Metropolitan Life Ins. Co. v. Noble Lowndes Intern., Inc.

• Decision Date: 17 June 1993
• Citation: 192 A.D.2d 83,600 N.Y.S.2d 212
• Parties: METROPOLITAN LIFE INSURANCE COMPANY, Plaintiff-Respondent, v. NOBLE LOWNDES INTERNATIONAL, INC., Defendant-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 212

600 N.Y.S.2d 212

192 A.D.2d 83

METROPOLITAN LIFE INSURANCE COMPANY, Plaintiff-Respondent, v. NOBLE LOWNDES INTERNATIONAL, INC., Defendant-Appellant.

Supreme Court, Appellate Division,

First Department.

June 17, 1993.

Peter Brown, of counsel (Catherine M. McGrath, John J. Lynch and Robert R. Kiesel, with him, on the brief, Brown Raysman & Millstein, attorneys), for defendant-appellant.

Nancy I. Mayer, for plaintiff-respondent.

Before SULLIVAN, J.P., and WALLACH, KUPFERMAN and RUBIN, JJ.

RUBIN, Justice.

At issue in this litigation is the application of a limitation of damages clause which precludes recovery of "loss of profit, loss of business, or other financial loss" except where occasioned by "intentional misrepresentations, or damages arising out of [defendant's] willful acts or gross negligence". The jury returned a verdict, finding that defendant breached its contract to develop and install, on its computer system, software for use in processing insurance claims. Plaintiff was awarded $204,000 for amounts paid under the contract, $369,000 for expenses incurred in connection with the contract, $581,000 for cover damages (UCC 2-712) and $2,807,000 in lost savings which were expected to have resulted had the software performed as specified in the "License Agreement". Defendant moved for judgment in its favor notwithstanding the verdict or, in the alternative, for remittitur or for a new trial. Supreme Court denied the motion, finding that a rational basis existed to support the jury finding that the breach of contract was willful: "The jury could have found from the evidence that defendant, without justification, refused to complete the contract unless it received monies beyond the maximum set forth in the contract, and that without completion, the system was useless to plaintiff who would be forced to start from scratch and find an entirely new system. Furthermore, the jury could have found from the evidence that defendant's refusal to perform was without justification or excuse and motivated by its desire to eliminate contractual obligations it perceived to be an obstacle to any sale of its computer division to a company known as Erisco."

At issue is whether plaintiff's recovery for breach of the agreement is limited to the damages specified in the contract or whether, as plaintiff urges, the contract damage provisions are merely "optional" and the limitation of damages provision unenforceable due to the "willful" breach of the contract by defendant. Prior to trial, Supreme Court (David Saxe, J.) dismissed plaintiff's fourth cause of action, claiming that defendant negligently performed its obligations under the contract, for failure to state a cause of action, but declined to dismiss plaintiff's claim for consequential damages, reasoning that plaintiff's failure to use the term "willful" in its complaint "does not preclude a factual finding that defendant's conduct was willful, which finding would permit an ultimate award of consequential damages." This court affirmed the ruling without opinion (145 A.D.2d 1005, 535 N.Y.S.2d 510).

The question before this court is whether the defective performance and ultimate breach of the contract by defendant warrants an award of damages beyond those expressly provided for in the License Agreement and in contravention of its limitation of damages section. The contract is straightforward and unambiguous and, therefore, its interpretation presents a question of law for the court (West, Weir & Bartel v. Carter Paint Co., 25 N.Y.2d 535, 540, 307 N.Y.S.2d 449, 255 N.E.2d 709; Eden Music Corp. v. Times Sq. Music Publ., 127 A.D.2d 161, 164, 514 N.Y.S.2d 3). The instrument gives plaintiff three options upon a material breach which occurs either before acceptance of the software system or within a year thereafter. In the event the system does not perform to specifications, 1) plaintiff may terminate immediately and receive a full refund of all monies paid; 2) in the event of a material breach which goes unremedied for 30 days after written notice, plaintiff may likewise terminate and receive a full refund; or 3) plaintiff may "rectify" defendant's defective or failed performance. In the event plaintiff elects the latter option, the remedy for nondelivery of a working system is, as specified in section 12, subsection 6 of the contract, to charge the reasonable expenses of completing the system to defendant which "shall not exceed amounts due and paid to Licensor [defendant]." If this option is exercised prior to acceptance, plaintiff is entitled to retain all deliverables and receive a full refund of amounts paid for those items. While plaintiff argues that the use of the words "option" and "discretion" renders the specified remedies non-exclusive, it is clear that the discretion afforded to plaintiff is the right to elect among the various remedies and to unilaterally determine, in accordance with section 1(k) of the License Agreement, whether defendant's work is in compliance with contract specifications.

In addition to the specific remedies available, the agreement also contains a section entitled "Limitations of Liability" which provides that, except as set forth in a section dealing with indemnity, and "except for intentional misrepresentations, or damages arising out of licensor's willful acts or gross negligence, licensor shall not be liable for lost profit, loss of business, or other financial loss which may be caused by, directly or indirectly, the inadequacy of the system for any purpose or any use thereof or by any defect or deficiency therein, or resulting from or in connection with licensor's performance or non-performance under this agreement."

It is because plaintiff alleged a willful act of misconduct by defendant that Justice Saxe, in his decision denying defendant's motion to dismiss all claims for consequential damages, declined to categorize the various damages as either consequential or direct, willful misconduct being actionable apart from or in addition to the action on the contract and, both as a matter of law and by its terms, not subject to the limitation of damages clause. The jury returned a special verdict, answering "yes" to the question, "Were the acts of Noble Lowndes willful?" Thus, the question before this court is whether the evidence adduced at trial is sufficient, as a matter of law, to sustain a finding of willful misconduct so as to permit the award of damages in excess of those specified in the contract.

This court is mindful of the earlier ruling on defendant's motion to dismiss all claims for compensatory damages in which Supreme Court opined that defendant's willfulness is a question of fact. This determination does no more than sustain the legal sufficiency of the pleading so as to permit the claim to be submitted to the jury. It does not foreclose review of the findings of that jury by an appellate court for the purpose of ascertaining that they are supported by legally sufficient evidence. Logically, an appellate court conducting a review of the entire case cannot be bound by a determination made at an early stage of the proceedings without the benefit of the full trial record, and the law of the case doctrine does not dictate so absurd a result.

Granting, as Supreme Court determined, that defendant refused to meet its contractual obligations unless it received more money and, in order to facilitate the sale of its computer division, terminated the contract, plaintiff has proved no more than a breach of contract, albeit deliberate. It is well settled that a breach of contract is compensable by contract damages alone (Megaris Furs v. Gimbel Bros., 172 A.D.2d 209, 210-211, 568 N.Y.S.2d 581). In Briefstein v. Rotondo Constr. Co., 8 A.D.2d 349, 351, 187 N.Y.S.2d 866, this court observed, "An intention not to perform does not bring on heavier damages than actual nonperformance". The Court of Appeals noted that "it is a long-established doctrine that one does not have a cause of action against another contracting party for conspiracy to breach the agreement between them" (Bereswill v. Yablon, 6 N.Y.2d 301, 306, 189 N.Y.S.2d 661, 160 N.E.2d 531, citing Miller v. Vanderlip, 285 N.Y. 116 33 N.E.2d 51). Therefore, even if it could be shown that defendant entered into the contract with plaintiff fully intending never to perform its obligation thereunder, the damages recoverable are still limited to those specified in the contract: "The policy which runs through the fabric of the law of contracts is to bind a party by what he agrees to do whether or not he intends to do what he agrees" (Briefstein v. Rotondo Constr. Co., supra, 8 A.D.2d at 351, 187 N.Y.S.2d 866).

In isolated instances, where a contract is employed merely as a device in a broader scheme to defraud one of the parties, relief in excess of contract damages may be obtained; but in this event, the plaintiff must plead and prove fraud, which constitutes "a breach of duty distinct from, or in addition to, the breach of contract" (North Shore Bottling Co. v. Schmidt & Sons, 22 N.Y.2d 171, 179, 292 N.Y.S.2d 86, 239 N.E.2d 189; Tesoro Petroleum Corp. v. Holborn Oil Co. Ltd., 108 A.D.2d 607, 484 N.Y.S.2d 834). The complaint herein alleges only breach of contract--including anticipatory breach and the noncognizable "negligent performance of a contract"--(Megaris Furs v. Gimbel Bros., supra, 172 A.D.2d at 211, 568 N.Y.S.2d 581), and the evidence adduced at trial falls far short of that necessary to make out a case of fraud (Rich v. New York Cent. & H.R.R.R. Co., 87 N.Y. 382, 398; Albemarle Theatre v. Bayberry Realty Corp., 27 A.D.2d 172, 176, 277 N.Y.S.2d 505). Nor are the damages awarded in this action sustainable under a theory of quasi contract: "The existence of a valid and enforceable written contract governing a particular subject matter ordinarily precludes recovery in quasi contract for events arising out of the same subject matter" (...