New York Law Review

Tag: No-Damage-For-Delay Clause

  • Corinno Civetta Constr. Corp. v. City of New York, 67 N.Y.2d 300 (1986): Enforceability of No-Damage-for-Delay Clauses

    Corinno Civetta Constr. Corp. v. City of New York, 67 N.Y.2d 300 (1986)

    A contractual clause exculpating a contractee from liability for delay damages is enforceable unless the delays were (1) caused by bad faith, willful, malicious, or grossly negligent conduct; (2) uncontemplated; (3) so unreasonable as to constitute abandonment; or (4) a breach of a fundamental contract obligation.

    Summary

    This case clarifies the exceptions to the enforceability of “no-damage-for-delay” clauses in construction contracts. The New York Court of Appeals held that such clauses are generally valid but will not bar recovery for delays caused by the contractee’s bad faith, gross negligence, uncontemplated delays, abandonment of the contract, or breach of a fundamental obligation. The court emphasized that uncontemplated delays are outside the scope of the exculpatory clause, reinforcing the concept of mutual assent and the contractor’s reasonable expectations at the time of contracting. The court applied these principles to four consolidated cases, affirming dismissal in two where the delays were contemplated or not attributable to the city’s fault, and reversing in two where the city failed to demonstrate that the delays were contemplated.

    Facts

    Four separate construction contracts with New York City were at issue. Corinno Civetta involved sewer reconstruction delayed by a street opening moratorium and subsurface conditions. Catapano concerned sewer construction delays in Queens. Honeywell involved installation of equipment in sewage treatment plants, delayed by wiring omissions and equipment incompatibility. Nab-Tern pertained to the Yankee Stadium reconstruction project.

    Procedural History

    In Corinno Civetta, the Appellate Division reversed the trial court’s denial of the city’s motion for summary judgment and dismissed the delay damages claim. In Catapano, the Appellate Division modified Special Term’s order, granting summary judgment to the city on the delay damages claim. In Honeywell, the Appellate Division reversed a jury verdict for Honeywell and dismissed the complaint. In Nab-Tern, the Appellate Division reversed Special Term and granted the city’s motion for summary judgment, dismissing the delay damages claim.

    Issue(s)

    1. Whether a “no-damage-for-delay” clause bars recovery for delays that were not within the contemplation of the parties when entering the contract.

    2. Whether the City’s conduct in Honeywell was so unreasonable as to constitute abandonment or breach of contract, thus negating the exculpatory clause.

    3. Whether claims for increased costs due to inefficiencies during the contract period in Catapano and Nab-Tern are distinct from delay damages and therefore not barred by the exculpatory clause.

    Holding

    1. Yes, because exculpatory clauses do not bar claims for uncontemplated delays since it cannot be presumed that the contractor bargained away rights to claim damages for unforeseen delays.

    2. No, because Honeywell failed to establish that the city’s conduct was so unreasonable as to relinquish the contract with the intention of never resuming it, or that the city breached a fundamental contract obligation.

    3. No, because all claims seeking compensation for increased costs, whether due to project delays or inefficiencies, are considered delay damages and are barred by the exculpatory clause.

    Court’s Reasoning

    The court reaffirmed the validity of “no-damage-for-delay” clauses but emphasized exceptions. Regarding uncontemplated delays, the court stated that exculpatory clauses encompass only reasonably foreseeable delays arising from the contractor’s work or mentioned in the contract. The court distinguished Kalisch-Jarcho, Inc. v City of New York, clarifying that its holding pertained to contemplated delays and did not abolish the exception for uncontemplated delays. As for abandonment or breach of contract, the court explained that the delays must be so unreasonable as to suggest relinquishment of the contract with no intention of resumption. Breach of contract must involve a fundamental, affirmative obligation expressly imposed on the contractee. The court dismissed the argument that inefficiencies during the contract period constituted a separate basis for recovery, holding that all increased costs are delay damages.

    Applying these principles, the court found the delays in Corinno Civetta were contemplated because the contract warned of a street opening moratorium and the contractor assumed responsibility for unforeseen subsurface conditions. In Honeywell, the court found the delays were contemplated, given the contract’s coordination clauses and Honeywell’s own communications attributing delays to electrical contractors. The court emphasized that to avoid the exculpatory clause, delays must be “so great or so unreasonable that they may fairly be deemed equivalent to [its] abandonment of the contract” (People ex rel. Wells & Newton Co. v Craig, 232 NY 125, 144). In Catapano and Nab-Tern, the court found the city’s moving papers insufficient to demonstrate that the delays were contemplated, thus warranting denial of summary judgment.

    The court quoted People ex rel. Wells & Newton Co. v Craig, 232 NY 125, 144, stating that, in certain limited circumstances, “the exculpatory clause may be avoided if the contractee causes delays which are ‘so great or so unreasonable that they may fairly be deemed equivalent to [its] abandonment of the contract’”.

  • Kalisch-Jarcho, Inc. v. City of New York, 58 N.Y.2d 33 (1983): Enforceability of ‘No-Damage-For-Delay’ Clauses

    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.