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North Brunswick Township Board of Education v. French and Parrello Associates, PA

A-5413-06T1 (N.J. Super. App. Div. 2008) (Unpublished)

INSPECTORS — A cap on liability included in an inspector’s contract does not violate public policy where the contracting parties had level bargaining power and, absent the damages cap, the inspector might be held liable for damages far, far in excess of the fee it would receive.

A board of education entered into a contract with an architect to design an addition for a high school. The architect required a geotechnical site evaluation to assist in its planning. It issued a request for quotations for such a report. The firm with the lowest quote sent the architect a proposed contract. The proposed contract did not encompass any environmental assessment and limited the report provider’s liability to $50,000 or the amount of the provider’s agreed fee, whichever was greater.

The architect recommended that the board’s business administrator accept the quote and submitted all the documents accompanying the quote to the administrator. After his review, the administrator approved the quote and issued a purchase order. The geotechnical firm completed its work and, in its report, again indicated that the report’s scope did not include any environmental assessment or investigation for hazardous materials at the site. Almost one year after the report was submitted, the board discovered that the fill referred to in the report was pharmaceutical waste and would have to be removed before the planned high school addition could be built. As a result, the project was delayed for thirteen months. The board filed suit against the geotechnical firm, seeking delay damages of six million dollars. On partial summary judgment, the lower court entered an order that the firm’s liability for damages could not exceed $50,000. The Appellate Division granted the board’s motion for leave to appeal.

The Appellate Division affirmed the ruling. It found that the board did not have to sign the firm’s proposal or initial the terms and conditions to be bound by them. The Court concluded that agents of the board, i.e., the architect and the board’s own business administrator, bound the board by their actions. The Court also held that the cap on the firm’s liability by contract did not violate public policy as the parties had level bargaining power, and, absent the damages cap, the firm would have been held liable for damages that were more than 600% greater than the fee it received. It also found that the liability damages cap presented the geotechnical firm with a realistic incentive to act diligently, and the Court would not rewrite the contract to provide the board with a better bargain than it had reached with the geotechnical firm.

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