DCR INC. v. Peak Alarm Co.

663 P.2d 433, 37 A.L.R. 4th 35, 1983 Utah LEXIS 1017

• Court: Utah Supreme Court
• Decided: March 29, 1983
• Docket: 17647
• Status: Published

Opinions

HALL, Chief Justice:

Plaintiff, the owner of a clothing store, appeals a summary judgment limiting the liability of defendant burglar alarm company to $50 in an action based on theories of negligence, product liability and breach of contract. Plaintiff has alleged the following facts.

In September of 1976, the parties executed a contract providing for installation and maintenance by defendant of a burglar alarm system in plaintiff’s clothing store. The contract contained a clause fixing liquidated damages at $50 in the event of any breach by defendant and stating that defendant was “not an insurer.” Defendant installed the system as agreed and plaintiff paid to defendant a $635 installation charge. Plaintiff also paid to defendant a service charge of $28 each month throughout the term of the contract.

On December 22, 1979, a burglary occurred at plaintiff’s store, resulting in an inventory loss of $55,000. Plaintiff’s alarm system failed to detect the burglary. Plaintiff discovered that the alarm system had been rendered inoperative prior to the burglary through the use of a simple deactivating technique well-known to criminals. Plaintiff also learned that defendant had been aware of the common usé of this technique by criminals and that defendant knew of an easy, inexpensive way to protect its alarm systems against the risk of such deactivation. Plaintiff asked defendant why it had not warned plaintiff of the vulnerability of its existing system or suggested the simple correction which would have eliminated this defect from the system. Defendant replied that the issuance of such warnings to customers “would be too time-consuming.”

Plaintiff sued defendant for negligence in failing to use ordinary care in maintaining its alarm system and in failing to warn plaintiff of the inadequacy of the system. Plaintiff also alleged causes of action based on product liability and contract. Defendant moved for summary judgment, alleging that even assuming plaintiff’s allegations to be true, defendant’s liability for negligence or breach must be limited to the $50 liquidated damages fixed by the contract. The trial court granted summary judgment on this ground. Plaintiff appeals.

On appeal, the parties focus on plaintiff’s allegations of negligence. Plaintiff claims that even if the contractual liquidated damages provision limited defendant’s liability for breach of contract to $50, this limitation had nothing to do with defendant’s liability in tort under the negligence theories set forth in the complaint. Defendant does not deny negligence, but, rather, continues to rest its entire argument on the premise that if plaintiff were to prove such negligence, plaintiff could recover as damages only the $50 liquidated damages provided by the contract. Thus, the issue presented by this appeal is whether, assuming negligence on the part of defendant, the liquidated damages provision in the parties’ contract governs liability in tort as well as in contract.

Defendant contends that the “negligence” alleged by plaintiff consists solely of defendant’s failure to perform obligations expressed in the service contract rather than of any breach of a duty existing apart from the contract. Defendant claims that plaintiff therefore has alleged no cause of action in tort but only failure of performance of the contract, a breach for which the liquidated damages provision governs liability. An examination of plaintiff’s complaint, however, shows the fallacy of this assertion. Plaintiff’s first cause of action alleges breach by defendant of a duty “to warn of known hazards and defect attendant with the use of this particular system.” Such a duty to warn is nowhere expressed in the parties’ contract; rather, this duty, if shown to exist, would derive from defendant’s general duty of due care toward plaintiff as defined by tort law.

This Court has defined negligence as a failure to exercise the degree of care which a reasonable person would have exercised under the same circumstances, whether by acting or by failing to act.¹ In cases where the alleged negligence consists of a failure to act, the person injured by another’s inaction must demonstrate the existence of some special relationship between the parties creating a duty on the part of the latter to exercise such due care in behalf of the former.² Relationships giving rise to such a duty include those between carriers and passengers, employers and employees, owners and invitees and parents and children. Similarly, contractual relationships for the performance of services impose on each of the contracting parties a general duty of due care toward the other, apart from the specific obligations expressed in the contract itself.³ The care to be exercised in any particular case depends upon the circumstances of that case and on the extent of foreseeable danger involved⁴ and must be determined as a question of fact.⁵

A party who breaches his duty of due care toward another may be found liable to the other in tort, even where the relationship giving rise to such a duty originates in a contract between the parties. The California Supreme Court recently explained the difference between a tort action arising from a contractual relationship and an action brought on the contract itself:

[A] wrongful act committed in the course of a contractual relationship may afford both tort and contractual relief, and in such circumstances the existence of the contractual relationship will not bar the injured party from pursuing redress in tort.

* 4s * * * *

... “[.I]f the cause of action arises from a breach of a promise set forth in the contract, the action is ex contractu, but if it arises from a breach of duty growing out of the contract it is ex delic-to.” [Quoting Peterson v. Sherman, 68 Cal.App.2d 706, 157 P.2d 863 (1945).] ...

... As Professor Prosser has explained: “[Whereas] [c]ontract actions are created to protect the interest in having promises performed,” “[t]ort actions are created to protect the interest in freedom from various kinds of harm. The duties of conduct which give rise to them are imposed by law, and are based primarily upon social policy, and not necessarily upon the will or intention of the parties. ... ” Prosser, Law of Torts (4th ed. 1971) p. 613. [Emphasis added; some bracketed language in original.]⁶

The Indiana Supreme Court has also expressed the above distinction as follows:

If a defendant may be held liable for the neglect of a duty imposed on him, independently of any contract, by operation of law, a fortiori ought he to be liable where he has come under an obligation to use care as the result of an undertaking founded on a consideration.... In some cases this ground of liability may coexist with a liability on contract towards the same person, and arising (as regards the breach) out of the same facts.... And this duty is not affected by the fact, if so it be, that he is acting for reward, in other words, under a contract, and may be liable on the contract. The two duties are distinct... .⁷

This Court has applied the above negligence rules specifically to cases such as this which involve contracts for services. In an early case, the Court held that the defendant hospital, which had undertaken to provide medical services to the plaintiff, owed him a duty of due care based on the parties’ contractual relationship. The Court explained:

While it may be said that this is an action of tort, and not on contract, nevertheless, in such action, a plaintiff seeking to recover for injuries sustained by him through the negligence of another must show that the latter committed a breach of some duty owing to the plaintiff or imposed for his benefit. To show what that duty was, it was proper to aver and prove the relationship between the parties. As tending to show a duty owing from the defendant to the plaintiff, it was proper to aver and prove that the defendant had received him under contract for a consideration, and as tending to show what it was that the defendant had assumed and undertaken to do... . If ... it received him for treatment under a contract for pay, and undertook and assumed to treat him, then it owed a duty ... to use reasonable care in the giving of the treatment and the doing of that which it had agreed and assumed to do.⁸

A majority of jurisdictions, like Utah, have recognized a duty to exercise reasonable care on the part of one who undertakes to render services.⁹ Restatement (Second) of Torts formulates this principle as follows:

One who undertakes, gratuitously or for consideration, to render services to another which he should recognize as necessary for the protection of the other’s person or things, is subject to liability to the other for physical harm resulting from his failure to exercise reasonable care to perform his undertaking, if

(a) his failure to exercise such care increases the risk of such harm, or

(b) the harm is suffered because of the other’s reliance upon the undertaking.¹⁰

Prosser, in his treatise on torts, states the rule more broadly:

It is no longer in dispute that one who renders services to another is under a duty to exercise reasonable care in doing so, and that he is liable for any negligence to anyone who may foreseeably be expected to be injured as a result.¹¹

Carl S. Hawkins, Dean and Professor of Law, J. Reuben Clark Law School, Brigham Young University, recently had this to say on the subject:

The “duty” concept limits defendants’ liability to claims arising out of particular relationships and risks. In professional negligence cases, a contract with the client most often creates the relationship from which the duty of care arises. However, the defendant’s tort liability is not based upon breach of contract, but rather upon violation of the legal duty independently imposed as a result of what the defendant undertook to do with relation to the plaintiff’s interests. Thus, when a defendant has undertaken to give professional services gratuitously, liability may be imposed for injuries resulting from substandard conduct, even though there is no contract.¹² [Citations omitted.]

In the present case, defendant’s duty to warn plaintiff of the vulnerability of its alarm system does not originate from any promise contained within the service contract itself. Rather, the duty as it exists in this case is derived from defendant’s general duty of due care which accompanies its ongoing contractual relationship with plaintiff for service and maintenance of the alarm system. Thus, plaintiff’s allegation of failure to warn provides the basis for a cause of action in tort which is entirely separate from any contract-based claims which plaintiff might present.

Defendant contends that even though plaintiff has alleged liability in tort as well as in contract, the contractual liquidated damages clause prevents plaintiff from recovering under any theory.

The contractual liquidated damage clause reads:

It is agreed between the parties hereto that [defendant] is not an insurer; that the payments hereinbefore named are based solely on the value of the services 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 [defendant] to perform any of its obligations hereunder; that, in case of the failure of [defendant] to perform any of its obligations hereunder, and the resulting loss to [plaintiff], [defendant’s] liability hereunder shall be limited to a fixed sum of $50.00, as liquidated damages, and not as a penalty, and this liability shall be exclusive. [Emphasis added.]

The above provision contains no expression of an intent of the parties to limit defendant’s prospective liability in tort. Rather, its language applies to “obligations hereunder” and “liability hereunder.” Although the clause concludes with the phrase “and this liability shall be exclusive,” such language, viewed in context, does not clearly show an intent to limit noncontractual liability.

Even if this Court were to construe the contractual liquidated damages clause as an attempt to limit liability in tort as well as in contract, the enforceability of the clause would be questionable because of its lack of clarity. This Court has indicated that it does not favor contract clauses purporting to limit or negate such liability. In Union Pacific Railroad Co. v. El Paso Natural Gas Co., 17 Utah 2d 255, 408 P.2d 910 (1965), this Court refused to enforce a very detailed and thorough exculpatory clause “against any and all liability, loss, damage [and] claims ... of whatsoever nature ” to protect the plaintiff from a personal injury claim based on negligence. The Court there reiterated the rule that covenants purporting to relieve a party of his duty of due care are disfavored and sometimes declared invalid as against public policy. The Court then stated:

The majority rule appears to be that in most situations, where such is the desire of the parties, and it is clearly understood and expressed, such a covenant will be upheld. But the presumption is against any such intention, and it is not achieved by inference or implication from general language such as was employed here. It will be regarded as a binding contractual obligation only when that intention is clearly and unequivocally expressed.

If it had been the intent of the parties that the defendant should indemnify the plaintiff even against the latter’s negligent acts, it would have been easy enough to use that very language and to thus make that intent clear and unmistakable .... [Emphasis added; footnotes omitted.]¹³

In the present case, the language employed by the parties does not “clearly and unequivocally” express an intent to limit defendant’s tort liability. Absent such a clear expression of intent, we decline to construe the contractual liquidated damages clause in such a way as to limit liability arising outside of the contract. We hold that the present liquidated damages clause does not affect plaintiff’s right to present proof concerning the factual question of breach of duty and attendant negligence on the part of defendant and to recover reasonable damages therefor as may be shown.

Having reached the above holding, we need not make the further determination of whether the liquidated damages clause in question constitutes an enforceable limitation on defendant’s contract liability.

Reversed and remanded for further proceedings consistent with this opinion. Costs to plaintiff.

OAKS, HOWE and DURHAM, JJ., concur.

1 . Meese v. Brigham Young University, Utah, 639 P.2d 720 (1981).

2 . W. Prosser, Handbook of the Law of Torts §§ 53, 56 (4th ed. 1971); 2 F. Harper & F. James, The Law of Torts § 18.6 (1956); Gitzhoffen v. Sisters of Holy Cross Hospital Association, 32 Utah 46, 88 P. 691, 696 (1907).

3 . Prosser, supra; see, e.g., Ajax Hardware Manufacturing Corp, v. Industrial Plants Corp., 569 F.2d 181 (2d Cir.1977); Hamil v. Bashline, 481 Pa. 256, 392 A.2d 1280 (1978); Nixdorf v. Hicken, Utah, 612 P.2d 348 (1980).

4 . Kilpack v. Wignall, Utah, 604 P.2d 462 (1979); Black v. Nelson, Utah, 532 P.2d 212 (1975); Erickson v. Bennion, 28 Utah 2d 371, 503 P.2d 139 (1972); Brigham v. Moon Lake Electric Association, 24 Utah 2d 292, 470 P.2d 393 (1970).

5 . Little America Refining Co. v. Leyba, Utah, 641 P.2d 112 (1982); Benson v. Ames, Utah, 604 P.2d 927 (1979); Wheeler v. Jones, 19 Utah 2d 392, 431 P.2d 985 (1967); Evans v. Stuart, 17 Utah 2d 308, 410 P.2d 999 (1966). It should be noted that

in applying the universally accepted standard of care: that of the ordinary, reasonable and prudent man under the circumstances, the term “ordinary” should be given its true meaning by not requiring the conduct of an extraordinarily careful person. Such an “ordinary” man is not necessarily a supercau-tious individual devoid of human frailties and constantly preoccupied with the idea that danger may be lurking in every direction about him at any time.

Whitman v. W.T. Grant Co., 16 Utah 2d 81, 395 P.2d 918 (1964).

6 .Tameny v. Atlantic Richfield Co., 27 Cal.3d 167, 164 Cal.Rptr. 839, 610 P.2d 1330 (1980).

7 . Flint & Wailing Manufacturing Co. v. Beckett, 167 Ind. 491, 79 N.E. 503, 505, 506 (1906). See Amphitheater Public Schools v. Eastman, 117 Ariz. 559, 574 P.2d 47 (1977); Atkinson v. Orkin Exterminating Co., 5 Kan.App.2d 739, 625 P.2d 505 (1981); Quitmeyer v. Theroux, 144 Mont. 302, 395 P.2d 965 (1964); Hall Jones Oil Corp. v. Claro, Okl., 459 P.2d 858 (1969); DiPangrazio v. Salamonsen, 64 Wash.2d 720, 393 P.2d 936 (1964), and cases cited supra, note 3.

8 . Gitzhoffen v. Sisters of Holy Cross Hospital Association, supra, note 2, 88 P. at 696. See Nixdorf v. Hicken, supra, note 3 at 354; Benson v. Ames, supra, note 5 at 929; Crandall v. Ed Gardner Plumbing & Heating, 17 Utah 2d 138, 140, 405 P.2d 611, 612 (1965).

9 . See cases cited at Restatement (Second) of Torts app. § 323 (1966 & Supp.1979).

10 . Restatement (Second) of Torts § 323 (1965). The United States Court of Appeals, Tenth Circuit, recently recognized the Restatement rule in a case involving the interpretation of Utah law. Marchello v. Denver & Rio Grande Western Railroad Co., 576 F.2d 262 (1978).

11 . Prosser, supra, note 3, § 104 Services. See cases cited id. at note 77.

12 . Vol.1981, Number 1, B.Y.U.L.Rev. 33, 36.

13 . See also Walker Bank & Trust Co. v. First Security Corp., 9 Utah 2d 215, 341 P.2d 944 (1959).