Superior Court of New Jersey, Appellate Division; 203 N.J. Super. 477; 497
A.2d 530; 1985 N.J. Super. LEXIS 1468
March 12, 1985, Argued
August 6, 1985, Decided
Approved for Publication September 6, 1985.
On appeal from the Superior Court, Law Division, Essex County.
PROCEDURAL POSTURE: Plaintiff auto repair shop owner sought review of the
judgment of the Superior Court, Essex County (New Jersey), which held that
plaintiff's recovery against defendant burglar alarm company was limited by
the contract provision regarding defendant's negligence, in an action where
plaintiff sought recovery for breach of contract, negligence, and gross and
wanton negligence from an undetected break-in at its premises.

OVERVIEW: After an undetected break-in, plaintiff auto repair shop owner
sought recovery from defendant burglar alarm company for breach of contract,
negligence, and gross and wanton negligence. The parties' contract limited
defendant's liability for losses from failure of services and negligence.
The trial court held the contract limitation was enforceable and, based on
the evidence, limited plaintiff's damages. Plaintiff sought review. On
appeal the court affirmed. The court held an exculpatory clause was valid if
it did not adversely affect the public interest, and if there was not
unequal bargaining power or the clause was not otherwise unconscionable. The
court found the clause limited liability for negligent contract performance,
but that it did not bar a claim of willful and wanton misconduct, which
required reckless indifference to the consequences. The court held there was
insufficient evidence for the jury reasonably to have found willful and
wanton misconduct, that defendant's conduct in interpreting the sounds
emanating from plaintiff's premises during the break-in amounted to
negligence, and the trial court correctly limited plaintiff's recovery to
the contract amount.

OUTCOME: The court affirmed the judgment limiting plaintiff auto repair shop
owner's recovery from defendant burglar alarm company for an undetected
break-in to the contract amount because the contract clause limiting
defendant's liability for losses from negligence was enforceable, it did not
limit recovery for gross and wanton negligence, and the record established
only negligence on the part of defendant.

COUNSEL: Louis A. Vespasiano argued the cause for appellant.

Norman A. Maranz argued the cause for respondent.

JUDGES: Pressler, Brody and Cohen. The opinion of the court was delivered by
Cohen, J.A.D.


OPINION: [*480] [**531] Plaintiff operates an auto body repair shop in
Newark. Defendant installs and services burglar alarm systems. One of its
systems was installed in plaintiff's premises. After an undetected break-in,
plaintiff sued defendant for its losses, charging breach of contract,
negligence and "gross and wanton negligence." A second count was abandoned
at trial.

The break-in occurred during the term of the third annual contract between
the parties. At the beginning of the first contract, defendant sold and
installed sensitive listening equipment in various parts of plaintiff's shop
at a cost to plaintiff of $ 800. Defendant then provided continuous central
station monitoring of the listening equipment during plaintiff's off hours
so that it could detect any sounds of a break-in and immediately alert
plaintiff and the police. [***2] The monitoring charge was $ 50 [*481]
per month. Plaintiff additionally paid the telephone company's charges for a
trunk line connecting its premises with the monitoring station.

The evidence at trial permitted the conclusion that the break-in occurred
about one and a half hours before defendant recognized and reported it; that
the burglars first broke a substantial amount of skylight glass and then
gained entry by smashing through a block wall with a sledge hammer; that a
wall of metal shelves holding paint cans was thrown over and that a good
deal of noisy activity took place over a long period of time in the shop.
[**532] Defendant's monitoring employee failed to detect the break-in
because she turned down the sound volume on the listening equipment to avoid
hearing sounds she considered non hostile, including the barking of
plaintiff's guard dog, which defendant's employees had previously adjudged
overexcitable. She was finally awakened to the true situation only when an
independent perimeter alarm was set off by the burglars' raising an overhead
door to drive away a customer's Cadillac.

In answer to the court's special verdict questions, R. 4:39-1, the jury
[***3] found that defendant failed to perform its contract obligations
reasonably, diligently and competently; that losses of the nature incurred
by plaintiff were foreseeable as a result of a contract breach, and that
losses were incurred by plaintiff as a result of defendant's failure to
perform. The jury was not asked if defendant was guilty of the complaint's
charge of "gross and wanton negligence." The jury was not asked to fix the
quantum of damages. Instead, the court entered judgment for $ 250, for
reasons which occasion plaintiff's appeal.

Each of the three yearly contracts between the parties contained a provision
limiting defendant's liability to $ 250. Among other things, they said:
If Sonitrol should be found liable for loss or damage due to the failure of
its services in any respect, even if due to Sonitrol's negligence, its
liability shall be limited to a sum equal to ten percent of the annual
monitoring charge for the premises or $ 250 whichever is greater, as
liquidated damages and not as a penalty, . . . .

[*482] The first two yearly contracts were accompanied, however, by a
separate guarantee. It promised that, if there was an undetected and
unreported [***4] forcible entry, defendant would make good plaintiff's
losses and damages up to $ 5,000. Partway through the second contract,
defendant revoked the guarantee. When it came time to sign the third
contract, plaintiff asked for the elimination of the provision limiting
defendant's liability in view of the withdrawal of the $ 5,000 guarantee.
Defendant declined to remove the provision, and plaintiff nevertheless
signed the contract. It was satisfied with defendant's services and was
mindful of its own $ 800 investment in equipment, which it was afraid would
be rendered useless by ending defendant's services. n1

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n1 The trial court correctly viewed plaintiff's $ 800 investment in
equipment as insufficient to estop defendant from terminating the $ 5,000
guarantee. It also correctly found no element of coercion or unequal
bargaining power in the contract.

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The clause purports to be a liquidated damage clause, justified, according
to its own language, by the parties' agreement
that Sonitrol is not an insurer, [***5] . . . that the amounts payable to
Sonitrol . . . are based on the value of the services and . . . it is
impractical, if not impossible, to fix the actual damages. . . .

In real effect, however, it is an exculpatory clause, because it denies
liability for all but a nominal amount of damages. The limit of $ 250 is
obviously not the result of an effort to fairly estimate plaintiff's likely
damages from a break-in. Defendant's service cost $ 800 at the outset and $
600 per year plus telephone company charges. It is unlikely that a business
would spend those amounts to protect $ 250.

The trial court held that the contractual limitation on liability was
enforceable and, in the circumstances revealed by the proofs, limited
plaintiff's damages. We agree. Exculpatory clauses like this one are valid
where they do not adversely affect the public interest, where the exculpated
party is not under a public duty to perform, as in the case of a public
utility [*483] or common carrier, and where the contract does not grow out
of unequal bargaining power or is otherwise unconscionable. These principles
have grown out of cases involving burglar alarms, Foont-Freedenfeld Corp.
[***6] v. Electro-Protective Corp., 126 N.J. Super. 254 (App.Div.1973),
aff'd o.b., 64 N.J. 197 (1974); fire alarms, Abel Holding Co., Inc. [**533]
v. American Dist. Telegraph Co., 138 N.J. Super. 137 (Law Div.1975) aff'd
147 N.J. Super. 263 (App.Div.1977); and lease provisions assigning to an
industrial or commercial tenant the risk of loss of its goods however
caused. Midland Carpet Corp. v. Franklin Assoc. Properties, 90 N.J. Super.
42 (App.Div.1966). Such a clause will not be enforced in the case of a
residential apartment lease where suitable living quarters are at a premium
and unequal bargaining power results, Kuzmiak v. Brookchester, 33 N.J.
Super. 575 (App.Div.1955), or where the limitation clause is hidden in a
provision ostensibly conferring a benefit on the buyer of fire protection
equipment. Jutta's, Inc. v. Fireco Equipment Co., 150 N.J. Super. 301

The cited cases do not determine what effect the clause has on plaintiff's
cause of action. Neither Foont-Freedenfeld nor Abel Holding Co. nor Midland
Carpet involved allegations of the kinds of extreme departure from diligent
contract performance [***7] charged in the present complaint. Plaintiff
charged defendant, not only with breach of contract and negligence, but also
with "gross and wanton negligence." The present contract clause limits
damages recoverable for its failures "in any respect, even if due to
Sonitrol's negligence." The clause thus applies to a default in any aspect
of Sonitrol's service, and it is not rendered inoperative if the default was
negligently caused. The clause does not purport to limit liability for
willful and wanton misconduct. Although plaintiff's complaint is
inarticulately drawn, we read it to charge willful and wanton misconduct in
addition to a high degree of negligence.

An exculpatory clause that purports to shield a commercial landlord from
liability to tenant for negligence must [*484] plainly say so, unless the
intent to do so is evident from the arrangement of the parties. Carbone v.
Cortlandt Realty Corp., 58 N.J. 366, 368 (1971); Freddi-Gail v. Royal
Holding Corp., 34 N.J. Super. 142 (App.Div.1955). See also Rubin v. A.M.C.
Home Inspection & Warranty Service, 175 N.J. Super. 315 (Law Div.1980),
involving a home inspection service contract. We hold that [***8] an
exculpatory clause may expressly excuse or limit liability for negligent
contract performance, but that such a clause does not operate to bar a claim
of willful and wanton misconduct.

In Kuzmiak v. Brookchester, 33 N.J. Super. at 580, this court stated in
dictum that, although a promise not to sue for simple negligence may be
valid, an attempted exemption from liability for intentional tort or willful
act or gross negligence is generally declared to be void. In Swisscraft
Novelty Co. v. Alad Realty Corp., 113 N.J. Super. 416 (App.Div.1971), this
court quoted the Kuzmiak dictum and held that an exculpatory lease clause
that was sufficient to bar damage suit for lessor negligence would not bar a
complaint alleging willful and wanton misconduct or gross negligence.

Willful and wanton misconduct is different in kind from negligence. It is
defined in McLaughlin v. Rova Farms, Inc., 56 N.J. 288, 305 (1970):
[I]t must appear that the defendant with knowledge of existing conditions,
and conscious from such knowledge that injury will probably or likely result
from his conduct, and with reckless indifference to the consequences,
consciously and [***9] intentionally does some wrongful act or omits to
discharge some duty which produces the injurious result.

See also Tabor v. O'Grady, 59 N.J. Super. 330, on reh. 61 N.J. Super. 446
(App.Div.1960). Thus, a contract clause that bars suit for negligent failure
to perform contract responsibilities does not bar suit for willful and
wanton misconduct. Gross negligence, however, is different from negligence
only in degree. There is no reason why that difference should have an
operative effect in the circumstances of this case. Cf. Di Giovanni v.
Pessel, 55 N.J. 188 (1970). The difference has no [*485] vitality under
the comparative negligence statute, N.J.S.A. [**534] 2A:15-5.1, Draney v.
Bachman, 138 N.J. Super. 503 (Law Div.1976). We hold that an exculpatory
clause which bars suit for negligent performance of contractual duties also
bars suit for very negligent or grossly negligent performance. n2

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n2 To that extent, we are constrained to disagree with portions of Kuzmiak
v. Brookchester, supra, and Swisscraft Novelty Co. v. Alad Realty Corp.,

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In other jurisdictions, the better authorities support our views. In
Peacock's, Inc. v. South Central Bell, 455 So.2d 694 (La.App.1984), a
telephone company tariff which limited liability for negligent performance
did not bar suit charging the company with willful misconduct in connecting
a burglar alarm system. In Morgan Co. v. Minnesota Min. & Mfg. Co., 310
Minn. 305, 246 N.W.2d 443 (1976), an exculpatory clause in a burglar alarm
contract which excused negligent nonperformance did not bar suit charging
intentional misconduct and "willful and wanton negligence." The court did
not define the latter term. In Shaer Shoe Corp. v. Granite State Alarm,
Inc., 110 N.H. 132, 262 A.2d 285 (1970), a sprinkler system contract which
limited liability for "willful default or negligence" was held effective to
bar suit for both causes of action. n3

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n3 We do not decide whether such a broad exculpatory clause would be
enforceable in New Jersey. We merely note that the parties and the court
recognized that there were two distinct causes of action and dealt with

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In Lenny's Inc. v. Allied Sign Erectors, Inc., 170 Ga.App. 706, 318 S.E.2d
140 (1984), a provision in a lease of a fire detection system limited
damages for negligent performance. The provision was held ineffective in a
case of willful and wanton conduct. In Carriage Meat Co., Inc. v. Honeywell,
Inc. 442 So.2d 796 (La.App.1983), a contract to monitor the temperature of a
commercial freezer limited liability for negligent nonperformance. The
clause was held not to apply to willful failure to perform or other
deliberate disregard of duty.

Florida has held that an exculpatory clause in a burglar alarm contract
barring suit for negligent performance also bars [*486] suit charging
gross negligence, but not intentional tort. L. Luria & Son, Inc. v.
Honeywell, Inc., 460 So.2d 521 (Fla.App.1984); Rollins, Inc. v. Heller, 454
So.2d 580 (Fla. 3rd DCA 1984), reh. den. 461 So.2d 114 (Fla.1985). One
federal court, applying Pennsylvania law, has ruled the other way in a case
factually like this one. Douglas W. Randall, Inc. v. AFA Protective Systems,
516 F.Supp. 1122 (E.D.Pa.1981), aff'd 688 F.2d 820 (3 Cir.1982).

The trial court [***12] ruled that plaintiff's evidence, viewed most
favorably and indulgently, was insufficient to show "reckless disregard of
consequences." We agree that there was insufficient evidence for the jury
reasonably to have found willful and wanton misconduct. Defendant's conduct
was, at worst, negligent misjudgment in interpreting the sounds emanating
from plaintiff's premises during the break-in. For that reason, the trial
court was correct in limiting plaintiff's recovery to the amount permitted
by the contract in cases of defendant's negligence.