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Abel Holding Co. v. American District Telegraph Co.

Decided: December 10, 1975.


Horn, A.j.s.c.


Various pretrial motions in the above action are before me for determination. They include motions for summary judgment as well as dismissal of the complaint. The precise nature and the grounds for the motions are recounted with respect to each.

The events leading to this litigation are related as follows. Plaintiff Abel Holding Co. (Abel), until recently the owner of the Steel Pier in Atlantic City, commenced this

action against each defendant to recover for its property damage and for loss of profits allegedly suffered as a result of the occurrence of a large conflagration on the pier on December 27, 1969, at which time the pier was closed. The theories of recovery are negligence, breach of contract, breach of express and implied warranties, and strict liability in tort.

Steel Pier on the date of and prior to the fire was operated as an amusement pier with numerous attractions which in the summer season attracted many thousands of visitors. The pier is basically a structure consisting of wooden decking supported by pilings, with various buildings thereon and extending into the Atlantic Ocean on the southerly side of the boardwalk. A ballroom was situate at the ocean end of the pier.

In or prior to 1955 Grinnell Corporation, under contract with Abel, installed a sprinkler system consisting of a "wet system" and a "dry system" on various portions of the pier. The dry system is the most extensive and is the one which is concerned in this action. The dry system consists of pipes or conduits filled with air contained under a sufficient amount of pressure so as to hold a water seat in position to prevent the flow of water at normal city water pressure from going up through the sprinkler pipes. Each sprinkler head is set to fuse at a particular temperature. When that temperature is reached the head breaks, allowing the air within the system to escape, thereby reducing the pressure on the water seat to a point where the pressure of the water beneath the seat becomes greater than the amount of air pressure in the system, and the water then flows through the system and out of the pipes.

In 1955 American District Telegraph Co. (ADT) was a subsidiary of the Grinnell Corporation and sold to plaintiff its "direct-connected protection signaling system." The purpose of the system, as set forth in numerous advertisements, was to safeguard life, property and profits. The signaling system had two purposes: (1) to monitor and supervise the air pressure in the dry system, and (2) to instantly signal

the fire department upon the flow of water into the dry pipes upon the fusing of the sprinkler heads.

In effect, ADT's installation was designed to signal the fire department of the smallest possible fire, since the sprinkler heads were located throughout the entire pier, no more than a few feet apart.

The initial contract with ADT provided that the latter would install and maintain a protective signaling system, directly connected from the pier to the Atlantic City Fire Department. ADT connected its signalling device on the pier to the fire department through a pair of wires leased from defendant New Jersey Bell Telephone Company (Telephone Co.). The wires went from the pier to the central office of the telephone company, and thence to the Atlantic City Electrical Bureau, the communication center of the fire department.

When the fire occurred on the pier on December 27, 1969 it caused water to flow through the dry sprinkler system at approximately 5:45 P.M. The system operated when a waterflow signal was indicated at the pass-gate guard office. The alarm should have been automatically transmitted from the pier when the fire occurred. However, it is indicated that the alarm signal was never received at the Atlantic City Electrical Bureau because of a pre-existing manually-caused defect in the system's circuitry inside the telephone company's central office. As a direct result of this failure the fire department was not notified of the existence of a fire on the pier until approximately 6:09 P.M., about 24 minutes later. When the fire reached the extent that it burned through the front wall of the ballroom at the end of the pier it was seen by a police officer who was some 2,000 feet away. The officer's telephone call to the fire department was its first notice of the occurrence of the fire.

As already stated, the first contract for the alarm system between Abel and ADT was made in 1955. In 1963 a similar contract for an additional time was executed. The third contract,

and the one which was in existence when the subject fire took place, was made on May 15, 1969.

The 1955 and 1963 contracts contained the following clause:

8. It is agreed by and between the parties hereto: that the contractor is not an insurer: that the payments heretofore named are based solely on the value of the service provided for herein: that, from the nature of the services to be rendered, it is impracticable and extremely difficult to fix the actual damages, if any, which may proximately result from a failure on the part of the contractor to perform any of its obligations hereunder: that, in case of the failure of the contractor to perform any of its obligations hereunder, and resulting loss to the subscriber, the contractor liability hereunder shall be limited to and fixed at a sum equal to ten percent of the annual service charge, hereinabove provided for, but in no event amounting to less than the sum of $50, as liquidated damages, and not as a penalty, and this liability shall be exclusive.

The annual charge to Abel under all three contracts was $1744.

The 1969 contract was substantially the same as the earlier agreements, except that in lieu of the above-quoted clause it contained the following:

It is understood that the Contractor is not an insurer, that insurance, if any, shall be obtained by the Subscriber and that the amounts payable to the Contractor hereunder are based upon the value of the services and the scope of liability as herein set forth and are unrelated to the value of the Subscriber's property or the property of others located in Subscriber's premises. The Subscriber does not desire this contract to provide for full liability of the Contractor and agrees that the Contractor shall be exempt from liability for loss or damage due directly or indirectly through occurrences, or consequences therefrom, which the service is designed to detect or avert; that if the Contractor should be found liable for loss or damage due to a failure of service 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, and that the provision of this paragraph shall apply if loss or damage, irrespective of cause of 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. The Department or other organization to which the connection is made may invoke the provisions

thereof against any claims by the Subscriber due to any failure of such department or organization.


The first issue with which I will deal is the motion for summary judgment made in behalf of ADT. This motion is founded upon assertions that the record before the court, consisting of the pleadings and depositions, conclusively establishes that the fault which resulted in the failure of transmission of the alarm signal was exclusively that of Telephone Co. In effect, ADT advances the thesis that the failure of its contractor or subcontractor to contractually perform raises an absolute defense as against Abel.

ADT furnishes no legal authority for this proposition. I know of no law which excuses a contractor from performing a contract by virtue of his unilateral engagement of a third person to perform. One owing a primary duty to exercise reasonable care may not exonerate himself by a delegation of the duty to a third person. 4 Corbin on Contracts , § 865 at 436 (1951). See also, Gill v. Krassner , 11 N.J. Super. 10 (App. Div. 1950); Sebeck v. Plattdeutsche Volkfest Verein , 64 N.J.L. 624 (E. & A. 1900). Accordingly, I find that this contention is without merit.


I now turn to ADT's contention that plaintiff should be limited by the provision in the contract allowing recovery of the greater of 10% of the annual service charge or $250.

This contention is based on the above-quoted clause as it appeared in the 1969 contract. Plaintiff submits that the subject clause is invalid as a matter of public policy. In addition, it urges that it should be abrogated by the court because allegedly it was the product of grossly unequal bargaining power and is unconscionable under the circumstances surrounding the execution of the agreement.

The law in New Jersey respecting the validity of exculpatory clauses is fairly well settled. Justice Jacobs summarized it in Mayfair Fabrics v. Henly , 48 N.J. 483 (1967), when he said:

Where they do not adversely affect the public interest, exculpatory clauses in private agreements are generally sustained. Globe Home Improvement Co. v. Perth Amboy, etc., Inc. , 116 N.J.L. 168, 170 (E. & A. 1936). But where 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). Similarly, in other situations where there is unequal bargaining power, the public interest may call for rejection of an exculpatory clause exacted by the dominant party; illustrative are Kuzmiak v. Brookchester , 33 N.J. Super. 575 ([App. Div.], 1955), where the Appellate Division dealt with a lease signed by residential tenants in an apartment building, and Tunkl v. Regents of University of California , 60 Cal. 2d 92, 32 Cal. Rptr. 33, 383 P. 2d 441 (1963), where the California Supreme Court dealt with an instrument signed by a patient on his admission to a charitable research hospital. See 52 Calif. L. Rev. 350 (1964); 6 Williston, Contracts § 1751, (Rev'd ed. 1938, Supp. 1966); cf. Henningsen v. Bloomfield Motors, Inc. , 32 N.J. 358, 396-397 (1960). [at 487]

Disclaimers or limitations of liability are not favored. Henningsen v. Bloomfield Motors, Inc., supra , 32 N.J. at 373. Although provisions against liability for negligence found in leases or other types of contracts are to be strictly construed, where the terms of a writing are plain and unambiguous there is no room for construction, since the only office of judicial construction is to remove doubt and uncertainty. Midland Carpet Corp. v. Franklin Assoc. Properties , 90 N.J. Super. 42, 46 (App. Div. 1966).

Judge Kolovsky, in Midland Carpet Corp. at 47 stated: "However, in the case of a lease of industrial property, * * * no such inequality of bargaining position exists; the exculpatory provisions of such a lease are normally valid and enforceable." See also, Mayfair Fabrics v. Henley , 97 N.J. Super. 116

(Law Div. 1967), aff'd sub nom. Natell v. Henley , 103 N.J. Super. 161 (App. Div. 1968).

In Midland Carpet Corp. it was also observed that (90 N.J. Super. at 47) another facet of the same principle pertaining to exculpatory clauses exists in the case of indemnification agreements in building and construction contracts, where parties engaged in commercial or industrial enterprises bargain with respect to the allocation of liability for risks arising out of their contractual relationship, even though those risks stem from negligent conduct. Stern v. Larocca , 49 N.J. Super. 496, 501 (App. Div. 1958); Cozzi v. Owens Corning Fiber Glass Corp. , 63 N.J. Super. 117, 121 (App. Div. 1960); Rommell v. U.S. Steel Corp. , 66 N.J. Super. 30, 42 (App. Div. 1961), certif. den. 34 N.J. 580 (1961); Buscaglia v. Owens-Corning Fiberglas , 68 N.J. Super. 508, 514 (App. Div. 1961), aff'd 36 N.J. 532 (1962).

Carbone v. Cortlandt Realty Corp. , 58 N.J. 366 (1971), provides an example of the policy to strictly construe such exculpatory clauses against immunity for one's own negligence, even in a commercial transaction. In that case, because the exculpatory clause in a commercial lease did not clearly advert to landlord's negligence and there was no indication elsewhere in the lease of an understanding to immunize it from liability for its own negligence, the court held that the intention of the parties was a question of fact to be decided. Notwithstanding such construction of policy, the court in Carbone obviously reaffirmed the earlier policy that such clauses are not ipso facto invalid. The dissenting opinion presents a very potent argument against the soundness of the majority's ruling.

In Foont-Freedenfeld Corp. v. Electro-Protective Corp. , 126 N.J. Super. 254 (App. Div. 1973), aff'd 64 N.J. 197 (1974), plaintiff was a manufacturer of women's apparel and operated its plant in Hoboken. Defendant was engaged in the business of designing, installing and maintaining burglar alarm systems. Pursuant to a ...

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