In MUFG Union Bank, N.A. v. Axos Bank, et al., 2021 NY Slip Op. 04414 [https://static.schlamstone.com/docs/MUFG-Bank-v.-Axos-2021-NY-Slip-Op.-044414.pdf], the Court held that a contract clause that caps damages for breach of contract unless the breach was caused by "willful conduct" cannot be enforced when the breaching party's conduct rises only to the level of “merely intentional nonperformance." The Court reasoned that “truly culpable, harmful conduct” (Metropolitan Life Ins. Co. v Noble Lowndes Intl., 84 NY2d 430, 438 [1994]) and not, as MUFG Union Bank contends, “merely intentional nonperformance” (id.). As the NYS Court of Appeals noted in Met Life, “[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.” In this case, there was no evidence that the defendant breached the [contract] with the intent to willfully inflict harm on the plaintiff. Instead, the evidence showed that defendant sold its business to a third party in order to advance the defendant's own economic self-interest. Accordingly, there was no willful misconduct and the contract's exception to the cap on damages did not apply.

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Return home Blog Contract’s exception to cap on damages (based on ‘willful misconduct’) does not apply when party’s actions are simply advancing its own economic interest.

Contract’s exception to cap on damages (based on ‘willful misconduct’) does not apply when party’s actions are simply advancing its own economic interest.

Posted on August 20, 2021

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