Superior Court of New Jersey, Appellate Division;147 N.J. Super. 263; 371
A.2d 111; 1977 N.J. Super. LEXIS 681
December 13, 1976, Argued; February 4, 1977, Decided
SUBSEQUENT HISTORY:Reargued January 10, 1977.
PROCEDURAL POSTURE: Plaintiff property owner appealed the decision of a
trial court (New Jersey), which limited defendant installer's liability as
specified in a contract with plaintiff and denied plaintiff's motions for
summary judgment. Defendant telephone company cross-appealed the decision
that plaintiff was not bound by its tariff and its liability was not limited
by plaintiff's contract with defendant installer.

OVERVIEW: Plaintiff property owner sought recovery for property damage and
lost profits from defendants, installer and telephone company, when a fire
extensively damaged his amusement center. Plaintiff alleged that the alarm
system failed to work due to a defect in the alarm system and in the
telephone line connections. Plaintiff appealed and defendants
cross-appealed. As to plaintiff's appeal, the court affirmed the order
limiting defendant installer's liability as specified in its contract with
plaintiff and denying plaintiff's motions for summary judgment. As to
defendant telephone company's appeal, the court affirmed the judgment,
holding that the filed tariffs did not limit defendant telephone company's
liability as plaintiff was a stranger to the tariff and it did not expressly
bind third parties. It was not an error to deny the motion to dismiss the
complaint as defendant telephone company had a duty to exercise due care in
its undertakings to avoid damage or injury to all within the zone of hazard
created by its activity. The trial court correctly decided that the
limitation of liability clause in defendant installer's contract did not
apply to defendant telephone company.

OUTCOME: The court affirmed the orders, which limited defendant installer's
liability as specified in its contract with plaintiff property owner, denied
plaintiff's motions for summary judgment, and held that defendant telephone
company's filed tariffs did not apply to plaintiff who was a stranger to the
tariff. The court also affirmed the denial of a motion to dismiss
plaintiff's complaint as defendant telephone company had a duty to exercise
due care.

COUNSEL: Mr. James Cooper argued the cause for New Jersey Bell Telephone
Company (Messrs. Cooper, Perskie, Katzman, April, Niedelman & Wagenheim,
attorneys; Mr. Lewis B. April, of counsel and on the brief; Ms. Mary M.
Reiss on the brief).

Mr. Franklin Sachs argued the cause for Abel Holding Co., Inc. (Messrs.
Podvey & Sachs, attorneys; Mr. Henry J. Catenacci on the brief).

Mr. Burtis W. Horner argued the cause for American District Telegraph
Company (Messrs. Stryker, Tams & Dill, attorneys; Mr. Stephen D. Cuyler on
the brief).

Messrs. Cole, Koury, Cole & Tighe, attorneys for Grinnell Company, Inc., did
not participate in the appeal.

JUDGES: Bischoff, Morgan and Rizzi.


OPINION: [*266] [**112] Plaintiff Abel Holding Company (Abel) filed a
complaint April 6, 1972 seeking recovery for property damage and loss of
profits sustained when a fire occurring December 27, 1969 extensively
damaged an amusement center known as "Steel Pier" in Atlantic City.

Defendants are the American District Telegraph Company (ADT), New Jersey
Bell Telephone Company (Bell), and Grinnell Company, Inc. (Grinnell).

[**113] Following extensive discovery, a pretrial conference was held.
Thereafter various motions for summary judgment, dismissal and other relief
were argued by the parties. In ruling on these motions the trial judge filed
an opinion, reported at 138 N.J. Super. 137 (Law Div. 1975). Additional
motions were argued before the same judge thereafter and disposed of in an
unreported opinion dated March 3, 1976. The court's rulings on all motions
were incorporated in an order dated April 27, 1976. Abel and Bell both
appeal, pursuant to leave granted, from portions of that order.

The reported opinion sets forth in detail the relationship of the parties as
well as the factual and legal theories relied upon by both plaintiff and
defendants, and they will not be restated here. It is sufficient for our
present purposes to note the following facts.

Plaintiff, the owner of the fire-damaged amusement pier, contracted in 1955
with ADT for the installation of a fire alarm system. The contract between
the parties was on a printed form and was renewed periodically. The last
executed contract, in effect at the time of the fire, was dated May 15,
1969. The alarm system installed [***3] by ADT was [*267] connected to
the fire department by telephone lines owned by Bell. It is alleged that
when the fire occurred the alarm system failed to work as a result of a
defect in the alarm system and in the telephone line connections.

We consider, first, the issues raised by plaintiff's appeal.


The contract between Abel and ADT contained a provision limiting the
liability of ADT to the greater of 10% of the annual service charge or $
250. (This clause is set out in full in the reported opinion, 138 N.J.
Super. at 144.)

ADT moved for an order limiting plaintiff's recovery to 10% of the annual
service charge or $ 250, whichever is greater. The motion was granted and
plaintiff appeals.

We affirm the action of the trial judge in limiting the liability of ADT,
essentially for the reasons expressed in the reported opinion at 145 to 154.


Plaintiff moved for summary judgment on the issue of liability against both
defendants Bell and ADT, and appeals from the denial of both motions.

We affirm the denial, substantially for the reasons expressed by the trial
judge in both the reported opinion and the unreported letter opinion.

We turn to a consideration [***4] of the issues raised by Bell's appeal.


Bell first contends that the tariffs which it is required to file with the
PUC have the force of law and that they completely define the duty owed by
Bell to all persons, including plaintiff, even though plaintiff is not a
customer or party to the service contract existing between Bell and [*268]
ADT. Bell argues that the filed tariffs, when properly interpreted and
applied, limit the liability of Bell to plaintiff insofar as plaintiff's
action against Bell is based on negligence, breach of warranty and strict
liability in tort.

Public utilities are required by statute ( N.J.S.A. 48:2-21) and regulations
promulgated thereunder (Administrative Order 14:280, now N.J.A.C. 14:11-7.1
et seq.) to file tariffs setting forth complete schedules and charges for
all classifications of service provided. Pursuant to this requirement Bell
filed a tariff which provided in part:
In view of the fact that the customer has exclusive control of his
communications [**114] over the facilities furnished him by the Telephone
Company and of the other uses for which facilities may be furnished him by
the Telephone Company, and because [***5] of unavoidableness of errors
incident to the services and to the use of such facilities of the Telephone
Company are subject to the terms, conditions and limitations herein
The liability of the Telephone Company for damages arising out of mistakes,
omissions, interruptions, delays or errors or defects in transmission,
occurring in the course of furnishing service, channels, directory listings,
for which a specific charge is made, or other facilities and not caused by
negligence of the customer or of the Telephone Company in failing to
maintain proper standards of maintenance, operation and practices and to
exercise reasonable supervision, shall in no event exceed an amount
equivalent to the proportionate charge to the customer for the period of
service during which such mistake, omission, interruption, delay, or error
or defect in transmission occurs. The guarantee in connection with
semipublic service shall also be suspended for the time during which such
interruption continues.

Bell argues that this tariff, and the limitation of liability clause
contained therein, is binding alike on the customer and third parties.

A tariff was recently defined in the case [***6] of In re Application of
Saddle River, 71 N.J. 14 (1976), as follows:
A tariff is a published schedule of rates, filed by a public utility, and
thereafter, in the absence of successful challenge, applicable equally to
all customers. Its application may or may not have been [*269] preceded by
a rate-making hearing. As our Appellate Division has recently pointed out,
such a tariff is not a mere contract. It is the law, and its provisions are
binding on a customer whether he knows of them or not. Essex County Welfare
Board v. New Jersey Bell Telephone Co., 126 N.J. Super. 417, 421-22 (App.
Div. 1974). [at 29]

Limitation of liability clauses contained in filed tariffs have been upheld
in various jurisdictions. Most often such cases involve claims based upon
injuries due to allegedly negligent omission of plaintiff's name and number
from the phone directory (see, e.g., McTighe v. New England Tel. & Tel. Co.,
216 F. 2d 26 (2 Cir. 1954); Bird v. Chesapeake and Potomac Tel. Co., 185 A.
2d 917 (D.C. App. 1962); see also, cases collected in Annotation, 92 A.L.R.
2d 917, § 9 (1963)), or for failure to provide adequate phone service [***7]
(see, e.g. Waters v. Pacific Tel. Co., 12 Cal. 3d 1, 114 Cal. Rptr. 753, 523
P. 2d 1161 (Sup. Ct. 1974); Holman v. Southwestern Bell Telephone Co., 358
F. Supp. 727 (D. Kan. 1973); Wheeler Stuckey, Inc. v. Southwestern Bell Tel.
Co., 279 F. Supp. 712 (W.D. Okla. 1967)). However, these cases involve
disputes between the utility and the customer. Counsel has not referred us
to any case where a clause in a filed tariff, limiting liability, was held
binding upon a stranger to the relationship between the utility and the
customer, and our own research has failed to disclose any.

There is no express statement in Bell's filed tariff indicating that it was
intended to bind third parties. In the absence of an express statement
limiting liability, clauses or provisions in contracts purporting to limit
liability are strictly construed. Midland Carpet Corp. v. Franklin
Associated Properties, 90 N.J. Super. 42, 46 (App. Div. 1966). The same
general principle should be applicable to filed tariffs so that where, as
here, the plain language of the limitation of liability clause does not
specifically apply to the situation involved, it will not be construed
[***8] or applied so as to limit the right of one not a party to the
contract to recover against [**115] one who is a party to the contract
[*270] for the latter's tortious conduct. Carbone v. Cortlandt Realty
Corp., 58 N.J. 366, 368 (1971); Horelick v. Pennsylvania R. Co., 13 N.J.
349, 358 (1953).

Moreover, Bell's contention that we should give full force and effect to the
limitation of liability clause contained in the filed tariff against
plaintiff conflicts with the general principle that:

[W]here a party to the agreement is under a public duty entailing the
exercise of care, he may not relieve himself of liability for negligence
through an exculpatory clause; illustrative are common carriers, public
utilities, and the like. See Horelick v. Pennsylvania R. Co., 13 N.J. 349,
357 (1953); 6A Corbin, Contracts, § 1472 (1962); cf. McCarthy v. National
Association for Stock Car Auto Racing, Inc., 48 N.J. 539 (1967). [ Mayfair
Fabrics v. Henley, 48 N.J. 483 (1967)]

Still another and more cogent reason exists for denying Bell's motion
seeking an order limiting its liability to plaintiff under the filed
tariffs. The [***9] filed tariff expressly conditions the effectiveness of
the limitation of liability clause to situations "not caused by negligence
of * * * the telephone company in failing to maintain proper standards of
maintenance, operation and practices and to exercise reasonable

Plaintiff's allegations of Bell's negligence, breach of warranty and strict
liability in tort made in the complaint are now accompanied by a voluminous
discovery record. This record contains complex factual assertions in support
of the allegations made in the complaint, and it is clear that the entry of
summary judgment at this stage of the proceedings would be inappropriate,
Judson v. Peoples Bank and Trust Co. of Westfield, 17 N.J. 67 (1954). We
affirm the judgment denying Bell's motion for a summary judgment limiting
its liability to plaintiff.


Bell contends that the trial judge erred in denying its motion for a
dismissal of plaintiff's complaint, arguing that [*271] it "owes no duty
of reasonable care to persons other than its customers or subscribers" and
that since Abel is neither a customer nor subscriber, it cannot maintain
this action against Bell. This contention is raised [***10] for the first
time on this appeal.

In support thereof, Bell cites H and G Metals, Inc. v. Wells Fargo Alarm
Systems, 45 A.D. 2d 490, 359 N.Y.S. 2d 797 (App. Div. 1974), and other
out-of-state cases. n1 No point will be served by our attempting to
distinguish or analyze the authorities cited. We are not bound by such cases
and, assuming that they support Bell's position, we decline to follow them
or to adopt the reasoning expressed therein.

- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -

n1 The other out-of-state cases cited by Bell as support for this
proposition are: Pollock v. New England Tel. and Tel. Co., 289 Mass. 255,
184 N.E. 133 (Sup. Jud. Ct. 1935); Mentzer v. New England Tel. and Tel. Co.,
276 Mass. 478, 177 N.E. 549 (Sup. Jud. Ct. 1931); Mortenson v. New York Tel.
Co., 32 N.Y.S. 2d 488, mod. on other gds., 179 Misc. 289, 38 N.Y.S. 2d 949
(Sup. Ct. 1942); De Foe v. Potomac Electric Power Co., 123 A. 2d 920 (D.C.
App. 1956).

- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -

The thrust of Bell's argument is that while its customer (ADT) [***11]
could maintain an action against Bell for damages under its contract, a
noncustomer such as plaintiff (Abel) is barred from maintaining an action.
Defendant's position is founded on an erroneous premise. Plaintiff's cause
of action is not predicated on a breach of the contract existing between ADT
and Bell. Rather, it is based on the alleged tortious conduct of Bell. Bacak
v. Hogya, 4 N.J. 417, 422 (1950). The alleged tortious nature of the
[**116] conduct of Bell does not become less actionable because it may also
be the basis of a breach of contract action by ADT against Bell. Bell has a
duty to exercise due care in its undertakings to avoid damage or injury to
all within the zone of hazard created by its own activity. Miller v.
Muscarelle, 67 N.J. Super. 305, 327 (App. Div. 1961).

[*272] We think the proper measure of Bell's duty is expressed in
Restatement, Torts 2d, § 324A (1965):

One who undertakes, gratuitously or for consideration, to render services to
another which he should recognize as necessary for the protection of a third
person or his things, is subject to liability to the third person for
physical harm resulting from his [***12] failure to exercise reasonable
care to protect his undertaking, if (a) his failure to exercise reasonable
care increases the risk of such harm, or (b) he has undertaken to perform a
duty owed by the other to the third person, or (c) the harm is suffered
because of reliance of the other or the third person upon the undertaking.

In Gold Mills, Inc. v. Orbit Processing Corp., 121 N.J. Super. 370 (Law Div.
1972), this section was adopted as a proper statement of the duty owed to
third persons for the negligent performance of an undertaking having its
genesis in contract. In that case the owner of some goods instituted an
action against his bailee and the detective agency that was under a
contractual duty with the bailee to provide security guards. Plaintiff's
goods were stolen and the court held that plaintiff's complaint against the
detective agency set forth a prima facie case sufficient to defeat a motion
for summary judgment.

We believe the same principle should be applied to this case. Hence, the
trial judge did not err in failing to dismiss plaintiff's complaint against

Bell contends that the limitation of liability clause in the contract
between [***13] ADT and plaintiff (discussed and referred to in Part I
hereof) inures to its benefit; that its liability is limited to the same
extent as ADT, and that the judge erred in denying its motion to declare
that its liability was thus limited. Further, Bell argues that the judge
erred in not dismissing plaintiff's claim for loss of profits because under
paragraph D of the contract between plaintiff and ADT, plaintiff was
required to purchase use and occupancy insurance which, it contends, bars it
from [*273] asserting any claim for loss of profits. These arguments are
bottomed in part on the provision of the contract reading:
The Department or other organization to which the connection is made may
invoke the provisions hereof against any claims by the Subscriber due to any
failure of such Department or organization.

Bell argues that it is the "other organization to which the connection is

Judge Horn, in rejecting this contention, said:
In the context of the entire agreement it is clear and unambiguous that the
"connection" referred to in the pertinent clause is the "system" connection
and not individual component connections within the system. "Department
[***14] or other organization" means the fire or police department or
similar organizations as they may be known in various political districts.
As stated by ADT, the language would support Telephone Co.'s position if it
read: "Department or other organization through which the connection is
made." In any event, the language does not support Telephone Co's contention
on this point.

We agree with this construction of the clause.
A prior portion of the contract notes that the "Direct-Connected Protective
Signaling system" would be "connected to Atlantic City Fire Department * *
*." Clearly, then, the connection between the system and the fire department
was the connection being referred to in the limitation of liability clause,
and the third party entitled to the benefit thereof could only have been
intended to be the fire department. The draftsman obviously conceived the
system as including the Bell Telephone lines, not as being connected

Bell's other arguments under this point cannot be supported by either logic
or precedent, and the action of the trial judge in denying Bell's motion to
hold that it is entitled to the benefit of the limitation [***15] of
liability clause in the contract between plaintiff and ADT is affirmed.

The order enterd below, on all issues raised by this appeal, is affirmed.