Cardinal change does not set aside waiver of consequential damages

Issue November/December 2018 November 2018 By Sakib A. Khan
Development and Construction Law Practice Group (Real Estate) Section Review
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Sakib A. Khan

When development and construction projects hit major disputes, counsel often must assess the recoverability of consequential or delay damages at the outset. Waivers of consequential and delay damages are now commonplace in construction contracts and are generally enforceable under Massachusetts law. See Costa v. Brait Builders Corp., 463 Mass. 65, 78 (2012); G.L. c. 30 § 39O. In high-stakes cases, parties may expend considerable resources researching exceptions and attempting to correspondingly construe facts. Theories to set aside waivers of damages excite both the creative lawyer and the damaged client.

Generally, to set aside a contract provision, counsel looks to theories of recovery for conduct outside the normal bounds of the contract, such as breach of the implied covenant of good faith and fair dealing (See, e.g., Anthony’s Pier Four Inc. v. HBC Assoc., 441 Mass. 451 (1991)), “whipsaw” (See, e.g., Farina Bros. v. Comm., 357 Mass. 131 (1970)), or “true breach” (See, e.g., Thomas O’Connor & Co. Inc. v. City of Medford, 16 Mass. App. Ct. 10 (1983)). In that vein, if the work of the contract changed so substantially as to drastically and fundamentally change the nature of the bargain (i.e., a “cardinal change,” see Cert. Power Sys. Inc. v. Dominion Energy Brayton Point LLC, 2012 WL 384600, *61 (Mass. Super. Ct. Jan. 3, 2012)), then arguably the terms of the old contract should no longer apply to the new bargain.

In Turner Constr. Co. v. M.J. Flaherty Co., 34 Mass. L. Rptr. 171 (Mass. Super. Ct. Mar. 8, 2017), Judge Mitchell Kaplan, sitting in the Business Litigation Session of the Superior Court, rejected precisely that argument, ruling that, “Proof of a breach of contract [due to a cardinal change] would not be a basis for the court to write a new subcontract for the parties that did not include any limitation on consequential damages.” Id. at *3. Judge Kaplan’s decision implies that although a cardinal change would set aside the price terms of the contract (“the party performing the work should be given the opportunity to recover the fair value of its labors.”), it would not set aside general conditions type requirements, such as limitations on damages.

Accordingly, the exceptions to enforceability of damages waivers under Massachusetts law continue to generally require unconscionable or bad faith behavior, as exemplified in Anthony’s Pier Four Inc. v. HBC Assoc., 441 Mass. 451 (1991) or Farina Bros. v. Comm., 357 Mass. 131 (1970).

Sakib A. Khan advises general contractors, subcontractors, architects, engineers, consultants and owners on construction-related issues.