Contract Protection for Failed Security System
Does Contract Provide Protection from Failed System?
In a recent case before the United States District Court for the District of South Carolina, the court had to decide whether to hold the plaintiff alarm company liable for the amount of the limitation of liability provision contained in the contract.
The case came before the court after a magistrate judge recommended that the alarm company’s partial motion to dismiss be denied. The alarm company objected to the report of the magistrate judge.
The plaintiff had entered into a contract with the alarm company with terms under which the alarm company agreed to install and monitor a security system at plaintiff’s residence. The plaintiff did not attach a copy of the contract to his complaint; however, the defendant alarm company attached a copy of the contract to its motion to dismiss.
The contract acknowledged that before signing, the plaintiff read the front and back page in addition to the attached pages that contained important terms and conditions. Among other things, the contract pointed out that the alarm company was not an insurer and the amount paid for the alarm company’s services was limited to the liability the alarm company assumed under the contract unrelated to the value of plaintiff’s property. The contract also contained a limitation of damage provision or exculpatory clause.
The plaintiff claimed that someone triggered his alarm system and caused the system to activate and the siren to sound for about eight minutes. Despite the activation, the plaintiff alleged that no one from the alarm company contacted him about the alarm. Instead, he claimed that he called the alarm company and was told that the system at his home did not work. As a result, the plaintiff sued for breach of contract and alleged damages. The alarm company did not dispute the allegations for purposes of the motion, but claimed that the plaintiff was limited by the terms of the contract to recovering damages of $500 for the alleged breach.
In considering the motion to dismiss, the court pointed out that it accepted well-pleaded allegation as true and construed the complaint in a light most favorable to the plaintiff. The court pointed out, however, that although as a general rule extrinsic evidence should not be considered, it held that when a defendant attaches a document to its motion to dismiss, a court may consider it in determining whether to dismiss the complaint if the document was integral to and explicitly relied on in the complaint and if plaintiffs do not challenge its authenticity.
The court pointed out that while exculpatory clauses are strictly construed against the party relying thereon, courts around the country have nevertheless upheld provisions of contracts that limit the liability of alarm services providers. The court pointed out that the limitation of damages provision was located in the contract, was clearly worded and was printed in bold capital letters in the same font and size as the “WE ARE NOT AN INSURER” provision and the “EXCUSIVE DAMAGES REMEDY” provision. The court found that the plain language of this provision clearly limited the alarm company’s liability and demonstrated that such limitation was the intent of the parties. A contrary holding would run afoul of established South Carolina case law. The court further stated that once a contract or agreement was before the court for interpretation, the main concern of the court was to give the effect to the intention of the parties. Therefore, the court held that the alarm company’s liability was limited to the greater of $500 or 10 percent of its annual service charges per the contract’s terms, even if the damages were caused by the alarm company’s failure to perform contractual duties. Thus, even if the plaintiff’s allegation was true, that the alarm company’s alarm system failed in some way, such a failure fell within the scope of the contract’s limitation of damages provision.
Q: I’ve just negotiated with a new subscriber to install a security system. He sent back the contract deleting the provision that states that either party may assign this contract without the consent of the other. He wants to replace it with a provision that states that the subscriber must approve any transfer or assignment. Shall I agree?
A: No! The provision giving you the right to assign is very important, unless you decide you never want to sell your company. You do not want to put yourself in a position that if you sell your company or you decide to put up your contracts as security for a loan, you have to get the consent of your subscribers. I am sure he will not let that provisions stand in the way of the good service you will be providing him.
To ask Les Gold a question, e-mail email@example.com.