Prediction Correct in NY Damages Case
As I predicted last month, the New York Court of Appeals last week reversed an Appellate Division decision denying any damages to buyers of real property from sellers who admitted breach of contract to purchase and sell real property. The Appellate Division had denied sought damages measured by lost profits, the contract-market differential and reliance expenses. The Court of Appeals agreed as to lost profits and contract-market differential but reversed as to reliance expenses.
It did so, however, in an opinion void of any analysis of the lower court opinions. As to the lost profits claim, in particular, the Court of Appeals merely said it agreed with the lower courts that the assertion was “speculative.” It did not explain why and did not confront or correct patently erroneous statements in those opinions that the buyers could not recover because they were pursuing a new business enterprise. More responsibly, though still without analysis, the Court rejected the contract-market claim, by referencing evidence showing that the property value at breach did not exceed the contract price.
Most important, on the reliance branch, the Court of Appeals reversed the lower court rulings that simply failed to see that reliance damages are a standard alternative to expectancy damages (whether lost profits or the contract-market differential), especially when the latter cannot be determined with reasonable certainty. The Court cited Section 349 of the Restatement (Second) of Contracts, and numerous New York Court of Appeals cases, including the classic Freund v. Washington Square Press, all of which allow recovery of reliance losses incurred in preparing to perform a contract, so long as these are foreseeable and ascertainable.
But what of those incorrect lower court statements about lost profits? Should the Court not have addressed them? Affirming by saying it agreed that the lost profits claim was “speculative” does not exactly reject erroneous statements in the lower court opinion, such as that new businesses face a different burden or hurdle in recovering lost profits. Reversal as to reliance damages does not disturb them. While I concur with the Court on all its results in all three damages holdings, does it promote judicial economy to leave clearly erroneous lower court statements about a recurring issue in contract law uncorrected?