Cortland Glass Co., Inc. v Dormitory Auth., State of N.Y. (2004 NY Slip Op 51838(U))

Cortland Glass Co., Inc. v Dormitory Auth., State of N.Y.

2004 NY Slip Op 51838(U)

Decided on October 1, 2004

Supreme Court, Cortland County

Rumsey, J.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and will not be published in the printed Official Reports.

Plaintiff entered into a contract with defendant for the removal of old windows and the installation of new windows in a dormitory building, known as Hart Hall, on the Oswego Campus of the State University of New York. The contract provided for all work to be completed by August 1, 1997, and further provided that:

It is undisputed that plaintiff did not complete its work on the project until October 31, 1997. Having agreed to an extension of 12 days for extra work (Morse Affidavit, ¶3; Affidavit of Alan J. Goldberg, Esq., dated February 27, 2004, ¶ 14, Exhibit G [Letter of December 11, 1997]), defendant withheld $39,000 (78 days x $500/day) from the amount paid to plaintiff upon completion of the work. Plaintiff now sues to recover that amount, on the ground that it was improperly withheld, because (1) there was no delay in the actual opening and use of the dormitory (scheduled for August 1998), and therefore no "loss of beneficial use of the structure"; and (2) the amount of damages assessed is disproportionate to defendant's actual loss, if any, and therefore constitutes an unenforceable penalty. The parties have moved and cross-moved for summary judgment, seeking a ruling from the court as to the proper interpretation of the relevant contractual language.

Although the cited contractual clause does contain the phrase "loss of beneficial use of the structure," it is clear, from a reading of the clause as a whole, that the intention was to provide for payment of a fixed amount for each day of the delay, regardless of the amount of damages actually incurred by defendant as a result. That is the basic premise of a "liquidated damages" provision: to supply a fixed remedy for a contractual breach when it is anticipated, at the time of contracting, that the actual loss will be difficult or impossible to quantify. Accordingly, the phrase "for loss of beneficial use of the structure" is most reasonably viewed not as imposing a limit on the circumstances under which recovery might be had, but rather as supplying an explanation of why the parties included such a provision in their agreement - because they anticipated that any delay would or might result in such a loss of "beneficial use," the value of which would be difficult to assess.

To construe the clause in the contrary manner suggested by plaintiff, by deeming its reference to "loss of beneficial use" a condition of recovery, would be to essentially rewrite the subject language to provide not for predetermined, liquidated damages in a set amount - which was plainly what the parties intended - but for the payment of only those damages that defendant [*2]could prove that it had sustained specifically by virtue of having lost some concrete "use" of the structure. This would impermissibly "distort the contract's apparent meaning" (Petracca v Petracca, 302 AD2d 576, 576-577), when considered as a whole.

Moreover, even were the court to adopt the construction urged by plaintiff, the phrase "beneficial use" should, if possible, be defined in a manner consistent with the parties' intention to supply a remedy for delay by plaintiff. The definition suggested by plaintiff - namely, that the only "use" encompassed by the phrase is the building's ultimate, permanent use as living quarters, scheduled to begin in 1998 - would narrow the scope of the subject clause to such an extent that it would be inapplicable in many situations where defendant sustained actual losses (e.g., additional construction costs for later stages of the project) as a result of plaintiff's delay, but was able - by incurring such additional expenses - to keep the project on track for its final completion. In such situations, defendant would be required to prove the actual extent of its damages to recover for plaintiff's delay, a result manifestly at odds with the inclusion of a "liquidated damages for delay" clause in the contract.

The broader interpretation of the term "beneficial use" proposed by defendant - which encompasses the actual "use" to which defendant intended to put the structure upon completion of plaintiff's work, i.e., as the site of further work necessary to complete its renovation - is more consistent with the parties' apparent intention to provide an easily calculable remedy for the damages likely to be caused by plaintiff's delay. Utilizing this definition, which the court finds more consistent with the parties' intentions, as evinced by their inclusion of a liquidated damages clause, compels rejection of plaintiff's argument that defendant is not entitled to retain the amount at issue because there was no delay in the scheduled opening of the dormitory in August 1998.

Plaintiff seems to place much weight on the fact that defendant has not tendered evidence establishing that it actually sustained damages meeting or exceeding the amount withheld. This is of no moment, however; indeed, the purpose of providing for payment of a set amount of "liquidated damages" is to avoid the need to actually prove such damages, in a circumstance where the parties have anticipated the difficulty of doing so.

And, insofar as plaintiff's repeated references to the amount of damage actually sustained by defendant, or to defendant's proof of those losses, are intended to buttress its argument that the amount withheld pursuant to the contract ($500 per day) is so disproportionate to defendant's actual losses as to constitute a "penalty", they are unconvincing. The proof tendered by defendant demonstrates that it was required to have an employee on the site longer than anticipated, performing additional work necessitated by the delay, including "dealing with complaints" from the subsequent contractor, and coordinating the activities of two contractors on the site simultaneously (Affidavit of John Bodnar, dated May 7, 2004, ¶¶5-7). The fact that defendant's employee may have been earning his salary regardless of whether he was working at Hart Hall or elsewhere is irrelevant; the pertinent fact is that defendant had to expend resources on this project that it could have been using to accomplish other work. The difficulty of quantifying that damage only underscores the appropriateness of the liquidated damages provision (see, Truck Rent-A-Center, Inc. v Puritan Farms 2nd, Inc., 41 NY2d 420, 424; Ames Linen Serv. v Katz, 8 AD3d 945).

Moreover, the relationship between the amount agreed upon as liquidated damages, and [*3]the actual loss likely to result from an actual breach, must be evaluated on the basis of the information possessed by the parties at the time of contracting, not at the time of the breach (see, Truck Rent-A-Center, at 425; Vernitron Corp. v CF 48 Assocs., 104 AD2d 409). Given the record evidence as to the nature of the project as a whole, and of the work performed by plaintiff and the contractor that followed it, and the salary of defendant's field representative,^[FN1] it does not appear that the amount agreed upon was so plainly or grossly disproportionate to the amount of damage that the parties might have anticipated would be incurred as the result of a delay, as to constitute an unenforceable penalty.

Accordingly, defendant has established its right to have withheld $39,000 pursuant to the cited "liquidated damage" clause, and its motion must be granted, and plaintiff's denied, with respect to that aspect of the dispute. Plaintiff has, however, presented proof that the difference between the amount owed under the contract, and the amount paid by defendant, is $45,145.23. Defendant has not demonstrated any basis for its withholding of the additional $6,145.23, nor has it tendered any proof that would raise a factual question as to the accuracy of plaintiff's calculation in that respect. Accordingly, plaintiff has established its right to recover $6,145.23, and its motion shall be granted (and defendant's denied) to that extent.

-Notice of Motion dated February 27, 2004; Affidavit of Alan J. Goldberg, Esq. sworn to February 27, 2004 with attached Exhibits A-J;

-Notice of Cross-Motion for Summary Judgment dated May 7, 2004; Affidavit of Wayne W. Morse sworn to May 7, 2004 with attached A-D;