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I can't even remember the number of times I've seen the look of disappointment of clients, or potential clients, when they learn that proving their damages resulting from the other side's breach of their agreement is often far more daunting than they imagined, particularly when it comes to the issue of lost profits.
How Courts Calculate Damages When a Contract is Breached in New York
(Bear in mind, that in New York, a plaintiff whose contract has been breached can recover the amount of profit that he or she would have made had the defendant kept their end of the bargain. For additional information on this topic, click on the link to the right to see an educational video on New York's formula for computing damages in a breach of contract case).
"Why?" you ask. After all, aren't you entitled to that under New York law?
Yes, as a general rule, you can recover lost profits as a measure of damages for breach of contract, and here are the elements you will need to prove:
[I]n order to recover lost profits, they had the burden of proving that the "damages were actually caused by the breach, that the 'particular damages were fairly within the contemplation of the parties to the contract at the time it was made' and that the alleged loss is 'capable of proof with reasonable certainty' " (Awards.com v Kinko's, Inc., 42 AD3d 178, 183 , affd 14 NY3d 791 , quoting Kenford Co. v County of Erie, 67 NY2d 257, 261 ; see Latham Land I, LLC v TGI Friday's, Inc, 96 AD3d 1327, 1333 ). "The rule that damages must be within the contemplation of the parties is a rule of foreseeability. The party breaching the contract is liable for those risks foreseen or which should have been foreseen at the time the contract was made" (Ashland Mgt. v Janien, 82 NY2d 395, 403 ;see Kenford Co. v County of Erie, 67 NY2d at 261; Wathne Imports, Ltd. v PRL USA, Inc., 101 AD3d 83, 87 ; Crystal Clear Dev., LLC v Devon Architects of N.Y., P.C., 97 AD3d 716).
But here's where it gets tricky:
Look at the third prong that is required - that the alleged loss is 'capable of proof with reasonable certainty' ; this element of damage is often difficult to recover is because lost profits tend to be highly speculative, and therefore, hard to prove with reasonable certainty, i.e., without excessive, or improper, speculation.