The split 4-3 decision of the New York Court of Appeals in The Trustees of Columbia University in New York City c. D’Agostino Supermarkets, 36 NY3d 69 (2020) questioned predictability the treatment by the courts of what most saw as a foolproof contractual clause: damages. See Adam Leitman Bailey and Dov Treiman, “An Unsettling Decision for Liquidated Damages in Settlement Agreements”, New York Law Journal (February 16, 2021). The majority concluded that the damages clause in a commercial lease waiver agreement between two well-advised sophisticated parties was an unenforceable penalty because it resulted in damages grossly disproportionate to the amount of the actual damages (seven times the actual damage). The dissent, focused on freedom of contract, would have confirmed the provision as not violating public order.

The potential determination that damages are not necessarily exempt from a “disproportionality” challenge is not the only potentially problematic aspect of damages, particularly in the context of construction contracts. Accordingly, special consideration should be given to the development and drafting of damages provisions under New York law.