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Mayfair Fabrics v. Henley

Decided: June 5, 1968.


Ackerman, J.s.c.


[101 NJSuper Page 365] This is a further sequel to the decision in Mayfair Fabrics v. Henley, 48 N.J. 483 (1967), hereinafter referred to as " Mayfair Fabrics -- 1", which dealt with the interpretation and effect of an exculpatory clause and provision for insurance in a commercial lease between

William and Jean Natell, the owners and landlords of a commercial building, and the Mayfair Fabrics, Inc., a New Jersey corporation, which was the sole tenant of the building.

On August 10, 1963, while the business operations of the tenant of knitting and manufacturing cloth products were in progress, with its employee Preben Jensen at work in the building, a disastrous fire occurred. The building was damaged to the extent of $33,179.20, for which the landlords were fully reimbursed by their fire insurance carrier. The tenant suffered damage in the amount of approximately $251,200, consisting of direct property damage to its machinery, equipment and materials in the amount of $179,333.55, for which it was fully reimbursed by its fire insurance carriers, plus out-of-pocket property losses in the amount of $11,155.75 and a loss profit claim of $60,728.83 which were not covered by insurance.

Cross-suits were commenced by the landlords and by the tenant charging each other with negligence and seeking to recoup the full amount of losses sustained. As is apparent from the facts recited above, the suit by the landlords was wholly a subrogation action by its fire insurance carrier and the action by the tenant was in part a subrogation action. The landlords, in addition to suing the corporate tenant, joined Jensen, the tenant's employee, as a defendant, alleging that the fire was caused by his negligence.

A succession of motions for summary judgment followed, each dealing with the effect of the following clause which was contained in a typewritten rider attached to the printed form of the lease as paragraph 28 thereof:

"It is mutually agreed that the landlords will insure the building against fire and the tenant agrees to carry fire insurance upon all equipment and personal property used, placed or stored in, on or near, the leased premises and in no event shall the landlord be responsible or liable for loss or damage to the tenant's property by fire, explosion or otherwise. In the event that the hazards of the tenant's business makes it impossible for landlords to obtain fire insurance at standard rates covering the said building then this lease shall at the option of the landlord be null and void."

In Mayfair Fabrics -- 1, supra, the Supreme Court, ruling upon the landlords' motion that they were exculpated from liability to the tenant, held that the clause, contained in a commercial lease between parties having equal bargaining power, was a valid private contractual arrangement between the parties providing for mutual reciprocal obligations to insure their respective properties against damage by fire and distributing the risks of loss between them. It concluded that the landlords were relieved of liability to the tenant for its direct property damage, but declined to pass upon the question whether the tenant's claim for loss of business profits was barred by the clause since that question had not been briefed or argued.

Upon remand, cross-motions for summary judgment were made by the landlords and the tenant. The landlords moved for judgment that the exculpatory clause barred the tenant's suit against them for loss of business profits, and the tenant moved for judgment against the landlords that the clause relieved it of liability to the landlords for their property damage to the building. The employee Jensen, apparently believing that if the tenant's motion were granted the landlords' suit against him would fall as a matter of course, did not formally join in the tenant's motion or file a motion of his own asserting that he was entitled to the exculpation claimed to be vested by the clause in his employer.

In Mayfair Fabrics v. Henley, 97 N.J. Super. 116 (Law Div. 1967), hereinafter referred to as " Mayfair Fabrics -- 2," this court held that the clause in the lease, viewed realistically as a normal, commonsense effort by businessmen to allocate between them the cost and expense of risks of property damage for fire, was an undertaking by each of the parties to secure adequate insurance against loss to properties, and that as between them the clause constituted an agreement to look to that insurance alone to recoup any loss and to relieve the other from liability for loss even though caused by the other's negligence. It held that the tenant was relieved by the clause from liability to the landlords even though

there was no express language in the clause, similar to that in favor of the landlords, explicitly granting exculpation to the tenant. The Court also held that the clause relieved the landlords from liability to the tenant for indirect as well as direct property losses and that the landlords were therefore not liable to the tenant for any loss of business profits as a result of the fire. The motions for summary judgment by both the landlords and the tenant were therefore granted, and the net effect thereof, at the trial level, was to terminate the litigation between the landlords and the tenant and to leave them, and their insurance carriers, to bear their own losses.

The landlords now assert that Jensen is not entitled to the exculpation granted to Mayfair Fabrics, Inc., his employer. They assert that the clause does not contain express language granting exculpation to agents, servants or employees of the tenant and claim that any limitation of liability granted by the clause is personal to the tenant as a corporate entity and that it does not benefit its officers or employees. Jensen asserts on motion for summary judgment now before the Court that the exculpation granted to his employer bars suit by the landlords against him.

In order that this case may be considered in the proper framework, certain points should be noted at the outset. In the first place, the fact that this is a subrogation claim by the landlords' fire insurance company against Jensen, rather than a suit for the direct benefit of the landlords, has no determinative force in the decision of the matter. Subrogation is a favored remedy but it is clear that the subrogee's rights arise no higher than those of the subrogor. Here the question is the effect and meaning of the clause as between the contracting parties, the landlords and the tenant. As pointed out in Mayfair Fabrics -- 2, supra, the New Jersey standard fire policy permits an insured to waive rights of recovery against any party before loss, and if the landlords granted exculpation by the clause in question to the employees of the tenant, as well as to the tenant as a corporate

entity, the fire insurance company as subrogee cannot complain and is bound thereby.

Second, it is clear that any negligence of Jensen occurred while he was acting within the scope and course of his employment. The contentions of the landlords with reference to Jensen's negligence, contained in the original and supplemental pretrial orders in the cause, are as follows:

"On the date in question, in the early morning hours, the defendant, Preben Jensen, was the servant, agent and employee and in charge of the defendant, Mayfair Fabrics manufacturing operation when due to the negligent maintenance of the machinery, under exclusive control of Mayfair Fabrics, certain overload was placed on electrical circuits installed and maintained by Mayfair Fabrics. The defendant, Preben Jensen, was negligent in that he permitted such overload to work with full knowledge of the condition of the equipment maintained by Mayfair Fabrics, and negligently caused the switches controlling said equipment to be turned off and then again switched on and did by his negligence switch on other switches, causing fuel oil to be pumped upon the electrical equipment, which was defective, causing the fire in question."

It is clear that, absent a release of liability under the exculpatory and insurance clause, the tenant as employer or master of Jensen would be liable to the landlords for his negligence under the doctrine of respondeat superior and that Jensen himself would be liable to the landlords for his own negligent acts, Moss v. Jones, 93 N.J. Super. 179 (App. Div. 1966), and that the landlords' fire insurance carrier, having paid the landlords' loss, would normally be subrogated to the landlords' rights to recover from the tenant and from Jensen.

It is the Court's conclusion, however, that Jensen as employee is entitled to the limitation of liability granted by the clause to Mayfair Fabrics, Inc., his employer. Although neither the efforts of counsel nor extensive research by the Court have brought to light any New Jersey decisions which are directly dispositive of the matter, ...

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