Kalisch-Jarcho, Inc. v. City of New York, 58 N.Y.2d 33 (1983)
A ‘no-damage-for-delay’ clause in a construction contract is enforceable unless the delays were caused by the contractee’s bad faith, deliberate intent, or gross negligence.
Summary
Kalisch-Jarcho, Inc. sued the City of New York for breach of contract, alleging delays caused by the city’s actions during a construction project. The contract contained a ‘no-damage-for-delay’ clause. The trial court instructed the jury that Kalisch-Jarcho could recover if the delay was caused by the city’s ‘active interference.’ The Court of Appeals held that the ‘no-damage-for-delay’ clause was enforceable unless the delays were caused by the city’s bad faith, deliberate intent, or gross negligence, and that the trial court’s ‘active interference’ charge was insufficient.
Facts
Kalisch-Jarcho, Inc. contracted with the City of New York for the heating, ventilating, and air-conditioning component of the new police headquarters for $8,033,000. The contract completion time was set at 1,000 days, but the project was delayed by 28 months. Kalisch-Jarcho alleged that the delays were caused by the city’s revisions of plans, failure to coordinate contractors, and other interferences. The contract contained Article 13, a ‘no-damage-for-delay’ clause, stating, “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…”
Procedural History
Kalisch-Jarcho sued the City of New York for $3,311,960 in damages. The trial court instructed the jury that Kalisch-Jarcho could recover if the delay was caused by the city’s “active interference.” The jury returned a verdict for Kalisch-Jarcho. The Appellate Division affirmed. The City of New York appealed to the Court of Appeals.
Issue(s)
Whether the trial court erred in instructing the jury that Kalisch-Jarcho could recover delay damages despite the ‘no-damage-for-delay’ clause, based only on a finding of ‘active interference’ by the City of New York.
Holding
No, because a ‘no-damage-for-delay’ clause is enforceable unless the delays were caused by the contractee’s bad faith, deliberate intent, or gross negligence, and the trial court’s ‘active interference’ charge was insufficient to establish such conduct.
Court’s Reasoning
The court held that ‘no-damage-for-delay’ clauses are enforceable, especially in contracts between sophisticated parties like a large contractor and a large city. The purpose of such clauses is to avoid vexatious litigation and discourage dilatoriness. The court recognized an implicit obligation of fair dealing in the contract. However, the court stated that an exculpatory agreement, no matter how unqualified, will not exonerate a party from liability under all circumstances. Specifically, it will not apply to exemption of willful or grossly negligent acts. An exculpatory clause is unenforceable when the misconduct smacks of intentional wrongdoing, such as fraud, malice, bad faith, or gross negligence. The court found that the trial court’s charge of “active interference” was insufficient to establish the level of misconduct necessary to overcome the ‘no-damage-for-delay’ clause. The court stated, “[U]nless 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 court reasoned that “active interference” does not connote willfulness, maliciousness, abandonment, bad faith, or other theories that demonstrate intent. The court reversed the Appellate Division’s order and granted a new trial.