THE BREACH OF CONTRACT SUIT STEMMED FROM CONSTRUCTION DELAYS; THE LOST PROFITS CLAIM SHOULD HAVE BEEN DISMISSED AS SPECULATIVE (FOURTH DEPT).

The Fourth Department, reversing (modifying) Supreme Court, determined the defendants’ motion to dismiss the claim for lost profits in this breach of contract action should have been granted. The suit was premised on construction delays which postponed the start-date for the operation of the business. The underlying business was a start-up. Damages for lost profits therefore were not contemplated when the contract was entered. In addition, because no comparable businesses were identified, lost profits would necessarily be speculative:

To recover damages for lost profits, “it must be shown that: (1) the damages were caused by the breach; (2) the alleged loss must be capable of proof with reasonable certainty[;] and (3) the particular damages were within the contemplation of the parties to the contract at the time it was made” … . * * *

… [W]e conclude that “[i]t would be highly speculative and unreasonable to infer an intent to assume the risk of lost profits in what was to be a start-up venture” … . …

The lay assumption by plaintiff that it would have earned the same net profit during the months in which completion of the project was delayed as it did during the same months of the following year is too speculative to support a calculation of damages … . Buffalo Riverworks LLC v Schenne, 2023 NY Slip Op 05823, Fourth Dept 11-17-23

Practice Point: To recover lost profits under a breach of contract theory, the profits must have been within the contemplation of the parties when the contract was entered and there must be some benchmark by which the amount of lost profits can be measured (comparable businesses for example). Here the business was a start-up and the court determined the amount of profits could not have been within the contemplation of the parties when the construction contract was entered.