Will this liability cap or no-damages clause hold when we are the one who breached?
Generally yes, and then not at the edges. A clause limiting or excluding liability, including a no-damage-for-delay clause reading “The Contractor agrees to make no claim for damages for delay in the performance of this contract occasioned by any act or omission to act of the City”: is enforceable, especially when entered into at arm's length by sophisticated contracting parties. But an exculpatory agreement, no matter how flat and unqualified its terms, will not exonerate a party from liability under all circumstances: as announced public policy it does not apply to exempt willful or grossly negligent acts, and it is unenforceable where the misconduct for which it would grant immunity smacks of intentional wrongdoing, explicitly, as in fraud, malice or bad faith, or implicitly, as in gross negligence's reckless indifference to the rights of others. The bar to piercing it is high and the Court of Appeals set it by reversing a contractor's $949,645.35 judgment and ordering a new trial, not by dismissing the claim: a charge that the owner had engaged in “active interference” was not enough, because interference does not connote willfulness or bad faith, and the owner was entitled to an instruction that unless the contractor proved the city acted in bad faith and with deliberate intent delayed it, the contractor could not recover. Where the parties themselves write an exception for willful acts, that phrase is read in its contractual context: it means conduct tortious in nature, in which the breaching party willfully intends to inflict harm at least in part through the means of breaching, not merely intentional nonperformance motivated by financial self-interest. That reading came out of the contract and not out of tort law: the Court of Appeals expressly refused to hold that tort principles fix the meaning of willful wherever the word appears, and decided the case on the law of contracts.
The trap
New York separates the public-policy limit from the drafted exception, and drafters conflate them. The public-policy limit cannot be contracted around even where the parties actually contemplated the conduct being exculpated: in Kalisch-Jarcho the jury had expressly found the delay was within the parties' contemplation and the Court of Appeals held the limit applies even then. That finding did not win the case, though: the same decision put the clause's protection back in place, because a jury finding of “active interference” fell short of the willfulness, bad faith or gross negligence needed to pierce it. The drafted exception is narrower than it reads. Metropolitan Life's clause excepted “intentional misrepresentations, or damages arising out of [defendant's] willful acts or gross negligence”, and the party that stopped performing to extract more money lost: by ejusdem generis the phrase took its colour from the intentional misrepresentation and gross negligence beside it, the proof of a withdrawal motivated exclusively by economic self-interest was insufficient as a matter of law, and the Court of Appeals affirmed, with costs, an order that had already modified the judgment on the law, cutting the jury's $3,961,000 award to the $204,000 the customer had paid for partial performance, plus interest, costs and disbursements. The consequential damages went; the money already paid came back. So a counterparty relying on an exception for willful acts to recover consequential damages for a deliberate walk-away will lose; a counterparty arguing gross negligence or intentional wrongdoing bypasses the clause entirely, but Kalisch-Jarcho shows that bar is bad faith and deliberate intent, not merely aggressive or disruptive conduct.
18 authorities
The words that state the rule
Such a provision, not uncommon in construction contracts, especially when entered into at arm’s length by sophisticated contracting parties, in this case between a large contractor and a large city, are enforceable.
The words that state the rule
But an exculpatory agreement, no matter how flat and unqualified its terms, will not exonerate a party from liability under all circumstances. Under announced public policy, it will not apply to exemption of willful or grossly *385 negligent acts
The words that state the rule
More pointedly, an exculpatory clause is unenforceable when, in contravention of acceptable notions of morality, the misconduct for which it would grant immunity smacks of intentional wrongdoing.
- case84 N.Y.2d 430Metropolitan Life Insurance v. Noble Lowndes International, Inc.N.Y.decided 1994read it at the source ↗
The words that state the rule
In excepting willful acts from defendant’s general immunity from liability for consequential damages under section 7 of the Agreement, we think the parties intended to narrowly exclude from protection truly culpable, harmful conduct, not merely intentional nonperformance of the Agreement motivated by financial self-interest.
- case84 N.Y.2d 430Metropolitan Life Insurance v. Noble Lowndes International, Inc.N.Y.decided 1994read it at the source ↗
The words that state the rule
It was at this point, according to plaintiff’s proof, that defendant demanded an upward adjustment of the contract ceiling for enhancements, failing which it announced it would withdraw from the project.
- case84 N.Y.2d 430Metropolitan Life Insurance v. Noble Lowndes International, Inc.N.Y.decided 1994read it at the source ↗
The words that state the rule
When plaintiff refused defendant’s demand, defendant discontinued further performance. Plaintiff then commenced this action, seeking a refund of the sums it paid defendant plus general and consequential damages.
- case84 N.Y.2d 430Metropolitan Life Insurance v. Noble Lowndes International, Inc.N.Y.decided 1994read it at the source ↗
The words that state the rule
On appeal, the Appellate Division modified on the law, reducing damages to the $204,000 plaintiff paid defendant for its partial performance, plus interest, costs and disbursements ( 192 AD2d 83 ). The Court interpreted the willful act exception to the limitation of liability provision in the contract as requiring acts constituting the commission of a tort. It found, as a matter of law, that the proof did not establish any such tortious conduct, but merely an intentional abandonment which was held insufficient to invoke the exception.
The words that state the rule
This can be explicit, as when it is fraudulent, malicious 4 or prompted by the sinister intention of one acting in bad faith. 5 Or, when, as in gross negligence, it betokens a reckless indifference to the rights of others, it may be implicit (Matter of Karp v Hults, 12 AD2d 718 , affd 9 NY2d 857 ). In either event, the policy which condemns such conduct is so firm that even when, in the context of the circumstances surrounding the framing of a particular exculpatory clause, it is determined, as it was by one of the interrogatories here, that the conduct sought to be exculpated was within the contemplation of the parties, it will be unenforceable
- case84 N.Y.2d 430Metropolitan Life Insurance v. Noble Lowndes International, Inc.N.Y.decided 1994read it at the source ↗
The words that state the rule
Under the interpretation tool of ejusdem generis applicable to contracts as well as statutes, the phrase "willful acts” should be interpreted here as referring to conduct similar in nature to the "intentional misrepresentation” and "gross negligence” with which it was joined as exceptions to defendant’s general immunity from liability for consequential damages
The words that state the rule
The exculpatory clause, article 13 of the contract, reads as follows: “The Contractor agrees to make no claim for damages for delay in the performance of this contract occasioned by any act or omission to act of the City or any of its representatives, and agrees that any such claim shall be fully compensated for by an extension of time to complete performance of the work as provided herein”.
The words that state the rule
By attributing all of this to the misconduct of the city, even absent any evidence of malice, Kalisch’s proof, if credited, would have to establish that the city’s conduct amounted to gross negligence. 6 *386 To support such a conclusion, however, the jury would have to find more than “active interference”, which, incidentally, was not a contract term. 7 For whether conduct is “active” or “passive” does not determine wrongdoing, and “interference”, which most commonly translates as “intervention” (Webster’s International Dictionary [2d ed, 1950], at p 1294), does not connote willfulness, maliciousness, abandonment, 8 bad faith or other theories through which runs the common thread of intent. So, taken at face value by the jury, the charge was calculated to expose the city to liability for conduct within the umbrella of the exculpatory clause.
The words that state the rule
Accordingly, although the request to charge perhaps could have been more precisely put, the city, at the very least, was entitled to the amplifying instruction that unless Kalisch-Jarcho proved that “the City acted in bad faith and with deliberate intent delayed the plaintiff in the performance of its obligation”, the plaintiff could not recover.
The words that state the rule
For all these reasons, the order of the Appellate Division should be reversed, with costs, and a new trial granted.
- case84 N.Y.2d 430Metropolitan Life Insurance v. Noble Lowndes International, Inc.N.Y.decided 1994read it at the source ↗
The words that state the rule
The Agreement contained a broad limitation of liability clause. Section 7 provided that "[i]n no event shall [plaintiff] be liable for any lost profits, lost savings or other consequential damages, even if [plaintiff] has been advised of the possibility of or could have foreseen such damages”. Defendant was similarly absolved from liability for "loss of profit, loss of business, or other financial loss * * * resulting from * * * [defendant’s] performance or non-performance” but an exception to this limitation was provided "for intentional misrepresentations, or damages arising out of [defendant’s] willful acts or gross negligence” (emphasis supplied).
- case84 N.Y.2d 430Metropolitan Life Insurance v. Noble Lowndes International, Inc.N.Y.decided 1994read it at the source ↗
The words that state the rule
The issue here is not how we and other courts have construed "willful” in other contexts, such as in interpreting statutes using that term or in formulating or applying legal principles in tort or contract law. Rather, the issue is what the parties intended by "willful acts” as an exception to their contractual provision limiting defendant’s liability for consequential damages arising from its "non-performance under this agreement”. Thus, to the extent that the Appellate Division opinion holds that tort law principles apply in all cases in which the word willful is at issue or thereby limits the legal meaning of the word, we do not agree. However, because the law of contracts as pertinent and applied to this contractual dispute leads us to the same result, we now affirm.
- case84 N.Y.2d 430Metropolitan Life Insurance v. Noble Lowndes International, Inc.N.Y.decided 1994read it at the source ↗
The words that state the rule
We, therefore, conclude that the term willful acts as used in this contract was intended by the parties to subsume conduct which is tortious in nature, i.e., wrongful conduct in which defendant willfully intends to inflict harm on plaintiff at least in part through the means of breaching the contract between the parties. As thus defined, limiting defendant’s liability for consequential damages to injuries to plaintiff caused by intentional misrepresentations, willful acts and gross negligence does not offend public policy. As we said in Sommer v Federal Signal Corp. ( 79 NY2d 540 ) the conduct necessary "to pierce an *439 agreed-upon limitation of liability in a commercial contract, must 'smack[ ] of intentional wrongdoing’ ” (id., at 554 [quoting Kalisch-Jarcho, Inc. v City of New York, 58 NY2d 377, 385 ] [emphasis supplied]
- case84 N.Y.2d 430Metropolitan Life Insurance v. Noble Lowndes International, Inc.N.Y.decided 1994read it at the source ↗
The words that state the rule
Finally, we conclude that plaintiffs proof was insufficient as a matter of law to establish that defendant willfully intended to inflict harm on plaintiff through its abandonment of the contract. Apart from evidence of alleged misconduct by defendant during the course of its performance of the contract, totally irrelevant to the subsequent withdrawal from the project, the proof, as plaintiff has indeed stressed, was that defendant’s repudiation of the Agreement was motivated exclusively by its own economic self-interest in divesting itself of a highly unprofitable business undertaking in order to promote the sale of its computer software division to a competitor company.
- case84 N.Y.2d 430Metropolitan Life Insurance v. Noble Lowndes International, Inc.N.Y.decided 1994read it at the source ↗
The words that state the rule
Consequential damages resulting from that kind of contract nonperformance constitute a risk which plaintiff assumed under section 7 of the parties’ Agreement. Accordingly, the order of the Appellate Division should be affirmed, with costs.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.