REED'S JEWELERS, INC. v. ADT COMPANY
COURT OF APPEALS OF NORTH CAROLINA; 43 N.C. App. 744; 260 S.E.2d
107--October 18, 1979, Heard in the Court of Appeals
November 20, 1979, Filed
PRIOR HISTORY: Appeal by plaintiff from Tillery, Judge. Judgment entered 4
December 1978 in Superior Court, New Hanover County.
PROCEDURAL POSTURE: Plaintiff jeweler challenged the judgment of the
Superior Court, New Hanover County (North Carolina), which granted defendant
security company's (company) motion for summary judgment in an action by the
jeweler for breach of contract.
OVERVIEW: The jeweler contended that the trial court improperly granted the
company's motion for summary judgment in a breach of contract suit because
there were issues of fact to be decided at trial. The court disagreed and
affirmed the decision. The jeweler contended that under North Carolina law,
contractual provisions providing for liquidating damages for breach of a
contract may be upheld, but contractual provisions providing for a penalty
for breach of a contract would not be enforced, and that at trial, the
jeweler would have developed evidence which would prove the contractual
provisions in question were in the nature of a penalty rather than
liquidated damages. The court found the provision in question to be a
limitation of liability, not a liquidated damages or penalty provision. A
contractual provision limiting the liability of the company to a sum equal
to 10 percent of the annual service charge or $ 250, whichever was greater,
was a valid limitation of liability. Because the provision was set out in
the contract in bold print, and because neither party denied the contract's
contents, there was no issue at dispute, and summary judgment was proper.
OUTCOME: The court affirmed the grant of summary judgment to the company in
an action by the jeweler for breach of contract.
SYLLABUS: Plaintiff filed its complaint against defendant alleging that
plaintiff suffered a loss of $ 38,700 in a break-in at its store as a direct
result of the defendant's negligence, gross negligence, breach of express
warranty, breach of implied warranty of fitness, and breach of implied
warranty of merchantability. Such negligence and breach of warranty
allegedly occurred through defendant's manufacturing and distributing of an
alarm system with defective parts; inadequately testing and inspecting this
system; failing to use proper materials in manufacturing; and improperly
monitoring, designing and installing the system.
Defendant answered, alleging that the language in bold print in Paragraph E
of its contract with plaintiff for [***2] installation and maintenance of
the alarm system limited its liability to $ 250. Plaintiff admitted the
genuineness of the contract and admitted that it never made a payment to
defendant for purchase of an insurance policy. In answering interrogatories,
plaintiff stated that it had numerous false alarms and malfunctioning
following installation of the system, that each time defendant would
eventually respond to its calls, that wires were reconnected after each
call, and that it did not know the exact dates of each malfunction or what
work was done. Defendant moved for summary judgment which was allowed, and
COUNSEL: Herbert J. Zimmer, for plaintiff appellant.
Womble, Carlyle, Sandridge & Rice, by Allan R. Gitter and Joseph T.
Carruthers, for defendant appellee.
JUDGES: Erwin, Judge. Judges Vaughn and Hill concur.
OPINION: [*745] [**108] Plaintiff presents one question for review: "Was
it proper for the court to grant the defendant appellee's motion for summary
judgment?" We answer, "Yes," for the reasons that follow.
G.S. 1A-1, Rule 56(c), of the Rules of Civil Procedure provides that summary
judgment shall be entered "if the pleadings, depositions, [***3] answers
to interrogatories, and admissions on file, together with the affidavits, if
any, show that there is no genuine issue as to any material fact and that
any party is entitled to a judgment as a matter of law." See also Kidd v.
Early, 289 N.C. 343, 222 S.E. 2d 392 (1976), and Kessing v. Mortgage Corp.,
278 N.C. 523, 180 S.E. 2d 823 (1971). The burden of establishing the lack of
any triable issue of fact is on the party moving for summary judgment, and
the movant's papers are carefully scrutinized while those of the opposing
party are regarded with indulgence. Page v. Sloan, 281 N.C. 697, 190 S.E. 2d
189 (1972). The judge's role in ruling on a motion for summary judgment is
to determine whether any material issues of fact exist that require trial.
Plaintiff contends that the court improperly granted defendant's motion for
summary judgment, because there were issues of fact to be decided at trial.
The contract between plaintiff and defendant provided in bold print:
"E. It is understood that the contractor is not an insurer, that insurance,
if [**109] any, shall be obtained by the subscriber and that the amounts
payable to the contractor hereunder are based [***4] upon the value of the
services and the scope of liability as herein set forth and are unrelated to
the value of the subscribed property or others located in subscriber's
premises, the contractor makes no guaranty or warranty, including any
implied warranty or merchantability or fitness that the system or services
supplied, will avert or prevent occurrences or the consequences therefrom,
which the system or service is designed to detect. It is impractical and
extremely difficult to fix the actual damages, if any, which may proximately
result from failure on the part of the contractor to perform any of its
obligations hereunder. The subscriber does not desire this contract to
provide for full [*746] liability of the contractor and agrees that the
contractor shall be exempt from liability for loss or damage due directly or
indirectly to occurrences, or consequences therefrom, which the service or
system is designed to detect or avert; that if the contractor should be
found liable for loss or damage due to a failure of service or equipment in
any respect, its liability shall be limited to a sum equal to ten percent of
the annual service charge or $ 250, whichever is the greater, [***5] as
liquidated damages and not as a penalty. As the exclusive remedy, and that
the provisions of this paragraph shall apply if loss or damage, irrespective
of cause or origin, results directly or indirectly to person or property
from performance or nonperformance of obligations imposed by this contract
or from negligence, active or otherwise, of the contractor, its agents or
employees, if the subscriber desires the contractor to assume a greater
liability, contractor will amend this agreement to allow the subscriber to
pay an additional annual amount necessary to purchase an insurance policy
for such greater liability. No such amendment shall be effective unless
signed by the subscriber, contractor and insurance carrier which will be
insuring the additional liability." [The foregoing quotation typed from
material in all caps]
Plaintiff contends under North Carolina law, contractual provisions
providing for liquidating damages for breach of a contract may be upheld,
but contractual provisions providing for a penalty for breach of a contract
will not be enforced, and that at trial, plaintiff would have developed
evidence which would prove that the contractual provisions in question
[***6] are in the nature of a penalty rather than liquidated damages.
We believe plaintiff has misconstrued the nature of the contractual
provision. The provision when properly construed is a limitation of
liability and not a liquidated damages or penalty provision. Although, the
words, "liquidated damages," were used in the contract, their use has little
bearing on the nature of the provision. Wedner v. Fidelity Security Systems,
Inc., 228 Pa. Super. Ct. 67, 307 A. 2d 429 (1973). See also Horn v.
Poindexter, 176 N.C. 620, 97 S.E. 653 (1918).
"An agreement limiting the amount of damages recoverable for breach is not
an agreement to pay either liquidated [*747] damages or a penalty. Except
in the case of certain public service contracts, the contracting parties can
by agreement limit their liability in damages to a specified amount, either
at the time of making their principal contract, or subsequently thereto.
Such a contract does not purport to make an estimate of the harm caused by a
breach; nor is its purpose to operate in terrorem to induce performance."
Restatement of Contracts § 339, Comment g on Subsection (1) (1932).
Thus, the real question is whether [***7] the limitation of damages set out
above is valid.
In Gas House, Inc. v. Southern Bell Telephone Co., 289 N.C. 175, 221 S.E. 2d
499 (1976), our Supreme Court held that a contract provision limiting a
telephone company's liability for errors or omissions in an advertisement in
the yellow pages of a telephone directory to the cost of the advertisement
was not unreasonable and not contrary [**110] to public policy. A
contractual provision limiting the liability of the supplier or installer of
a burglar alarm system to "a sum equal to ten percent of the annual service
charge or $ 250, whichever is the greater," is likewise a valid limitation
of liability. See Central Alarm of Tucson v. Ganem, 116 Ariz. 74, 567 P. 2d
1203 (1977); Feary v. Aaron Burglar Alarm, Inc., 32 Cal. App. 3d 553, 108
Cal. Rptr. 242 (1973); Niccoli v. Denver Burglar Alarm, Inc., 490 P. 2d 304
(Colo. App. 1971); Pick Fisheries, Inc. v. Burns Electron. Sec. Serv., Inc.,
35 Ill. App. 3d 467, 342 N.E. 2d 105 (1976); Morgan Co. v. Minnesota Min. &
Mfg. Co., 310 Minn. 305, 246 N.W. 2d 443 (1976); Foont-Freedenfeld Corp. v.
Electro-Protective Corp., 126 N.J. Super. Ct. 254, 314 A. 2d 69 (1973);
[***8] Wedner v. Fidelity Security Systems, Inc., 228 Pa. Super. Ct. 67,
307 A. 2d 429 (1973).
The contractual provision in question was set out in the contract in bold
print. Neither party contends the contract in question was not signed by it
nor does the plaintiff deny its contents. We hold the summary judgment
entered by the trial court was proper in all respects.
The judgment entered below is
REED'S JEWELERS, INC. v. ADT COMPANY
REED'S JEWELERS, INC. v. ADT COMPANY