November 2003
By ALEXANDER A. MIUCCIO, CIC Legal Counsel
Many
construction contracts on public projects contain a no-damage-for-delay clause
that bars a contractor's recovery of damages for delay in the performance of
the contract. The contract further provides that any such claim would be
compensated for by an extension of time to complete performance. In the recent
case of Metropolis A.C. Corp. v.
MountÐbatten Surety Co., Inc., a Westchester Supreme Court
enforced the no-damage-for-delay clause against a contractor.
Background
Jodinan Plumbing and Heating Corp. entered into a contract with the New York City Housing Authority in connection with the renovation and expansion of the Surfside Gardens Community Center in Coney Island, NY, known as the "Surfside Project." Mountbatten Surety Co. issued a Payment and Performance Bond on behalf of Jodinian. The NYCHA later ruled Jodinian in default under the contract and demanded that Mountbatten, in accordance with its obligations to it under the Performance Bond, complete performance of the contract. Thereafter, Mountbatten entered into a completion contract with Metropolis A.C. Corp. whereby Metropolis agreed to complete the remainder of the contract work in exchange for $416,000.
The NYCHA became dissatisfied with the work of Metropolis on the project. It notified Mountbatten of certain breaches of Metropolis's contractual obligations and insisted that Metropolis be terminated from the project and that Mountbatten provide a new completion contractor. Mountbatten thereafter served Metropolis with a Notice of Default and terminated the contractor from the project.
Metropolis commenced an action against Mountbatten, claiming that although it had diligently performed its obligations under its contract, Mountbatten breached that contract by its wrongful termination of Metropolis. The contractor also sought money damages against the NYCHA because it caused substantial delays in the project by failing and refusing to issue timely change orders, approvals and drawings. Metropolis also claimed that insofar as the NYCHA had directed Mountbatten to terminate its agreement with Metropolis, it had tortiously interfered with the contractual relationship between Metropolis and Mountbatten.
Metropolis moved for a preliminary injunction to enjoin Mountbatten from entering into any other agreements with contractors to complete the work at the project or voiding any completion agreements made by Mountbatten and returning Metropolis to the project. In support of its motion, Metropolis claimed that a restraining order was necessary since it will be "damaged to the point of being practically put out of business while this litigation is pending." The NYCHA cross-moved for an order dismissing the complaint for failure to state a claim.
Decision
The court refused to issue an injunction, holding that, by seeking money damages for breach of contract and tortious interference with its business opportunities, Metropolis has an adequate remedy at law to pursue its damages in the action. The court also found that Metropolis failed to establish the remaining necessary grounds for an injunction, such as the danger of irreparable harm in the absence of an injunction and a likelihood of success on the merits of its lawsuit.
As for the contractor's delay claims, the court pointed out that Metropolis assumed all obligations of the original contractor, Jodinian, pursuant to its contract with the NYCHA. The original contract provided that the contractor would make no claim or maintain an action against the NYCHA for the work pertaining to damages, suspension of, or delay in, the performance of the contract, occasioned by delays to, or interruptions. The contract further provided that any such claim would be compensated for by an extension of time to complete performance. The court relied on this no-damage-for-delay language of the contract and dismissed the contractor's claims against the NYCHA.
Conclusion
The court recited the well-established general rule that a no-damage-for-delay clause is enforceable. However, the New York courts have carried out several exceptions to its enforceability:
¥ A type of delay not contemplated by the parties when entering into the agreement;
¥ Delays caused by the owner's bad faith or its willful or grossly negligent conduct;
¥ Delays so unreasonable that they constitute an intentional abandonment of the contract by the owner;
¥ The owner's breach of a fundamental obligation of the contract.
The same exceptions apply where there is a no-damage-for-delay clause in the subcontract between the contractor and the subcontractor. Unfortunately for the contractor in this case, the court ruled that the contractor did not fall within the recognized exceptions.
About the Author: Mr.
Miuccio is a partner in the law firm Goldberg & Connolly and legal counsel
to the Construction Industry Council of Westchester and Hudson Valley, Inc.