American List Corp. v. U.S. News and World Report, Inc.

• Decision Date: 19 December 1989
• Citation: American List Corp. v. U.S. News and World Report, Inc., 550 N.Y.S.2d 590, 75 N.Y.2d 38, 549 N.E.2d 1161 (N.Y. 1989)
• Parties: , 549 N.E.2d 1161 AMERICAN LIST CORPORATION, Respondent-Appellant, v. U.S. NEWS AND WORLD REPORT, INC., Appellant-Respondent.
• Court: New York Court of Appeals Court of Appeals

Page 590

550 N.Y.S.2d 590

75 N.Y.2d 38, 549 N.E.2d 1161

AMERICAN LIST CORPORATION, Respondent-Appellant, v. U.S. NEWS AND WORLD REPORT, INC., Appellant-Respondent.

Court of Appeals of New York.

Dec. 19, 1989.

[75 N.Y.2d 39] [549 N.E.2d 1162] Leslie A. Nicholson, Jr., Campbell Killefer and Cheryl A. [75 N.Y.2d 40] Duncan, Washington D.C., for appellant-respondent.

Ira G. Greenberg and Kathryn J. Fritz, New York City, for respondent-appellant.

OPINION OF THE COURT

ALEXANDER, Judge.

Defendant U.S. News and World Report repudiated its contract with plaintiff American List Corp. whereby defendant agreed to rent, over a 10-year period, mailing lists of the names of college students to be compiled by plaintiff. The primary issue presented on this appeal is whether the damages suffered by plaintiff are general, thus requiring only that plaintiff prove that they flowed naturally from the breach, or whether the damages were special damages for lost profits which, to be compensable, must have been foreseeable and within the contemplation of the parties at the time the contract was made. We conclude that the damages sought by plaintiff are general damages which were sufficiently proved at trial. We further conclude, however, that Supreme Court erred in calculating the amount of these damages because in discounting to present value the total due under the contract, the court improperly considered the risk that the plaintiff would be unable to perform the contract in the future. Accordingly, we modify the order of the Appellate Division and remit to Supreme Court for the determination of a proper discount factor and a recalculation of damages.

I

Defendant publishes a national weekly news magazine which, in 1983, had the third largest circulation for such magazines in the Nation. In an attempt to expand its circulation by entering the college student market, defendant negotiated an agreement with plaintiff whereby, for a 10-year period, plaintiff would compile and rent to defendant mailing lists of college student names. Plaintiff had previously produced such mailing lists for high school, but not college, students. Consequently defendant agreed to finance plaintiff's start-up costs by paying a larger fee per name in the first five years of the arrangement. A schedule of the estimated number of names to be provided and the fees to be paid by defendant as well as the estimated losses and profits of plaintiff in each of the 10 years contemplated by the agreement was appended to the agreement. In addition, the agreement, which was drafted by defendant, provided that "[U.S. News and World Report has] agreed to take as much as 25% more names than the estimated compilation at the cost pername [sic ] shown in years one through five." The agreement further provided for an annual review of the estimated figures for the purpose of adjusting the cost per name to be charged to defendant.

The agreement was signed by the parties on January 25 and 26, 1984. Martin Lerner, plaintiff's president, signed on behalf of plaintiff and Joseph Acerno, the vice-president of circulation, signed on behalf of defendant. One year after the contract was signed, defendant was purchased by a new owner and Acerno was replaced by Jacob Weintraub. Weintraub canceled the contract in September 1985 although prior to that cancellation, defendant had accepted and paid for names provided by plaintiff for three mailings conducted over a one and one-half-year period.

Plaintiff commenced this action for breach of contract. After a bench trial, Supreme Court found defendant liable and awarded damages of $1,449,344 for the breach, which sum constituted the balance due plaintiff on the contract for the years 1985 to 1994, as reduced to present value. In assessing the present value of the moneys due plaintiff under the 10-year contract, the court used a "realistic discount factor of 18%". On the parties' cross appeals, the Appellate Division affirmed, without opinion. Both parties appeal by leave of this court.

Defendant argues that the damages awarded to plaintiff are actually "lost future profits" which are special damages and not compensable absent a showing that they were foreseeable and contemplated by the parties at the time the contract was made (see, Kenford Co. v. County of Erie, 67 N.Y.2d 257, 502 N.Y.S.2d 131, 493 N.E.2d 234) (Kenford I ), a showing plaintiff failed to make because the lost future profits it seeks, like the lost future profits sought in Kenford I, are too speculative for calculation. Plaintiff counters that it seeks general rather than special damages and that it has sufficiently proven that its damages are the natural and direct consequence of defendant's breach of their agreement.

On its cross appeal, plaintiff argues that Supreme Court erred in its calculation reducing to present value the total amount due plaintiff under the 10-year contract and in determining that plaintiff was not entitled to compensation for an increase of 25% more names which defendant was obligated to accept during the first five years of the contract period.

II

We reject at the outset defendant's contention that the courts below improperly awarded plaintiff "lost future profits" which are special damages not sufficiently proven at the trial.

The distinction between general and special contract damages is well defined but its application to specific contracts and controversies is usually more elusive. General damages are those which are the natural and probable consequence of the breach (Kenford Co. v. County of Erie, 73 N.Y.2d 312, 319, 540 N.Y.S.2d 1, 537 N.E.2d 176) (Kenford II ), while special damages are extraordinary in that they do not so directly flow from the breach. These extraordinary damages are recoverable only upon a showing that they were foreseeable and within the contemplation of the parties at the time the contract was made (Kenford II, 73 N.Y.2d, at 319, 540 N.Y.S.2d 1, 537 N.E.2d 176 supra; Chapman v. Fargo, 223 N.Y. 32, 36, 119 N.E. 76; Cramer v. Grand Rapids Show Case Co., 223 N.Y. 63, 119 N.E. 227; Wakeman v. Wheeler & Wilson Mfg. Co., 101 N.Y. 205, 4 N.E. 264; Hadley v. Baxendale, 9 Exch. 341, 156 Eng.Rep. 145). Thus in Kenford I, 67 N.Y.2d 257, 502 N.Y.S.2d 131, 493 N.E.2d 234, supra, the nonbreaching party to a contract for the management of a domed sports stadium claimed special damages in the form of the lost future profits which that party would have received from its operation of the stadium. We concluded that the claimed lost future profits could not be recovered because it could not be demonstrated that such damages were caused by the breach, the alleged loss was not capable of proof with reasonable certainty, and it had not been proven that those damages were within the contemplation of the parties at the time the contract was made (id., at 261-263, 502 N.Y.S.2d 131, 493 N.E.2d 234; see also, Hadley v. Baxendale, 9 Exch. 341, 156 Eng.Rep. 145, supra [failure to prove foreseeability of claimed damages of lost profits of mill operation resulting from common carrier's breach of contract to timely deliver broken mill shaft for repairs].

Here, by contrast, it is clear that plaintiff has sought only to recover moneys which defendant undertook to pay under the contract, thereby assuming a definite obligation. By the express terms of the agreement drafted by defendant, its appended schedule reflected the "cost of this joint venture" to defendant and set forth the fees to be paid to plaintiff for a specific number of names to be provided by plaintiff in each of the 10 years contemplated by the arrangement. That schedule also contemplated that plaintiff would suffer losses during the first five years because of its additional start-up costs, and defendant agreed to pay a larger fee per name for names provided during that period. These contemplated losses, however, do not alter the fact that defendant agreed to pay a specific amount over a period of 10-years--a sum explicitly stated in the contract schedule to be $3,027,500 and thus unquestionably within the contemplation of the parties. Moreover, contrary to defendant's contention, the fact that plaintif...