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Jutta''s Inc. v. Fireco Equipment Co.

Decided: May 4, 1977.


Bischoff, Morgan and King.

Per Curiam

Defendant appeals from a trial court order declining enforcement of a contractual limitation of liability clause on the ground of its unconscionability. The order was entered following a special nonjury hearing held after rendition of a jury verdict which, by special verdict, found defendant negligent in its installation of a fire protection system sold plaintiff and further found that plaintiff's damage was caused by defendant's incorporation into the system of a defective component part. Damages in the amount of $5,985 were stipulated.

Plaintiff is a corporation which, in December 1972 and January 1973, was in the process of opening a bar-restaurant in Rochelle Park, N.J.A fire protection system for the new enterprise purchased from defendant Fireco Equipment Company was installed on the premises on January 26, 1973. On the day following installation, January 27, 1973, during preparations for the opening of the restaurant, the fire protection system suddenly discharged a white dust all over the kitchen. No fire precipitated this occurrence. Opening day was delayed. On February 1, 1973, a few days later, during renewed preparations for opening the restaurant, the system again discharged white powder without fire having triggered operation of the system. Damages to property and clean up costs amounted to $5,985. As noted, the jury concluded that defendant had been negligent in its installation of the system in that a defective component had been incorporated into the system.

Following trial a hearing was held to determine whether the limitation of liability clause in the purchase and maintenance contracts was to be enforced. The trial court declined enforcement, and this appeal ensued.

Part I of the agreement, entitled "Installation Proposal and Conditional Sales Agreement for Fire Control System," contains the following provision found on the reverse

side of the agreement under the heading "Distributor's Guarantee":

a) For a period of five (5) years, and provided always that the maintenance contract is continued in full force and effect, distributor guarantees the equipment installed by it and agrees, upon occurrence of any damage caused by defective operation, to indemnify purchaser for all loss in an amount not exceeding the purchase price. Damage shall be construed to mean only such amount as would be necessary to repair or replace the loss or reconstitute the premises subject to the purchase price. Notwithstanding, distributor shall in no way be responsible for any loss attributable to a mal-function of the system or systems described in the contract, beyond the actual interest of the purchaser in the said system.

Part II of the agreement, entitled "Service and Maintenance Contract," contains the following provision found on the front side of that agreement under an emphasized heading reading, "Release for Equipment Installed and/or Manufactured by others":

If system was installed and/or manufactured by others the following is agreed by purchaser hereinafter designated as the Releasor and Fireco Equipment Co., Inc. hereinafter designated as the releasee; for and in consideration of FIRECO's agreed maintenance and inspection service performed as agreed to and described above and in further consideration of mutual covenants herein contained, and in consideration of fact that if the servicing of this equipment by the releasee for the releasor, is equipment previously installed and/or manufactured by one other than releasee, releasor has remised, released and forever discharged, and by these presents does remise, release and forever discharge the said releasee from any failure of operation due to defective conditions in said systems and equipment.

The limitation clause in the sales agreement, the first of the two clauses quoted above, found in the paragraph entitled "Distributor's Guarantee," purports to limit damages recoverable from malfunction of the equipment to the purchase price or to "the actual interest of the purchaser in the said system." Defendant interprets this latter phrase to refer to the amount of the purchase price actually paid

by purchaser at the time damage occurs. Since plaintiff had only paid $200 on account of the total price of $603.75 when these incidents occurred, defendant contends it is liable only for that lesser amount. Defendant does not insist upon enforcement of the full release contained in the maintenance agreement although it is undisputed that defendant was not the manufacturer of the ...

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