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IN THE CONTEXT OF A CONTRACT IMPOSING CAPS FOR “NONWILLFUL” AND “WILLFUL” BREACHES, THE FACT THAT THE BREACH MAY HAVE BEEN DELIBERATE DID NOT RENDER THE BREACH “WILLFUL,” WHICH SHOULD BE INTERPRETED TO REFER TO “TRULY HARMFUL, CULPABLE CONDUCT;” SUPREME COURT REVERSED (FIRST DEPT).

The First Department, reversing Supreme Court, determined the term “willful” in the context of the damages provision of the contract should not be interpreted simply to mean “deliberate,” but rather to refer to “truly culpable, harmful conduct.” Therefore the damages cap for nonwillful breaches applied:

In the context of this contract, the term “willful” must be understood to be “truly culpable, harmful conduct” … and not … “merely intentional nonperformance” … . As the Court of Appeals noted … , “[g]enerally in the law of contract damages, as contrasted with damages in tort, whether the breaching party deliberately rather than inadvertently failed to perform contractual obligations should not affect the measure of damages” and “[t]he 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” … . The last clause in the limitation-of-liability provision refers to special damages in the context of breaches caused willfully or by gross negligence. Thus,”[u]nder the interpretation tool of ejusdem generis applicable to contracts as well as statutes, the phrase ‘willful acts’ [or ’caused willfully’ … ] should be interpreted here as referring to conduct similar in nature to the . . . ‘gross negligence’ with which it was joined . . .” … . MUFG Union Bank, N.A. v Axos Bank, 2021 NY Slip Op 04414, First Dept 7-15-21

 

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