the burden of proving such offsetting losses with reasonable certainty. Reliance damages are restorative, not punitive, so retained revenue attributable to the contract must be deducted to avoid a windfall, and a contractually non-refundable payment remains with the payee if the agreement so provides.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Lakeside Live, a concert promoter in Cleveland, contracted with singer Maya Torres for a one-night arena performance. After Torres repudiated, Lakeside could not reasonably calculate lost profits because merchandising, streaming tie-ins, and sponsor bonuses were uncertain, but it had already spent $420,000 on advertising, venue preparation, security, and lodging.

If Lakeside sues for breach under New York law, which remedy is most appropriate for those expenditures?

Explanation. Under the majority opinion's rule, when expectation damages cannot be reasonably quantified, the injured party may recover reliance damages measured by expenditures made in preparation for performance or in performance. The aim is to restore the nonbreaching party to its pre-contract position, not to award speculative profits or disgorge the breacher's unrelated gains.