Calvin Houghland and wife Josephine Houghland, Plaintiffs/Appellees v. Security Alarms & Services, Inc., Defendant/Appellant

Calvin Houghland and wife Josephine Houghland, Plaintiffs/Appellees v.
Security Alarms & Services, Inc., Defendant/Appellant

[NO NUMBER IN ORIGINAL]

Supreme Court of Tennessee

755 S.W.2d 769; 1988 Tenn. LEXIS 124


July 5, 1988, Filed

SUBSEQUENT HISTORY: Petition for Rehearing Denied August 15, 1988.

PRIOR HISTORY:

[**1]

Appeal from the Court of Appeals, Davidson Circuit, S. Ct. No. 86-22-I,
Honorable Harry Lester, Judge

DISPOSITION: REVERSED AND REMANDED.


CASE SUMMARY

PROCEDURAL POSTURE: Appellee homeowners commenced suit against appellant
security company to recover from losses suffered in a burglary of their
home. The trial court directed a verdict under the Tennessee Consumer
Protection Act, Tenn. Code Ann. § 47-18-101 et seq, and a jury found for
appellees on all other claims and awarded damages. On appeal, the Court of
Appeals, Davidson Circuit (Tennessee), reversed the award of damages and
appellant sought review.


OVERVIEW: Appellee homeowners commenced an action in breach of contract,
breach of warranties, negligence, intentional misrepresentation, and
deceptive trade practices under the Tennessee Consumer Protection Act
(TCPA), Tenn. Code Ann. § 47-18-101 et seq., against defendant security
company after appellee's home was burglarized. The trial court directed a
verdict in favor appellee on the TCPA claim, and a jury found for appellees
on all other claims and awarded damages. On appeal, the appellate court
affirmed as to the liability award, but remanded for a new trial on damages.
Appellant sought review. On appeal, the court reversed. The court held that
(1) there was insufficient evidence to show deliberate fraud; (2) there was
no evidence of negligent material misrepresentation of a past or existing
fact vitiating the contract or to allow a recovery free from the contract's
limitations; (3) there was no evidence that the contract was rescinded; and
(4) the trial court correctly directed a verdict on the TCPA claim. The
court remanded the case to for a new trial and limited damages subject to
the contractual limitations.


OUTCOME: The court reversed the order of the appellate court and remanded
the case to the trial court for a new trial as to issues concerning breach
of contract or negligence in its performance, but limited damages subject to
the contractual agreement between appellant security company and appellee
homeowners.

COUNSEL: Jonathan M. Harwell, Harwell, Barr, Martin & Stegall, Nashville,
Tennessee, Glenn B. Rose, Harwell, Barr, Martin, & Stegall, Nashville,
Tennessee, Craig V. Gabbert, Jr., Harwell, Barr, Martin & Stegall,
Nashville, Tennessee, for Plaintiffs/Appellees.

John E. Brandon, Watkins, McGugin, McNeilly & Rowan, Nashville, Tennessee,
Daniel R. Loftus, Watkins, McGugin, McNeilly & Rowan, Nashville, Tennessee,
Steven D. Parman, Watkins, McGugin, McNeilly & Rowan, Nashville, Tennessee,
John Carlson, Watkins, McGugin, McNeilly & Rowan, Nashville, Tennessee, for
Defendant/Appellant.

JUDGES: William J. Harbison, C.J. Fones, Cooper, Drowota and Brock, JJ.,
concur.

OPINIONBY: HARBISON

OPINION: [*770] Appellees brought this action against appellant to recover
losses suffered in a burglary of their home which occurred on the evening of
August 31, 1980. The complaint, as amended, alleged numerous theories of
liability, including breach of contract, breach of warranties, negligence,
intentional misrepresentation, negligent misrepresentation, and deceptive
trade practices under the Tennessee Consumer [**2] Protection Act, T.C.A.
§§ 47-18-101 through 117.

The trial judge directed a verdict on the Consumer Protection Act claim but
submitted the case to the jury as to all of the other claims. The jury
returned a general verdict in favor of the plaintiffs in the amount of $
100,000. The Court of Appeals held that the evidence was insufficient to
support the jury verdict on some of the claims and that limitations in the
contract between the parties would govern other claims. It held that there
was sufficient evidence of negligent misrepresentation to sustain the
verdict for the plaintiffs free of the contractual limitations. Finding
error in the admission of evidence with respect to the amount of the award,
however, the Court of Appeals reversed for a new trial limited to the
question of damages only.

After carefully reviewing the record, we agree with the Court of Appeals
that there was insufficient evidence of intentional tort or deliberate
fraud, and in our opinion [*771] there was no basis for the submission of
these issues to the jury. Further, in our opinion there is no evidence of
any negligent material misrepresentation of a past or existing fact which,
if made, would be sufficient to vitiate [**3] the contract or to allow a
recovery free from its limitations with respect to coverage and damages. In
our opinion the only tenable theories upon which sufficient evidence was
offered to make a jury issue at trial were those alleging breach of contract
or negligence in performance of the contract. These claims, even if resolved
in favor of the appellees, would be subject to the exculpatory and limiting
provisions of the contract. There is no evidence in the record which would
justify a rescission of the agreement between the parties, and none was
sought at trial. In our opinion the trial judge correctly directed a verdict
on the count alleging violation of the Consumer Protection Act.

There is almost no dispute as to the material facts in the case. In 1977 Mr.
and Mrs. Houghland entered into a contract with appellant Security Alarms
and Services, Inc. under which the latter agreed to provide security
equipment and services for the home of appellees. In addition to alarms
installed in the home, the equipment consisted of a "loop" system connecting
the home of appellees to a central office, or alarm station, operated by
appellant. This service was tied into the local telephone system, [**4]
and the homes and businesses of a number of other customers were also part
of the system. If an alarm were transmitted to the office of appellant from
the customers on this "loop", personnel at the central office were unable to
identify the precise source of the alarm. It was necessary for appellant to
send a service representative to the premises of each customer to discover
the origin of an alarm.

There is no claim that the original system was improperly installed or that
there was any misrepresentation made concerning it. The original contract
recited that Security Alarms was not in the business of writing burglary or
other kinds of insurance. The subscribers expressly and unconditionally
released Security Alarms from all hazards which were covered by insurance.
The contract also contained a liquidated damages clause which fixed the
liability of appellant at a specified sum. This amount was agreed upon as
liquidated damages and as the exclusive remedy unless the subscriber desired
the appellant to assume greater liability on a graduated scale of increasing
rates. No such additional coverage was purchased by the subscribers.

About two years later the property manager for Mr. and [**5] Mrs.
Houghland contacted a sales representative of appellant and asked the latter
to meet him at the Houghland premises to examine the equipment then
installed and to discuss the possibility of additional equipment which would
provide further protection from both fire and burglary. On September 19,
1979, the sales representative of appellant wrote to the Houghland agent
describing an additional telephone line security device, called a
"transceiver", which would provide further security in that it would "call"
appellant's office immediately if the telephone line should be cut or there
should be an attempt to compromise it. In the letter appellant's employee
also stated that it was the policy of Security Alarms and Services, Inc. "to
dispatch the appropriate law enforcement department on all burglar alarm
signals and the appropriate fire department on fire alarm signals, received
at our Central Station." The letter pointed out that appellant could not and
did not assume responsibility for the actions of police or fire department
dispatchers to have their representatives respond to alarms.

The letter proposed installation of the security transceiver. The parties
also negotiated for additional [**6] fire alarm equipment which is not
involved here.

On October 2, 1979, a rider to the 1977 agreement was executed, calling for
installation of the additional security equipment. The equipment was
installed shortly thereafter and apparently operated as represented and
without difficulty for more than nine months.

During those nine months three burglar alarm signals were received from the
[*772] Houghland residence at the central office of appellant, these
occurring on October 27, 1979, July 2, 1980, and August 26, 1980, the latter
being only five days before the incident out of which this suit arose.

On each of these occasions, as well as on an earlier occasion in September
1979, appellant's representatives, upon receiving a burglar alarm signal at
the central office, notified appropriate police authorities; and police
officers were dispatched in each instance. On all four occasions, however,
the alarms were false, apparently having been set off accidentally by
members of the family; and on three of the occasions, the police officers
were recalled by radio before they ever reached the Houghland premises.

It is uncontradicted in the record that it was the firm and established
policy of appellant [**7] to dispatch the police whenever a burglar alarm
signal was received at the central office. As stated previously, the
appellant had done so on four occasions prior to the incident in question,
three of them occurring after installation of the additional equipment under
the 1979 contract rider.

This evidence was uncontradicted and unimpeached. There was no basis in the
record for the trial judge to instruct the jury that the plaintiffs might
recover upon a theory of negligent misrepresentation in the inducement of
the contract or "promissory fraud" -- entering into a contract with no
intention to perform it.

On the night of August 31, 1980, a signal was received in the central office
of appellant at about 9:29 p.m. which did not appear to the personnel then
on duty to be a burglar alarm. Instead, it appeared to them to be a signal
indicating a problem with the telephone lines in the Brentwood area where
the property of appellees is situated. The central office equipment of
appellant was closely tied to and depended upon the telephone system. When
there was difficulty with the telephone lines, from bad weather or other
causes, the alarm signals could also be accidentally activated or [**8]
the alarm service could be interrupted.

About twelve minutes after the line light went out on the transceiver for
the Houghland residence, another signal was received that indicated that the
entire loop had "gone open." Thereafter, a signal was received from another
transceiver on the system at a residence located some distance from the
Houghland residence.

An armed service representative of appellant was dispatched to check each of
the premises serviced on this loop to try to locate the difficulty. He had
gone to three other locations before reaching the Houghland residence at
about 10:25 p.m., or a little less than an hour after the original signal
had been received at the central office. He walked around the house using
his flashlight but did not detect any sign of burglary or other difficulty.

The appellees had declined to provide appellant or its representatives with
keys to their residence, as they might have done under the terms of their
contract. Instead they had provided a list of persons to be notified by
telephone if the Houghlands were not at home when any kind of fire or
burglary signal was received at the central office. Representatives of
appellant called the son-in-law [**9] of the Houghlands, who lived nearby,
and told him that there appeared to be difficulty with the telephone lines
in the area. They asked whether he wished to meet another service
representative of appellant at the premises in order that the latter might
enter the home and check the alarm system. The son-in-law declined, stating
that he felt that the matter could wait until the following morning. Mr. and
Mrs. Houghland were out of the state on the evening in question.

Early the next morning a servant entering the home found that a break-in had
occurred. He notified the police and other Houghland employees. It was found
that entry had been made into the home on the third floor through a ladder
which had later been thrown into the swimming pool. A telephone wire some
nine feet above the ground had been cut.

The burglars had stolen a large amount of jewelry and other personal
property. This loss was partially covered by insurance [*773] carried by
appellees, and the latter received a total of $ 81,144 from their insurance
carriers for the loss sustained. Appellees offered evidence that the value
of jewelry and silver taken from the residence exceeded $ 185,000.

As stated previously, in our opinion, [**10] the evidence, taken most
favorable to the appellees, might support a finding that the appellant and
its employees had breached their contract or that they were negligent in
responding to the alarm signals. Of course, a jury might also conclude that
these employees had made a reasonable decision to have the premises on the
loop examined before calling the police in view of the ambiguity of the
signals actually received. Beyond this, in our opinion, none of the other
theories advanced by appellees were supported by sufficient evidence to
warrant submission to the jury; and the case should be re-tried without
reference to claims of misrepresentation, intentional or otherwise.

As stated previously, the Court of Appeals held that there was no evidence
of intentional fraud, deceit, or intentional misrepresentation. We agree
with that conclusion. In the absence of that kind of tortious conduct, in
our opinion, the parties are bound by the contractual provisions contained
in the 1977 agreement, which was supplemented and amended by the 1979 rider.
We agree with the Court of Appeals that the 1979 rider cannot be considered
a separate and independent agreement, devoid of the exculpatory and [**11]
limiting provisions contained in the original agreement of 1977. It was
nothing more than a rider, and it is governed by the same terms as those
originally agreed upon in 1977.

There is nothing in public policy to render inoperative or nugatory the
contractual limitations contained in the 1977 agreement. Limitations against
liability for negligence or breach of contract have generally been upheld in
this state in the absence of fraud or overreaching. See generally Affiliated
Professional Services v. South Central Bell Telephone Co., 606 S.W.2d 671
(Tenn.1980); Empress Health and Beauty Spa, Inc. v. Turner, 503 S.W.2d 188
(Tenn.1973); Restatement (Second) of Contracts § 195 (1981). In many
instances such agreements will not be enforced as to licensed professional
personnel. See Olson v. Molzen, 558 S.W.2d 429 (Tenn.1977). There are also
statutes regulating some commercial activities which render such agreements
invalid or of limited effect. See T.C.A. § 62-6-123 (dealing with
construction and building contracts); T.C.A. § 66-28-203(a) (dealing with
certain provisions in residential leases). Appellees have not contended that
any of these statutory provisions [**12] are applicable to the operations
of appellant; nor, indeed, have they insisted that the contractual
limitations were void. Instead, appellees have insisted that the contract
provisions were inapplicable because of misrepresentations made by the sales
representative of appellant when the 1979 contract rider was executed. The
record does not support appellees' insistence of a misrepresentation in the
inducement of the 1979 rider.

Limitations such as those contained in the present contract have generally
been deemed reasonable and have been sustained in actions against the
providers of burglary and fire alarm services. See Ace Formal Wear v. Baker
Protective Service, Inc., 416 So.2d 8, 9 (Fla.App.1982); Vallance & Co. v.
De Anda, 595 S.W.2d 587, 590 (Tex.Civ.App.1980), and cases cited therein.
Such clauses do not ordinarily protect against liability for fraud or
intentional misrepresentation. See Luria & Son, Inc. v. Honeywell, Inc., 460
So.2d 521 (Fla.App.1984); Morgan Co. v. Minnesota Mining & Manufacturing
Co., 310 Minn. 305, 246 N.W.2d 443, 448 (1976). In the latter case the
exculpatory clauses were sustained except for claims of intentional
wrongdoing and fraud.

Apparently [**13] the Court of Appeals concluded that there were negligent
misrepresentations in the inducement of the contract which would be
sufficient to rescind the contract or otherwise render its provisions
inapplicable. This was the effect of the jury instructions given by the
trial judge in the present case. We respectfully [*774] disagree. We do
not find in this record any evidence which would support such a jury
instruction by the trial judge or such a conclusion as found by the Court of
Appeals.

For many years Tennessee has recognized the tort of negligent
misrepresentation in connection with business or professional persons who
carelessly or negligently supply false information for the guidance of
others in their business transactions. See Stinson v. Brand, 738 S.W.2d 186,
190 (Tenn.1987); Tartera v. Palumbo, 224 Tenn. 262, 453 S.W.2d 780 (1970).
This theory of law, however, does not convert every breached promise or
contractual undertaking into a basis for the rescission of otherwise valid
contracts and the abrogation of their terms. As stated in Keeton, et al.,
Prosser and Keeton on The Law Of Torts, § 109 (5th ed. 1984):
When a promise is made in good faith, with the expectation [**14] of
carrying it out, the fact that it subsequently is broken gives rise to no
cause of action, either for deceit, or for equitable relief. Otherwise any
breach of contract would call for such a remedy.

In the present case the Court of Appeals found that the evidence was
sufficient to establish a negligent misrepresentation of the policy and
practice of reporting burglar alarms to the police and of the capability of
the proposed equipment to identify appellees' home as the scene of an
intrusion. We respectfully disagree. We find that there was no evidence of
misrepresentation concerning the policy and practice of appellant which, as
previously stated, was carried out in every instance in which an
identifiable burglar alarm was received. Further, the equipment did, in
fact, report a signal to the central office on the occasion in question as
well as several previous ones. In our opinion, as previously stated, any
mistake or misjudgment by the central office personnel would not amount to a
misrepresentation in the inducement which would vitiate or render
inoperative the contractual provisions between these parties.

The Court of Appeals reversed the judgment of the trial court as to the
[**15] amount of the award upon the ground that there was insufficient
proof that the damage appraisals contained in the record covered the items
stolen in the burglary. In this regard we are of the opinion that the Court
of Appeals was in error. There was, under the testimony of Mr. Houghland
himself, sufficient proof to identify the property appraised as that which
had been the subject of the theft.

The judgment of the Court of Appeals is reversed, and the cause is remanded
to the trial court for a new trial as to issues concerning breach of
contract or negligence in its performance, subject to the contract
provisions themselves as to limitations of liability or hazards covered by
insurance. Costs incident to the appeal will be taxed to appellees. All
other costs will be fixed by the trial court.

Fones, Cooper, Drowota and Brock, JJ., concur.