The pivotal point on this appeal is whether, under the facts and circumstances of this action for breach of a construction contract, it was reversible error, in the face of a "no-damage-for-delay" exculpatory clause, for the trial court to refuse to charge that the contractor could not recover for delays allegedly caused by the contractee, the City of New York, unless these were actuated by bad faith and deliberate intent. 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".
On trial, it was at Kalisch's specific request that the jury was instructed that, notwithstanding the exculpatory clause, to bring in a verdict for the plaintiff it would have to find no more than that "the delay was caused by conduct constituting active interference". Relevant also is Kalisch's position that the right to challenge the correctness of this charge was not preserved for our review.
The city, in defense, also raised issues of fact and of law. Contending that the delays were well within the contemplation of the parties, it presented evidence on which, among other things, it was possible to hold that, at the time of the bidding, the plaintiff knew that many of the drawings still were incomplete and so entered into the contract with eyes open. Moreover, the city attempted to show that the delay in any event was either greatly exaggerated or not of its making. From Kalisch's own partial payment requisitions, it argued, for instance, that 97.4% of this contractor's work was complete fully nine months before the formal completion, only routine punch list items remaining open thereafter. The city also relied on the fact that for a considerable period an industry-wide strike
In this context, the jury rendered a general verdict for the plaintiff in the sum of $806,382 to cover "delay damages [including claims of] subcontractors", whose separate damage assertions had been incorporated into the Kalisch complaint. The verdict took the form of a response to the last of a series of interrogatories drafted by the Trial Judge and, after some hesitancy by the city's counsel, submitted to the jury by consent of the parties. Important too is the jury's affirmative answer to the interrogatory which asked whether "the delay, interference or obstruction" was within the contemplation of the parties at the time the contract was made. In addition, other replies placed responsibility for the delay on both parties and then placed 63% of the blame on the city and 37% on Kalisch. And, by its answer to an interrogatory cast in language conforming to the Judge's charge, the jury further affirmed that the delay or obstruction caused by the conduct of the city constituted "active interference".
Judgment on the verdict, inclusive of interest, having been entered in the sum of $949,645.35, the city took an appeal to the Appellate Division, which affirmed without opinion. Because, on our examination of the record, we find that the correctness of the trial court's "active interference" charge was saved for our consideration, and, in our view, a stricter standard is required, the order of affirmance cannot stand. Our reasons follow.
Preliminarily, as to preservation, Kalisch's presentation is two-pronged. First, it argues that the city failed to note its exception to the charge and, second, that, assuming it had, the city in effect waived any error by acquiescing in the form of the interrogatories, which, as afore-mentioned, contained a question parroting the "active interference" charge. We find neither ground persuasive.
In essence, CPLR 4110-b provides for the filing of written requests to charge, for the court's informing counsel of its rulings and, when adverse, for counsel to have an opportunity for meaningful objection before the jury retires.
Nor was the city's ultimate acquiescence in the query as to whether there had been "active interference" a waiver of its underlying contention. The Trial Judge already had ruled that he would submit the case on the contractor's rather than the city's legal theory. The interrogatory in question was but a mechanism by which the jury was to say whether there was enough credible proof to support that theory. At this purely procedural juncture, to require a rote refrain of an objection so "clearly made and overruled" would have been superfluous (Kulak v Nationwide Mut. Ins. Co., 40 N.Y.2d 140, 145).
As is true of contracts generally, implicit in the present one was the obligation of fair dealing (see Van Valkenburgh, Nooger & Neville v Hayden Pub. Co., 30 N.Y.2d 34, 45; People ex rel. Wells & Newton Co. v Craig, 232 N.Y. 124, 144; Restatement, Contracts 2d, § 205). Even absent an exculpatory clause, this very well may have rendered the contractee's reasonably created delay acceptable. The clause here, therefore, might have little purpose if it were not read to extend acceptability to a range of unreasonable delay as well. Manifestly, this interpretation is mandated by the clause's "unmistakable intent" that, as between these parties, the contractor rather than the contractee is to absorb damages occasioned by contractee-caused delay. For apt is the statement that public policy is not undermined by a frank recognition of such a perfectly common and acceptable business practice, by which an entrepreneur may provide protection against its own fault.
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
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. This can be explicit, as when it is fraudulent, malicious
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 (see Peckham Rd. Co. v State of New York, 32 A.D.2d 139, 141-142, affd 28 N.Y.2d 734; Johnson v City of New York, 191 App Div 205, affd 231 N.Y. 564).
It was against the background of these policies and principles that, as summarized above, the claim against the city centered on the extraordinarily long delay, the immense number of drawing revisions with which Kalisch was confronted and the failure to co-ordinate the contractors. 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.
For all these reasons, the order of the Appellate Division should be reversed, with costs, and a new trial granted.
The trial court committed no error of law in refusing to charge the jury that the "no-damage-for-delay" clause exempted the city from liability for its delays unless the city acted with "bad faith" or deliberate intent to delay the contractor's performance. That has never been the law in this State as the city readily conceded in its brief and on oral argument. What the city actually requests is a change in the settled meaning of the contractual term, after the parties have entered into the contract. Basic principles of fairness and stare decisis should preclude the court from granting the city this relief.
At the trial the court rejected the city's requested charge, submitted the following interrogatories to the jury and received the responses indicated:
The city did not object to these interrogatories, and indeed consented to the court's submitting them to the jury. The majority holds that this action by the city does not constitute a waiver because the interrogatories merely summarized the charge on which the court had already ruled, so that any further objection would have been futile. In its brief, however, the city concedes that there is an even more fundamental reason why further objection would have been futile.
The city states: "[The] City had no basis in law to object. The interrogatories follow precisely the decision of the
Thus the city itself concedes that the trial court's interpretation of the meaning and effect of the "no-damage-for-delay" clause was correct under existing law. Its argument that the contractors should have been required to prove "bad faith" or "deliberate intent" instead of mere active interference, in order to recover for the delays occasioned by the city calls for a change in the law which would reduce the city's contractual liability and, of course, also diminish the contractor's right to compensation for delays attributed to the city.
A court is bound to follow precedent unless the need for a new rule of law far outweighs the need for stability, predictability, and uniform application of the settled rules (see, e.g., Matter of Eckart, 39 N.Y.2d 493; People v Hobson, 39 N.Y.2d 479; 20 Am Jur 2d, § 187, p 523). Indeed there are precedents which establish guidelines a court must follow in determining whether an existing precedent should be overruled. Primary among them is the rule that courts should be most reluctant to change the law affecting contractual rights and commercial dealings generally (Matter of Eckart, supra, at p 500; People v Hobson, supra, at p 489; 20 Am Jur 2d, § 192, p 529; Loughran, Some Reflections on the Role of Judicial Precedent, 22 Ford L Rev 1, 4; Cardozo,
There are several reasons why the courts should exercise an extra measure of self-restraint in this type of case, most of which are obvious. In general terms, as former Chief Judge LOUGHRAN cautioned some time ago, "[I]t is important to bear in mind that the overruling of a precedent may often cause more harm than good by the unsettling effect that it may have upon transactions concluded in reliance on the previously declared rules" (Loughran, op. cit., p 4). Those engaged in business enterprises have a need to know with reasonable certainty the legal consequences of their actions before they make contractual arrangements (People v Hobson, supra, at p 489). Changes in the law retroactively altering the legal effect of contractual terms frustrates the legitimate expectations of those who relied upon the prevailing law and has an unsettling effect on the business community (People v Hobson, supra, at p 489). Thus in cases involving property and contractual rights "where it can reasonably be assumed that settled rules are necessary and necessarily relied upon, stability and adherence to precedent are generally more important than a better or even a `correct' rule of law" (Matter of Eckart, supra, at p 500).
In fact there is rarely a compelling need for judicial intervention to correct an "erroneous" but long-standing interpretation of a contractual term. Unlike constitutional rulings, where the only alternative to court correction of court-created error is the cumbersome process of constitutional amendment (People v Hobson, supra) or "erroneous" statutory rulings, which may be rectified by the simpler but still imposing legislative process (Matter of Eckart, supra, at pp 498-500), a party who is discontent with a court's interpretation of a contractual term may easily correct the "error" in future cases by simply redrafting the
A proper consideration of these factors should require the court to adhere to precedent in the case now before us. The "no-damage-for-delay" clause has been a standard feature in public contracts in this State for many years (see, e.g., Cauldwell-Wingate Co. v State of New York, 276 N.Y. 365; Wilson & English Constr. Co. v New York Cent. R. R. Co., 240 App Div 479; 10 NY Jur, Contracts, § 355, pp 336-338). Despite its broad wording it has been consistently held to permit a contractor to recover for delays occasioned by active interference by the municipality (see, e.g., Cauldwell-Wingate Co. v State of New York, supra; Johnson v City of New York, 191 App Div 205, affd 231 N.Y. 564; Ippolito-Lutz, Inc. v Cohoes Housing Auth., 22 A.D.2d 990; Norman Co. v County of Nassau, 27 A.D.2d 936). Although, of course, the city would not be permitted to claim the benefit of the exculpatory clause where it had acted with bad faith or deliberate intent to delay performance (see, e.g., People ex rel. Wells & Newton Co. v Craig, 232 N.Y. 125), that has never been held to be a necessary component of active interference. Indeed in many cases the courts of this State have recognized the right of public contractors to recover for delays, despite the exculpatory clause, where the State, municipality or other owner has merely failed to carry out its obligations to provide proper plans, materials, services or supervision of the worksite (see, e.g., Johnson v City of New York, supra; Cauldwell-Wingate Co. v State of New York, supra; Wilson & English Constr. Co. v New York Cent. R. R. Co., supra; Ippolito-Lutz, Inc. v Cohoes Housing Auth., supra; Norman Co. v County of Nassau, supra; Peckham Rd. Co. v State of New York, 32 A.D.2d 139, affd 28 N.Y.2d 734).
Municipalities and public contractors who enter into public contracts are not neophytes ignorant of the legal consequences of standard contractual terms which have been repeatedly interpreted and applied by the courts (cf. Levine v Shell Oil Co., 28 N.Y.2d 205). As the majority notes
If the city was not willing to accept the bid on those terms it should have altered its contract accordingly (cf. Conduit & Foundation Co. v State of New York, 52 N.Y.2d 1064; Peckham Rd. Co. v State of New York, supra). Then the contractor would have been on notice that it could not recover for delays which would generally be compensable as a matter of law and could have adjudged its bid to cover this additional risk. In future cases the city is free to follow this course if, as it contends, it finds the legal effect of its current contract financially unacceptable. The court, however, should not alter the settled meaning of a standard clause in a municipal contract after the contract has been awarded to a public bidder, particularly where the successful bidder has fully performed its part of the bargain.
Accordingly, I would affirm the order of the Appellate Division.
Order reversed, etc.