Commercial Division Blog

Posted: April 18, 2016 / Categories Commercial, Contracts

Breach of Contract Claim Properly Dismissed for Failure to Plead Consideration or Damages

On April 14, 2016, the First Department issued a decision in Vista Food Exchange, Inc. v. BenefitMall, 2016 NY Slip Op. 02923, affirming the dismissal of a breach of contract claim for failure adequately to allege consideration or damages.

In Vista Food Exchange, the plaintiff alleged that "it relied on defendants' advice in outsourcing its human resources and benefits functions to a third party recommended by defendants. The third party allegedly accepted funds from plaintiff for the payment of its payroll taxes, but failed to make such payments to the taxing authorities before becoming insolvent." The First Department affirmed the dismissal of the plaintiff's breach of contract claim, explaining:

First, the court correctly dismissed the breach of contract claims asserted in the amended complaint, because the amended complaint does not sufficiently allege that there was consideration to support the alleged oral contract. Consideration sufficient to create a contract consists of either a benefit to the promisor or a detriment to the promisee. Here, plaintiff, or the alleged promisee, claims that on the advice of defendants, it decided not to hire a different third-party company to perform its human resources and payroll services, and instead hired the company that defendants recommended. However, it is not alleged that this purported detriment was required by defendants as a condition of their promising to give advice, or was otherwise necessary to consummate the transaction, and, therefore, cannot serve as the requisite consideration needed to form a contract. Similarly, there are no allegations that defendants, the alleged promisors, received a direct benefit, monetary or otherwise, in exchange for their promise to provide advice. To the extent defendants received payments from the recommended third party rather than from plaintiff directly, such payments provide a benefit that is too remote or indirect to constitute consideration.

Even if an enforceable contract had been formed between the parties here, plaintiff's breach of contract claim would still fail because plaintiff has failed to properly plead general or special damages. Plaintiff's alleged damages (namely, its potential incurment of tax penalties and other liabilities due to the third party's failure to pay plaintiff's taxes) do not directly flow from and are not the natural and probable consequence of defendants' alleged breach, and, therefore, do not qualify as general damages. Moreover, the allegations in the amended complaint fail to allege special damages because there are no allegations that defendants foresaw, or should have foreseen, the alleged damages, prior to or at the time the alleged contract was made.

(Internal quotations and citations omitted) (emphasis added).