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Marbro, Inc. v. Borough of Tinton Falls

297 N.J. Super. 411, 688 A.2d 159 (Law Div. 1996)

CONTRACTORS; CONTRACTS; INDEMNIFICATION—In this municipal construction contract, the contractor was protected by a liability limitation in an amount equal to the contract price.

(Published January 7, 1997): In 1988, a municipality proposed various improvements to a local park and engaged a consultant to design the improvements and serve as consultant during construction. Two separate contracts were entered into, one for the design of the park and the other for consulting services. The construction contract contained a limitation of liability provision wherein the municipality agreed to limit the consultant’s liability to $32,500.00 (the amount of the contract). During construction of the park, large quantities of glass emerged from the soil, prompting the municipality to determine that the park had to be resurfaced. By way of a third-party complaint, the municipality alleged negligence against the consultant. The consultant moved for summary judgment as to the amount of damages, arguing the limitation of liability provision limits the amount of recovery. The municipality claims this clause is void as a matter of law. In support of its motion, the consultant relied on a Third Circuit opinion holding that a cap on liability is valid, assuming equal bargaining power when the contract was drawn up, since no causes of action are barred and the responsible party remains liable, but only up to the amount stated in the contract. Furthermore, the Third Circuit stated that a limitation of liability clause must be reasonable and not so drastic as to remove the incentive to perform with due care. They found the issue to be whether the cap is so minimal in comparison to the expected compensation as to negate or drastically minimize a contractor’s concern for the consequences of a breach of its contractual obligations.

In deciding this case, the Superior Court agreed with the Third Circuit’s rationale and felt the proper function of a court is to enforce contracts as made by the parties, and not try to draft what they think is a better one. They found that parties to a contract may agree to limit their liability as long as there is arms length bargaining and the limitation does not violate public policy. The Court agreed with the Third Circuit that the sole issue is whether the cap is so minimal compared with the expected compensation that concern for the consequences of a breach is drastically minimized. Since the amount in the limitation of liability clause is the consultant’s entire fee for the project, the Court found the amount not to be minimal, and the agreed upon cap to provide adequate incentive to perform. Furthermore, limiting the consultant’s liability is not against the public interest because the issue is only the amount of damages the consultant must pay. The municipality also attempted to claim that an indemnification clause in the contract was inconsistent with the limitation on liability. However, the Court found them to be consistent since the former only requires the municipality to defend and indemnify the consultant until a court has found the consultant liable for damages, while the latter concerns itself with the dollar amount the consultant must pay if found liable.


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