Welcome to "You Be the Judge" Where you can read real cases, and make a decision for yourself.  

Cases:

SUBSCRIBER'S PERSONAL LIABILITY

COURTS WILL NOT IMPOSE ADDITIONAL DUTY

MANUFACTURER'S LIABILITY FOR GIVING ADVICE

LIABILITY FOR SELLER'S DEBTS

COOLING OFF PERIOD

TEN YEAR CONTRACT TERM

ENFORCING RENEWAL CONTRACT

INSURANCE COVERAGE ISSUE

LIMITED PARTNER'S LIABILITY

ENFORCING CONTRACT WHEN INSTALLATION NOT MADE

Mistaken Reported Response

Contract Remedy - Recovering Equipment

Central Station - Dealer contracts - Purchase Option

Commencement of Contract

Restrictive Covenant - duration

Retaining title to sold equipment

Enforcing Contracts of Adhesion

Contract Term Enforcement

Filing Proof of Claim in Bankruptcy Case

Jury Waiver Clause

Indemnity Provision Issue

Exculpatory Clause in Contract

Cooling off Provision and Compliance

Unlicensed Service and Recovery

Liability to third parties

Can individual be liable for corporation's debts?

Equipment Value in Contract

Contract Breach Issue

Whether additional service covered by original lease

lock out codes and emotional distress

Importance of indemnity and other language in contract


SUBSCRIBER'S PERSONAL LIABILITY

Facts:

 

 

 

Alarm company and subscriber entered into a commercial lease agreement for burglar alarm system. It was uncontested at trial that the equipment was installed at the defendant's place of business and remained there although the business went defunct and vacated the premises. Only one quarter annual payment was made pursuant to the contract. The alarm company commenced an action for breach of contract seeking liquidated damages of 80% of the balance due, 80% of the stated value of the alarm equipment that had not been recovered, and attorney's fees.

 

The alarm company sued the individual owner of the company who had signed the contract on behalf of "Real Pro Sports." At trial, the individual defendant claimed that he did not intend to enter the contract on his own behalf, that he did not do business as "Real Pro Sports", and that he signed the contract as a "favor" for another.

 

Issue:

 

Could the individual defendant be held liable on the contract, and for what amounts?

 

Decision:

 

After trial the Court found the individual liable and responsible for the full amount stated in the contract.

 

Discussion:

 

The Court found that the credible evidence established that the individual defendant entered into the contract in the capacity indicated in that contract. Thus, the Court found that "Real Pro Sports" was not a corporation and had no "jural existence". Therefore, the Court concluded that the individual who signed the contract was in fact doing business as a sports clothing and equipment store under the name stated in the contract. The Court therefore found defendant individually liable for the contract that he signed. The Court dismissed defendant's testimony that the contract was signed as a "favor" for another.

 

This Court enforced the full terms of the contract by awarding the full 80% of the balance due, 80% of the stated value of the alarm equipment, sales tax, and attorney's fees as stated in the contract.

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COURTS WILL NOT IMPOSE ADDITIONAL DUTY

Facts:

 

 

Alarm company sold and agreed to install and monitor a burglar alarm system at a residence. The homeowner was advised that the system communicated via a digital communicator that operated over telephone lines, that there was no back up (radio or cell), and no line security; that if the telephone line was cut or did not work no communication of an alarm condition would be possible. The alarm salesman noticed that the homeowner's telephone lines above ground and were rather noticeable. The alarm company salesman suggested that the subscriber contact the telephone company and request that the telephone lines be buried so that they would not be so obvious. The homeowner did in fact contact the telephone company and the lines were buried.

 

Sometime thereafter there was a problem with the telephone lines, and the telephone company serviced the lines, and did not re-bury them, leaving them exposed. Shortly thereafter there was a burglary, and the telephone line was cut and an outside siren disabled prior to the illegal entry. The homeowner claimed that over $100,000 in jewelry and coins were stolen and sued the alarm company claiming, among other things, that the alarm company was negligent in its design and installation of the alarm system for, among other things, failing to bury the telephone lines. The alarm company moved for summary judgment dismissing the complaint.

 

Issue:

 

Did the alarm company have any liability for breach of contract or negligence?

 

Decision:

 

Alarm contract enforced and the complaint dismissed.

 

Discussion:

 

The Court's decision noted that the telephone lines were suspended just "a few feet above the ground". It was clear from the facts however that the alarm company told the subscriber to have the telephone company take care of the telephone lines, that the subscriber followed this suggestion and had the telephone company bury the lines. It was the telephone company who later serviced those lines and left them again above ground. This Court went through an analysis of the alarm company's contract focusing on the disclaimer of warranties, finding that the disclaimer was conspicuous and clear in the contract. The Court also found that the alarm company did not undertake any obligation to bury the telephone wire and the Court correctly declined to impose that obligation on the alarm company. Essentially, the Court held that there was no warranty cause of action and no negligence cause of action. The only claim was for a breach of contract, and it was clear that the alarm company did not breach the contract or any other obligation with respect to the telephone line. It was established that the alarm system worked at the time of the burglary, but was unable to communicate as a result of the cut telephone line.

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MANUFACTURER'S LIABILITY FOR GIVING ADVICE

Facts:

 

 

In the midst of installing an alarm system, your experienced technician has some difficulty with equipment and decides to call the manufacturer's 800 hot line for some advice. The call is made, your installer speaks to a manufacturer's representative who provides some technical advice over the telephone regarding which of its products would be appropriate. The technician however does not identify the job or job site, the working conditions, or the full alarm system.

 

Thereafter there is a loss and it is determined that the advice given by the manufacturer's representative over the telephone was negligent.

 

Issue:

Does the manufacturer have any liability to your company?

 

Decision:

 

No.

 

Discussion:

 

Generally, in a commercial context a duty to speak with care exists when the relationship of the parties, arising out of contract or otherwise, is such that in good conscious one has the right to rely upon the other for information. A simple arms length business relationship however is not enough. Under the facts of this case, the alarm installer did not identify the specific job or working conditions, or the full nature of the alarm system. Under these circumstances, the single unsolicited telephone inquiry to the manufacturer would be deemed insufficient to create a special relationship between the parties.

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LIABILITY FOR SELLER'S DEBTS

Facts:

 

 

Purchaser bought all of the seller's inventory and business assets pursuant to an "asset purchase agreement". The agreement specifically provided that purchaser was not assuming any of the debts or obligations of the seller. In compliance with the Uniform Commercial Code, the seller provided the purchaser with the names and addresses and amounts of all debts that seller owed, and the purchaser sent notice of the sale in accordance with the provisions of the UCC. One of the creditors listed, however, did not have an address. Purchaser's attorney telephoned the seller's attorney to request that information and was informed that the seller was now claiming that no debt was owed to that particular creditor. Therefore that creditor did not get a notice of the proposed sale.

 

After the sale was consummated, the creditor who did not receive notice of the sale sued the purchaser.

 

Issue:

Is purchaser liable to the creditor?

 

Decision:

 

Purchaser was found liable.

 

Discussion:

 

The Uniform Commercial Code is commonly known as the Law of Merchants, and throughout the United States governs commercial transactions between merchants. Article 6 is known as the Bulk Sales Law. Article 6 requires that a purchaser give notice to all of the seller's creditors that a bulk sale is about to take place. This notice theoretically gives creditors an opportunity to take whatever action they deem appropriate to protect their interests prior to the consummation of the sale. The Bulk Sales Law is specifically designed to protect creditors from the merchant, who, without notice, sells his business and stock and trade, and takes the proceeds and disappears. The creditor would be without a remedy. Therefore, UCC §6-104 provides that a bulk transfer is ineffective against any creditor of the seller unless: 1) the buyer requires the seller to furnish a list of existing creditors, signed and sworn to and 2) that the purchaser gives at least 10 days written notice to the creditors of the proposed sale.

 

In this case, the Court reasoned that the list of creditors sworn to by the seller included the name of the particular creditor who was now suing. The seller's attorney had no right to modify that list orally, nor did the purchaser's attorney have any right to rely on the oral representations by seller's attorney, or for that matter, the oral representation of the seller. Finding that the mandate of the UCC notice requirement was specific, the Court imposed liability on this purchaser for the amount owed to the creditor because of the purchaser's non-compliance with the statute.

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Cancellation Notice Cooling off period

Facts:

In response to an advertisement home owner telephoned alarm company to inquire about a residential burglar alarm system. After some discussion the alarm company agreed to send a salesman to the home to do survey and recommend a system. The visit was made, survey conducted and recommendation made. The salesman left a written proposal with the homeowner.

Several days later the homeowner called and requested that the alarm company do the installation, further agreeing to a 5 year monitoring contract as part of the deal. The salesman again went to the home and had the homeowner sign a sales contract and a monitoring contract, and collected a deposit against the sales price. The contract did contain a three day notice of cancellation, as did the monitoring contract.

More than three days later, but before the alarm company installed the system, the homeowner called and canceled the deal, stating that a better deal with another company had been made and in fact the system was being installed the next day.

The first alarm company sues for breach of contract.

Issue:

Can the alarm company prevail in its breach of contract action? The subscriber raises the three day notice of cancellation as a defense.

Decision:

Complaint dismissed. No recovery permitted for alarm company.

Discussion:

Although the alarm contract did contain the three day notice of cancellation the alarm company salesman did not orally tell the home owner that there was a three day cancellation option. Also, though the salesman did leave the homeowner with a copy of the contracts that had been signed (sales and monitoring), the actually cancellation notice, filled in with the date of the transaction and the date by which the cancellation had to be given, was not delivered. Therefore the three days did not begin running. The homeowner had a right to cancel up to three days following the alarm companies full compliance with the statute.

Every residential contract must be accompanied by the cancellation notice form, and your salespeople must know how to fill it out. Furthermore, the cancellation notice needs to be in three part, since you need to leave two with the homeowner and take one back (containing the homeowner's signature or initial acknowledging receipt). Your copy of the contract should also contain a provision whereby the homeowner acknowledges receipt of a copy of the contract. Only one copy of the contract need be furnished to the homeowner. As I write this article I can't help think that you must be thinking that in addition to a salesman you probably need a lawyer to supervise the contract execution. The alternative is to take the time to train first yourself and then your sales staff.

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Ten Year Contract Term

 

Facts: Alarm company entered into commercial lease agreement for burglar alarm system. The contract term was for 10 years. No installation was required because there was a prior lease with a prior occupant of the premises. When the new tenant moved in the alarm company had it sign a lease to continue service, monitoring and leasing the system. After a year or so the subscriber canceled, claiming that the alarm did not work, false alarmed, that the person signing the contract was related to the owner but not authorized to sign the contract, that the contract was not signed since the subscriber only printed his name, not signed it, and finally, that the contract should not be enforced because the subscriber only had a 5 year lease to the premises and the alarm contract was for 10 years. The subscriber claimed this was further evidence that the contract was not signed or validly signed.

Issue: Could the 10 year alarm contract be enforced when the lease to the premises was for 5 years?

Decision: Alarm contract enforced

Discussion: This case was tried by my office. After trial the Judge found that the contract was signed by a proper and authorized party and that the alarm had be properly monitored and serviced until the subscriber breached. Focusing on the 10 year term in the alarm contract, the Judge had this to say:

"Further, the repeated allegations by defendant, that the lease for the premises was only for 5 years, and the corporation would not obligate itself to a 10 year contract, is overcome by the contract provision and custom in the 'alarm monitoring" trade, that the system is movable to another location, or continued at the option of the lessee, which defendants knew from their own experience."

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 Enforcing Renewal Contract


 

Facts:

Alarm company enters into 5 year commercial lease agreement for the installation, lease, service and monitoring of a burglar and fire alarm system. The contract contains an automatic renewal provision that provides that the contract will automatically renew for a term of 5 years and year to year thereafter. Just prior to the end of the initial term the alarm company sends a new contract to the subscriber requesting that it be signed and returned. The subscriber is in a state that requires that the alarm company provide notice of the automatic renewal provision prior to the renewal date or the automatic renewal is not enforceable. No notice is sent out by the alarm company.

The subscriber makes many changes in the new contract before signing it and when it is received by the alarm company the alarm company immediately advises the subscriber that the new contract is not acceptable and will not be signed by the alarm company. The initial contract goes into the renewal period. Alarm service is continued for 2 years and thereafter the subscriber defaults. The alarm company seeks to enforce the renewal term which is for another 3 years.

Issue:

Can the contract be enforced?

Decision:

Contract unenforceable.

Discussion:

The initial contract and the proposed new contract need to be viewed and treated independently. Had the new contract been executed by both parties its terms would have governed. However the proposed contract was never executed by both sides; it therefore had no legal effect.

The relationship of the parties continued to be governed by the initial contract, which by its terms came to an end. The automatic renewal provision, which would be effectively extended the contract to a new 5 year term, could not be enforced by the alarm company because no notice of the automatic renewal provision was sent out to the subscriber in compliance with the governing statute.

Had there been no statute requiring notice then the alarm company would be on firmer ground claiming that the initial contract automatically renewed. However, the subscriber might successfully defend by claiming the by sending out the proposed new contract which never got signed, that the old contract ended and that the relationship continued without any written contract, therefore terminable at will. It would probably be a better practice to decide whether you want to rely on the renewal clause or a new contract, not both.

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INSURANCE COVERAGE ISSUE

 

 

Facts:

 

Check cashing business had insurance covering armed robberies of store employees and company officers while such persons were conveying money to and from its premises. On a date when the policy was in effect the company's vice president was robbed at gun point outside the premises while carrying a bag with $38,000. The stolen money was never recovered. The company made a claim to its insurance carrier.

 

Issue:

 

Carrier claimed that the policy required that a robbery occur while the money is in transit under the supervision of an armored motor vehicle service, which it admittedly was not, and denied coverage. The company sued claiming that the insurance policy was ambiguous.

Decision:

 

The complaint was dismissed.

Discussion:

 

The Court observed the well established rule that clear and unambiguous provisions in an insurance policy must be given their plain and ordinary meaning, and that Courts should refrain from rewriting the agreement. Also, although insureds are entitled to the benefit of any ambiguity that might appear in an insurance policy, Courts should not strain to find an ambiguity where the language is clear and precise. In this case the Court found that the policy clearly provided that absent emergency circumstances the company had to use an armored motor vehicle service when transporting money to and from its premises. Since the company did not claim that it had an emergency situation and that it did not use an armored service on the date of the robbery, the complaint was dismissed.

You need to be aware of the terms of all insurance policies that you have for your protection.

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Limited Partner's Liability

Facts:

Alarm company sues subscriber for breach of contract and recovers judgment. The subscriber closes its business before the judgment is collected and there appears to be no assets. Further investigation reveals that the business was conducted as a Limited Partnership. The General Partner was a corporation that also had no assets other than its interest in the now defunct partnership business. There were however a number of Limited Partners who had invested in the Limited Partnership. Alarm company sought to collect the judgment against the business from them.

Issue:

Are Limited Partners personally liable for the debts of the Limited Partnership?

Decision:

In this case yes.

Discussion:

Here is Limited Partners did not personally guarantee the business debt. The general rule is that General Partners are all personally liable for the debts of the partnership. Another general rule is that Limited Partners are not liable for the debts of the Limited Partnership. Their liability is limited to the amount they agreed to contribute to their capital account in the Limited Partnership.

One way to conduct business is as a partnership. Two or more persons get together and share profits and losses of their business. One problem with doing business as a partnership is that all general partners are personally liable for the debts of the partnership. To encourage investors who intend to have nothing to do with the operation of a business to get involved, Limited Partnerships where created. Limited partners invest in the partnership, generally have no say in the operation and have no personal liability for the debts of the partnership.

Limited partners have capital accounts with the partnership which is an account of what they agreed to invest for their individual interest. Limited partners sometimes do not pay in the amount they agreed to for their investment and limited partner's interest. Sometimes they withdraw more from the partnership then they invested and apply it to their capital account, thereby creating a negative capital account.

If the partnership goes bust creditors can look to the General Partners, who are always personally liable, and can also look to the Limited Partners to the extent that they owe any part of their capital account or have overdrawn their account.

Thus Limited Partners can expect to be liable to the extend of their deficit in their capital account.

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Enforcing contract when installation not made

Facts:

Alarm company entered into commercial burglar alarm lease with subscriber. Contract did not have specific installation date, but the parties did know that the subscriber intended to open for business in August. The alarm company began installation but did not work day to day and would not have finished by the projected date the subscriber wanted to open. In middle of the job the subscriber contracted with another alarm company and did not permit the first to finish. Alarm company sued for breach of the lease, seeking 80% of the balance of the lease payments and the full installation price, all of which was called for in the contract together with counsel fees.

Issue: 

Could alarm company collect full amount called for in contract?

Decision: 

Partial recovery

Discussion:

 The subscriber had no legal right to cancel the contract and did so at its peril. The contract did not have a time of the essence provision, and in fact the printed form contract provided that there was no time of the essence for performance. The subscriber did not provide any warning to the alarm company before canceling the contract and proof was offered that the contract offered by the second alarm company was less costly to the subscriber. Nevertheless, the alarm company did not compete the installation and the subscriber was entitled to an offset for the cost of completion saved by the alarm company. The alarm company's cost of completion actually exceeded the lease installation price since there was a saving in labor and the equipment was not installed. The alarm company was entitled to its liquidated damages of 80% if the balance of the contract. Since the alarm company's damages as a result of the breach of the lease by the subscriber was difficult to establish at time of contract it was appropriate to enforce the liquidated damage clause. The lease contained an enforceable attorney fee recovery provision and therefore the alarm company was entitled to its reasonable lawyer fees for prosecuting the action.

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Mistaken Reported Response

Facts

Alarm company maintained its own central station monitoring residential and commercial subscribers. A signal was received for a burglary and immediately dispatched to the police. Unfortunately the alarm company gave the wrong address for the subscriber's residence and the police went to this wrong address and, finding the door open, proceeded to enter the residence and scare the hell out of the unsuspecting residents. These individuals now make claim against the alarm company for unspecified damages claiming negligence.

Issue

Do claimants have a case, and if so under what theory? 

Decision:

Pending 

Discussion:

Obviously the claimants have no contract with the alarm company so there is no exculpatory clause or other contractual provision to rely on. There is also no contract that the claimants can rely on; there is no breach of contract action. The only theory available is negligence. For there to be a cause of action for negligence the claimants have to establish the four elements of negligence: duty, breach of duty, foreseeability and damages. Claimants will claim that the alarm company owed a duty to the general public not to dispatch false police reports causing the police to come to and enter their residence thinking that a burglary is in progress. By establishing that the dispatch was sent claimants will establish a breach of the duty. It will be claimed that it was certainly foreseeable that the police would act upon the false report. What damages claimants can establish will depend on medical testimony. In this case there may be no verifiable medical condition; but there could have been, such as a heart attack, or an injury during the police intrusion. This type of claim should be covered by errors and omissions insurance and reported to the carrier immediately.

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Contract Remedy - Recovering Equipment 

Facts: 

Alarm company sues commercial subscriber for breach of a commercial lease which is for a 60 month term with 48 months remaining. Additionally the alarm company seeks to recover $4500 for the value of the equipment. The subscriber defends with the usual defenses (alarm didn't work; service not adequate) and also claimed that the alarm company was offered to opportunity to remove the equipment. The subscriber claimed that since the alarm company was given the right to remove the equipment but chose not to, the alarm company could not recover the value of the equipment. Though the subscriber was unable to offer credible testimony that it offered an opportunity to remove the equipment to the alarm company, the alarm company was also unable to establish that it made any effort to recover the equipment. 

Issue: 

Could the alarm company recover the value of the equipment? 

Decision: 

No recovery for equipment value. 

Discussion: 

The "standard" alarm lease (Alarm Contracts ) provides that in the event of the subscriber's default the alarm company has the option of removing the equipment or selling it to the subscriber for the agreed valuation. Here there is no such provision. The contract does provide that the alarm equipment is the property of the alarm company and that removal is permitted at the end of the term and in the event of default. Of course the this provision would be fine if the alarm company had any real interest in removing the equipment in the event of default. However, where the equipment value was dubious, at best, there was little interest in removal. It made more sense to leave the equipment in place and gamble on a reinstatement of the contract, recovering the value or signing up a new subscriber in the event the old one left the premises. If the equipment had real value then perhaps it would be worth the effort and expense of removal, especially where there was not option for a forced sale (as the standard alarm contract has). Your remedy in the event of a subscriber's default, or end of a term of a contract, can be dictated by you in the contract and not left to chance.

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Central Station - Dealer contracts - Purchase Option

Facts: 

Alarm company that did not have its own central station contracted with a Central Station (CO) who provided third party monitoring. Before the CO would permit even the first subscriber to be hooked in, the CO required that the alarm company sign a contract. Appearing standard enough, the alarm company signed without reading it. Years later and many subscribers later, the alarm company sought a buyer for its subscriber contracts. After finding a ready, able and willing buyer, an asset purchase agreement was negotiated and executed. One of the provisions in this contract was a representation by the selling alarm company that it had a right to sell its subscriber contracts, that the assets were free of any liens and readily salable. Unaware of any restrictions the selling alarm company agree to the representation. Further investigation revealed however that the CO's contract with the alarm company contained a provision that provided that in the event the alarm dealer wanted to sell its subscriber contracts it had to sell the contracts to the CO for a specific multiple, which was substantially less than the third party was willing to pay. 

Issue: 

Was the CO's contract enforceable, and did the alarm company have to sell to the CO for the specified price? 

Decision: 

You be the judge. 

Discussion: 

There are two very familiar principles of law applicable here. The first is that parties to a contract are free to negotiate their deal in an arms length transaction, and barring over reaching, fraud or conduct which otherwise patently shocks the conscious of a reasonable person, judges should enforce the contract as written. The second principle is that a party who signs a contract is bound by its terms, and a party who fails to read what he is signing is so negligent that he too is bound by the contract terms. So, why should the alarm company be relieved of its contractual obligation to sell its subscriber contracts to the CO, especially where the price, though below what was agreed to by a third party, was certainly not unreasonably low? In all likelihood the alarm company should not be relieved of this contractual provision. The obvious message here is that you must read every contract you are asked to sign, even the small print, and especially the print on the reverse side, often written in the washed out print that's hard to make out. You need to understand every provision. If you don't, ask someone. Not the CO salesman, but your lawyer. You don't have to like every provision in the contract, but you should know what you are agreeing to. There will be many provisions in the CO contract that you won't like, but they are for the protection of the CO, not you, and they are more than likely fair. The purchase option is not fair and you should insist that it come out. If the CO wants it in I would be interested to hear what justification is proffered.

 

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Commencement of Contract

Facts: 

Alarm company enters into 5 year contract for the lease, monitoring and service of an alarm system at subscribers place of business. There is a nominal installation fee and a monthly charge of $75. The installation of equipment is completed except for the telephone line hook u and connection to the electrical supply. Before that is done and the alarm activated the parties have a dispute and the subscriber throws the alarm company out. The system is never activated. Alarm company sues for 60 months and counsel fees. The alarm contract does require the subscriber to furnish electrical and telephone service at alarm company's request. The contract also says that the monthly charges begin when the system is activated. 

Issue: 

Should alarm company prevail.

Decision: 

Award for subscriber. 

Discussion: 

Court found that the system was never activated and therefore the monthly charges never started. Though the contract did require the subscriber to provide the electrical and telephone service there was issue of fact regarding whether the subscriber refused to supply the utility service or if the relationship between the parties just broke down and the alarm company refused to continue the installation and activate the system. One change that the contract could use is that the monthly charges should not be tied into completion of installation and activation of the system. While you might have some difficulty collecting when the proof clearly shows that the installation was complete, why create additional criteria when you don't have to. The contract should simply provide that the monthly charge begins on the first day of the month following execution of the contract. That way the commencement date is certain rather than contingent upon what could be a factual dispute. In fact, tying the commencement date to the completion creates a condition precedent, and though a Judge may say that one is implied anyway, there is little to be gained by writing it into the contract

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Restrictive Covenant - Duration 

Facts: 

Alarm company is preparing to sell its subscriber contracts to another alarm company. The block of contracts is substantial, as is the monthly recurring revenue and the multiple being paid. The guarantee is rather short by industry standards. The Seller does not intend to stay in the alarm business and is therefore not particularly concerned with the restrictive covenant that the buyer is insisting on. The Seller will not be permitted to engage in the alarm business within the state or surrounding states for 10 years. Despite this acceptance, an obstacle arises. The Seller had purchased 10% of its subscriber accounts less than 3 years prior to this intended deal. The alarm company from whom the purchase had been made was still in business. When that deal was made the only restriction on the seller was that the seller would not be permitted to solicit and service the subscriber accounts that were included in the sale for a period of 7 years or until the buyer sold the accounts to another. (this was agreed to since the buyer, now a seller, had no thoughts about selling then). 

Issue: 

Can the seller or buyer in this present deal force the old sellers to expand their restrictive covenant so that they cannot compete with the new buyer? 

Decision: 

No 

Discussion: 

Restrictive covenants are narrowly construed; they are not favored by the Courts and will be strictly read and enforced so as to give effect to the intent of the parties within the bounds of reason and public policy. Here the restriction is clear. The original agreement was limited in duration to 7 years or until the then buyer sold the accounts to another. This is a perfect example of a seller taking unfair advantage of an eager buyer; so eager that protection that should so obviously needed is given up. Of course it is fair that a seller not be permitted to solicit or service the very accounts that are being sold, at least for as long as the accounts remain the accounts of the buyer, and for a time thereafter so that there should be no question that the seller caused the relationship to end for its purposes. But, the right to sell subscriber accounts is an important characteristic of ownership, and the then buyer should have anticipated that one day it too would want to sell its accounts. Exactly what transpired. And the new buyer was perfectly correct in requesting a restrictive covenant, and equally correct that the prior seller would now be free to compete (yes the new owner might be able to bring inducing breach of contract action against the prior seller, and breach of contract actions against breaching subscribers, but those are not the same actions as a violation of a restrictive covenant and perhaps harder to prove and prosecute). When buying accounts be sure to insist on a well worded restrictive covenant that includes solicitation and servicing, and which is not limited in duration or scope, particularly for the accounts included in the sale.

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Retaining title to sold equipment

Facts: 

Alarm company agreed to install burglar alarm system, intercom, access control and CCTV. The contract provided for the purchase price to be paid 10% on contract and the balance over 24 months, without interest, commencing upon completion. The contract specifically provided that the alarm company would retain ownership of the equipment until payment in full was made. The contract provided that the alarm company could remove the equipment if payment wasn't made. The subscriber defaulted in payment, went broke and files for bankruptcy protection. The alarm company, figuring it has some leverage, tried to remove it's equipment. The subscriber refuses to permit the removal. 

Issue: 

Can the alarm company recover the equipment? 

Decision: 

NO 

Discussion: 

Though the words are not to be found in the contract the structure of this agreement, sale attempting to retain title until paid, is what was commonly known as a "conditional sale." It doesn't work anymore, and hasn't for a long time. Instead of trying to retain title the alarm company should have had the subscriber sign a Security Agreement and should have filed a Financing Statement (UCC-1) thereby perfecting its security interest in the equipment. Having failed to perfect a security interest the alarm company is nothing more than an unsecured creditor, no more entitled to recover the equipment than any other creditor. The latest form standard security contracts [www.alarmcontracts.com ] now contain a provision authorizing the alarm company to file a UCC-1 to perfect a lien on the installed equipment (and other property of the subscriber) to secure the balance of purchase price as well as any other money owed under the contract, such as balance of monitoring or service charges. The contracts come with the UCC filing forms and instructions. Though you may not want to file UCCs for all subscribers, it is a good option once the subscriber goes into default or give you reason to think it will. Of course, like the contract, it's not going to be much help if you don't use it.

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Enforcing Contracts of Adhesion

Facts: 

Alarm company agreed to monitor a burglar alarm system. Subscriber was burglarized, Subscriber's insurance company brought action against alarm company for the damages suffered. Alarm company defended by claiming that it had contract with the subscriber that contained a liquidate damage provision fixing damages at $250.00. The alarm company moved to enforce the provision. The insurance company - plaintiff- claimed that the alarm contract was not enforceable raising several arguments, including that the contract was one of adhesion. 

Issue: 

Was the contract enforceable. 

Decision: 

Contract enforced. 

Discussion: 

The contract contained a liquidated damage provision that provided that the alarm company was not an insurer, that charges were related to the services and unrelated to the value of property on subscriber's premises, that subscriber would obtain insurance, that damages from failure of the system or service would be difficult to fix and that subscriber's damages would therefore be fixed at $250.00. In this case the cost of installation was under $800 and the monthly charge was $60 for 5 years; the alarm company retained title to the equipment. The plaintiff argued that the liquidated damage provision was not negotiable, contained in a pre printed form and was a sham, against public policy, manifestly unconscionable and invalid. Also, that the damages could easily have been established once there was a loss, and could have easily been anticipated when the contract was made. Luckily the court disagreed, making an initial finding that the defendant was in the burglar alarm business, not the insurance business. The kind of analysis that the plaintiff suggested could have been made when the contract was entered into was the kind of things that insurance companies look into, not alarm companies. Regarding the issue of unconscionable contracts, the court simply noted that it is not contrary to public policy to contract against liability for damages caused by ordinary negligence. Regarding the argument that the contract was one of adhesion the plaintiff claimed that the parties had unequal bargaining power. However the Judge found that both were corporations, and in any event unequal bargaining power, without more, was insufficient to invalidate a contract. Even where there is unequal bargaining power contract will be enforced if the terms are substantively reasonable. The court here found that since the defendant was in the alarm business and not the insurance business the contract terms were reasonable. Furthermore, since the terms were not such that they were beyond the reasonable expectations of an ordinary person, were not oppressive or unconscionable, the claim that the contract was one of adhesion, in and of itself, was insufficient to invalidate the contract. [115 Mich.App.278]

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Contract Term Enforcement

Facts: 

Alarm Company sued subscriber for breach, demanding enforcement of the
contract's liquidation damage provision, which called for 80% of the balance of
the contract. This contract was with a commercial subscriber and had a 10 year
term with 8 years to go. I will dispense with the various defenses argued by
the subscriber at trial.

Issue: 

Suffice it to say that the term of the contract was an issue and the
legality of the liquidation damage clause. More specifically, whether it
rendered the contract one of adhesion and an unenforceable penalty,
unreasonable and unconscionable.

Decision: 

Contract was upheld for the full term and the liquidation clause enforced;
additionally legal fees were awarded as provided for in the contract.

Discussion: 

The decision was a pleasant surprise. The Judges have been rather harsh
in their enforcement of the contract terms and any reason not to enforce the
contract is typically used. Last month's article discussed contracts of
adhesion and observed that so long as the contract terms were not beyond the
reasonable expectations of an ordinary person, were not oppressive or
unconscionable, even a contract of adhesion will be enforced. What facts will
turn a Judge one way or another depends on several factors, among which are the
sensibility of the particular judge and his or her experiences, the personality
and personal characteristics of the parties to the litigation, and the
reasonableness of the alarm company's explanation supporting the enforcement of
the liquidated damage clause [which would include the amount of work performed
by the alarm company in installation and follow up service, cost of providing
service and monitoring, reason proffered by the subscriber for defaulting and
amount of money involved].
It surprises me how often I hear from alarm company owners inquiring
whether I thought the 10 year contract term in my standard security equipment
lease would be upheld. My response is always the same: From a pure legal
premise there is no reason the term should not be enforced. From a practical
standpoint however you must factor in all of the unknowns, at least unknown
when you are thinking about whether to use the standard contracts. You get a
better idea of your chances when you first use the contract with a particular
subscriber, and you should have an even better idea by the time you are getting
ready to sue the subscriber for default. By then many of the factors discussed
above should be more easily evaluated.

One parting word of advice on this subject would be that if you want to
enforce the contract terms you need to believe in your contracts and the value
of those contracts for each particular subscriber. You shouldn't expect a
subscriber to willingly pay the contract default damages, or have a judge order
judgment for those damages, if even you don't think those damages are fair. So
start off convincing yourself that you are perfectly entitled to that profit.
You can start with the value of that subscriber, perhaps up to 40 times or more
the monthly recurring revenue on a sale basis. Need to go beyond the 40
months? Then calculate what it will actually cost you to monitor and/or
service that subscriber for the life of the contract. You will no doubt figure
out that the cost is minimal and that the revenue is therefore all profit. Of
course you should let the court know that you pay for central station
monitoring and radio service and that you can eliminate that expense; it should
be properly deducted off the amount owed to you -- even from the liquidated
damage calculation [even though the liquidated damage provision should be
enforceable without deduction]. Be reasonable and you can expect your contract
damages to be recoverable by you in most circumstances.

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Filing Proof of Claim in Bankruptcy Case

Facts: 

Alarm company was providing monitoring service to home owner. Home owner owed for 6 months service and filed bankruptcy, chapter 13. The plan proposed to pay 100% of the debtor's debts over 60 months. At the time of filing the home owner owed the alarm company $120 (6 x $20). The alarm company filed a proof of claim with the clerk of the bankruptcy court for $3014. [38 months x $20; $1500 for value of leased communication software, and $754 legal]. The debtor challenged the proof of claim and moved to have it declared disallowed.

Issue:


Was the proof of claim proper?


Decision:


Proof of claim upheld.


Discussion:


The debtor was in default when the petition was filed. Under the contract terms the alarm company was entitled to recover the balance of the contract, the stated agreed upon value of the equipment and legal fees. The proof of claim was timely filed and supported by the contract and a detailed breakdown of the amount owed.
Just like in different court cases the outcome could have been different. It could have been found that the alarm company's damages under the contract were something less than the stated contract damages and the court would have modified the damages, in which case the proof of claim could have been ordered reduced. Also, an improperly filed proof of claim, whether there be technical deficiencies or failure to attach adequate proof, could have been disallowed in its entirety.

 

 


Jury Waiver Clause

Facts: 


     Alarm company commenced action for breach of an alarm lease for 10 years. After some discovery proceedings the alarm company filed a notice of trial, place the case on the non jury calendar of the court. The defendant-subscriber (through its counsel) then filed a demand for a jury. In New York a civil trial is tried before a jury of 6. When selecting the jury a panel of 8 is chosen so that there are two alternates. Jury selection and jury trials delay and prolong the trial process, an already time consuming arduous process (in New York at least). Defense attorneys like to demand jury trials because they know it delays the process, and delay usually favors the defendant. It also favors the defense counsel who is almost always being paid "on the clock" and not on a contingency fee basis, which is typical in collection cases. In this case a motion was made to strike the jury demand on the ground that the alarm contract contained a jury waiver clause.
The jury waiver clause read: "The parties waive trial by jury in any action between them".

Issue:


     Is the jury waiver clause enforceable? 

Decision:


     Motion to strike jury demand granted. 

Discussion:

     Jury waiver provisions are enforceable and here the jury demand was properly stricken. Court will generally enforce the terms of a written agreement and are loath to change the terms that the parties have agreed to. Unless there is a statute or public policy against the jury waiver provision it should be enforced.
As a rule of thumb jury waiver clauses will be enforced in commercial transactions. Some states may prohibit the provision in consumer residential transactions. Including the provision will not invalid your contract, but the provision won't be enforced.  

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Indemnity Provision Issue


Facts:


     Security company installs security systems in subscribers premises which includes burglary protection. Subscriber suffers a burglary and the alarm for one reason or another fails to communicate a signal to the central station. The subscriber sues the security company alleging negligence in the installation, design and service of the system. This security company used a "home grown" contract, put together by the security company owner [who of course isn't an attorney] and the only protective clause that could be relied on was this Indemnity Clause [which should not be confused with the one found in my standard contract [www.alarmcontracts.com ] :
Subscriber agrees to indemnify Security Company, its employees, and agents against all claims, lawsuits brought by third parties, including legal fees, and losses asserted against and alleged to be caused by Security Company's negligence under this agreement.

Issue:

Should the action be dismissed based on the contract Indemnity Provision?

Decision:

No

Discussion:


       First of all the Indemnity Provision is hardly the most important "protective" provision that should be in the properly drafted security contract. Secondly, the wording used in this case is entirely deficient. More specifically, the above provision does not indemnity against claims brought by the subscriber itself, and by its terms is limited to third parties. Far more protection would likely be found in this provision:


INDEMNITY: 

Lessee agrees to and shall indemnify and hold harmless Lessor, its employees, agents and subcontractors, from and against all claims, lawsuits, including those brought by third parties or Lessee, including reasonable attorneys' fees, and losses asserted against and alleged to be caused by Lessor's performance, negligent performance or failure to perform its obligations under this agreement.


This language could at least arguably be used to claim that the subscriber agreed that no claims would be brought and operate as a release or exculpatory clause. Of course the contract should contain those clauses and the Indemnity Provision is not intended as a substitute for those provisions or as the first and final line of defense in an action against the security company when the subscriber suffers a loss.

 

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Exculpatory Clause in Contract 
Facts:      Alarm company commenced arbitration case to collect balance of
contract based on subscriber's breach of the alarm lease.  This was a ten
year contract and over 4 years were still owed.  The monthly was $97. 
Additionally the equipment, valued in the contract at $3500 was due.
     Despite the "no counterclaim" provision the subscriber served a
counterclaim in the arbitration case, claiming that it suffered a
burglary loss of $38,000.  An arbitration in the National Arbitration
Association permits discovery proceedings when claims exceed $25,000. 
[see www.natarb.com].  Discovery demands were made, but before responses
were received we moved for summary judgment based on the "exculpatory
clause" in the alarm contract.  [see www.alarmcontracts.com].
     The facts relating to the burglary loss were fairly undisputed. 
Burglars, prior to entering the premises cut the telephone wires; no
communication to the central station was received.  The system had no
back up or line security.  The alarm panel and key pad were destroyed.Issue:      Should the motion be granted?

Decision:      Motion granted and counterclaim dismissed.

Discussion:      In New York, like just about every other jurisdiction in the
country, courts enforce an "exculpatory clause" in an alarm contract. 
This really is one of the more basic provisions that you need in your
alarm contract, and it is the single most important provision that
neither you nor your attorney should mess with.  The language must be
precise because if there is any ambiguity it won't be enforced.  That
doesn't mean that you won't prevail in a lawsuit, but you will have lost
a first layer of defense that most likely would have been dispositive of
the claim.
     The precise language of the clause is found in my standard form
contracts which you can get to on my web site [www.kirschenbaumesq.com]. 
Basically the language states that the alarm company is not liable for
any damages suffered by the subscriber even if caused by the alarm
company's negligence.
     Some states will enforce the provision without qualification, others
limit enforcement to regular and not gross negligence.  That distinction
is the topic of another article.
      

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Cooling off Provision and Compliance 
Facts:    Alarm company entered into monitoring contract with residential
subscriber; a 5 year agreement.  After 6 months the subscriber notified
the alarm company that the subscriber was canceling.  The alarm company
sued to recover the balance due on the contract.  The subscriber defended
claiming that the alarm company never gave the subscriber a notice of
cancellation form.

Issue:      Can the alarm company enforce the contract?

Decision:      Subscriber can cancel at any time.

Discussion:      Federal and state laws require a "cooling off" period on all
residential alarm transactions.  The cooling off period is 3 days.  Your
contract must have a 3 day notice on it, and you must by separate
document provide the cancellation form that the subscriber can use to
sign and send you.
     What the penalty for not using the form?  The subscriber can cancel
anytime within 3 days of receiving the notice, or anytime if the
subscriber doesn't receive the notice.
  Can the subscriber waive the cooling off period?  Yes, but the
subscriber must handwritten on a paper separate from the contract that it
wants immediate service and is waiving the 3 day period and the notice.
     So if you are taking the trouble to get proper contracts signed (and
you are irresponsible and foolish if you are not) then you should be
using the 3 day notice instrument also so that your contract are worth
the paper they are written on.
      

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Unlicensed Service and Recovery

 

Facts: Alarm company enters into contract to install and monitor fire alarms system.
Local jurisdiction requires that alarm companies installing or monitoring fire
alarm systems be licensed by the fire department. The alarm company is not
licensed and nevertheless enters into a contract and does install and begin
monitoring the fire alarm system. During the term of the 5 year contract the
subscriber cancels. Alarm company sues under its liquidated damages clause.

Issue:
  Can the alarm company prevail?

Decision:
  NO

Discussion:
  A party cannot enforce an illegal contract. The alarm company knew there was a
license requirement and knew that it lacked the license and had no authority
to enter into the contract for the service. Even if the subscriber knew the
alarm company could not recover for future damages.
The alarm company in fact risks a demand by the subscriber for return of all
that it had paid. Refund would be more unlikely if the subscriber knew the
alarm company was unlicensed and participated nevertheless for some reason,
such as a lower price.
This is not a problem that should come up because as alarm professionals you
should know what you are licensed to do and what you should not be doing. As
often said, it's so much easier when you follow the rules.

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Proposals and sales

Facts:
        Alarm company submitted a proposal to the subscriber for installation of a
burglar alarm system. The proposal stated at the bottom that once the
subscriber signed the proposal indicating its acceptance that the proposal
became a binding contract. Subscriber signed the proposal. Alarm company then
presented the subscriber with its formal sales contract for signature. The
subscriber refused to sign the form contract and told the alarm company that
it had to install the alarm system and monitor it pursuant to the terms of the
proposal. While the proposal did contain the amount of money the subscriber
was required to pay it did not contain any of the protective provisions,
either the collection provisions or exculpatory and limitation of liability
provisions. The alarm company refused to do the installation and the
subscriber sued for breach of contract.

Issue:
  Was there a binding contract.

Decision:
  Proposal became a binding contract once signed by the subscriber. The alarm
company would be liable for breach of contract. The measure of damages for
breach of contract is the difference between what was agreed to and what the
non defaulting party had to pay another to receive what it had bargained for.
So if the installation charge was $900 for the described system with
monitoring for $16 a month for 5 years, and the subscriber went out and found
another alarm company for $1200 and $22 a month, you can calculate the damages
suffered by the subscriber.
Why would the subscriber pay another alarm company more money? Conflict of
personality. Sometimes money is not the only consideration.
The other outcome could be that the alarm company, not wanting to lose the
deal, might give in and do the job and monitor with just the proposal. That of
course would turn out to be a major mistake if the subscriber decided not to
pay, and potentially a business fatal mistake if the subscriber suffered a
significant loss and the alarm didn't work. Use a proper sales contract.

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Liability to third parties

Fact:
Alarm company installs sprinkler alarm system for owner of building. Building
is occupied by tenants. Sprinkler goes off and alarm company delays in
notifying fire department. Tenants suffer water damage.
Issue:
Can tenants sue alarm company.
Decision:
Tenants have no action against alarm company.
Discussion:
For there to be liability for negligence there first must be a duty. The
concept of duty is not always clear, as illustrated by the accompanying Legal
Side article. However, it has long been recognized that non intended
beneficiaries have no right to sue in breach of contract, and absent other
considerations which create a duty, an alarm company owes no duty to a non
contracting party. Non contract duty has been found in fire alarm situations.
The alarm contract should clearly state that there are no third party
beneficiaries of the alarm service. This can go a long way in influencing the
court that strangers to the contract were not intended to be protected by the
alarm service. While not necessarily controlling, it shifts the burden to the
one attempting to establish the duty and liability
  

 

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Can individual be liable for corporation's debts?

 

Facts: President of subscriber assured alarm company that its obligation would be
paid, personally by him if necessary. This assurance was made orally, not in
any writing. Subscriber defaulted and alarm company sued subscriber (a
corporation) and the president. The president claimed that he could not be held
liable because he didn't guarantee the corporation's debt in writing.

Issue: Can the individual president be held personally liable?

Decision:
Yes
Discussion: Most of you will know enough law to know that one of the main reasons business
people form corporations is to avoid personal liability. You also know that an
individual can't be liable for the corporation's debts unless the individual
personally guarantees the debt. Equally well known is the statute of frauds
(probably in every state) that says that one cannot be liable for the debts of
another unless the assumption of debt is in writing.
Of course there are many exceptions to the general rule. In this case the
exception is a bit unusual. The complaint alleged that the president verbally
guaranteed the corporation's debt, and the president's answer did not deny that
allegation. Though the answer did raise an affirmative defense that the debt
was not guaranteed in writing, the court found that an admission in a pleading
(the answer to the complaint), testimony in open court or in a papers submitted
to the court during the case, was sufficient to over come the statute of frauds
defense. Think there's a legal malpractice case somewhere?

    

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Equipment Value in Contract

    
Facts: Alarm lease to commercial subscriber was for 10 year term and provided that in
the event of subscriber's default the alarm company was entitled to 80% of the
balance of the contract and, at the alarm company's option, return of the
equipment or 80% of the value of the installed alarm equipment. There is space
on the standard contract where the agreed value of the equipment is to be
filled in [see order form for standard contracts at www.alarmcontracts.com].
The line to be filled in with the agreed value for the equipment was left
blank. At trial the alarm company offered testimony that the equipment was
worth several thousand dollars. The subscriber testified that it offered the
alarm company an opportunity to pick up the equipment.

Issue: Can the alarm company recover the value of the equipment?

Decision: No

Discussion: The contract provision permitting the alarm company to elect to sell the
equipment for 80% of the agreed value was left blank in this contract. This was
the result of sheer sloppiness by the salesman [or stupidity]. Therefore, since
no agreed value the provision permitting that option was worthless. Even if the
testimony by the alarm company regarding the value of the equipment was
believable, and it more than likely wasn't, the subscriber's offer to permit
removal of the equipment was for the most part uncontradicted.
There was no option left to the alarm company since the agreed equipment value
was not stated.
There are not a lot of "fill ins" in the standard contracts and you should
learn how to complete the terms and make sure your salesmen learn as well.

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Contract Breach Issue

  
Facts:
	Alarm company commenced an arbitration proceeding against its commercial
subscriber for breach of two contracts; one for lease of a burglar and hold up
alarm system and the second monitoring of a fire alarm system.  Subscriber was
a corporation opening a restaurant and the contract was guaranteed by its
president.
       The subscriber never made a single payment.  Subscriber claimed that the
alarm systems were never working and never hooked up to the central station for
monitoring.  The subscriber also complained that the alarm company started
sending monitoring bills the month after the contract was signed, even though
after four weeks the alarm system was still not working or hooked up.  At time
of trial the alarm system had not been hooked up.
       The alarm company sued for the entire term of the contracts, seeking 80%
under its liquidated damage clause. [this was my standard contracts].  The
subscriber testified at trial that when the alarm contracts were signed the
premises were under construction.  The alarm company started sending bills and
demanding payment.  The alarm was not hooked up, the subscriber had not
received set up instructions and operating instructions and the subscriber had
not yet installed the special telephone line needed for the alarm.

Issue:
	Did subscriber breach contracts?

Decision:
	Arbitrator found subscriber breached contracts and awarded liquidated
damages and counsel fees to alarm company.

Discussion:
	While the arbitrator did believe the subscriber's testimony, the
arbitrator was persuaded by the terms of the contracts.  The contracts provided
that monthly payments were "due commencing on the first day of the month next
succeeding the date hereof" [date of contract].
       The other contract provision relied on by the arbitrator provided that
it was the subscriber's responsibility to install and provide the telephone
line and telephone service.  The subscriber's failure to provide this service
which delayed the hook up of the monitoring was not a defense to payment. 
       The subscriber and its president were held liable under the contracts.
  

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Whether additional service covered by original lease

  
Facts: 
Subscriber leased a burglar and fire alarm system from Alarm
company to be installed at its commercial premises. The parties' lease
agreement contained a liquidated damages provision that limited Alarm
company's liability for negligence to the greater of three months' rental
service charge or $250. In early February 1996, Alarm company installed backup
equipment to the alarm system. On February 18, 1996, Subscriber was
burglarized and purportedly lost approximately $650,000 of inventory and cash
when the alarm system failed. Thereafter, plaintiff (Subscriber) brought
an action alleging negligence and gross negligence by defendant (Alarm
Company) in the design, installation, and maintenance of the alarm
system.
The trial court on motion for summary judgment held that the parties are bound
by the liquidated damages provision in the lease, and therefore, defendant's
liability for ordinary negligence is limited to $250. However, the trial court
found that there was a genuine issue of material fact as to whether the backup
equipment installed shortly before the burglary was subject to the original
lease. Accordingly, the trial court partially granted defendant's motion for
summary disposition on plaintiff's negligence claim relating to the
original alarm system, but denied defendant's motion in part regarding
the applicability of the liquidated damages provision in the original lease to
the backup equipment. In addition, the trial court found that "viewing
the evidence in the light most favorable to plaintiff, plaintiff has not
provided any documentary evidence that defendant was grossly negligent in
performing its contractual duties." Therefore, finding no genuine issue of
material fact, the trial court granted defendant's motion for summary
disposition on plaintiff's gross negligence claim.
       On appeal, plaintiff first argues that the trial court erred in granting
summary disposition to defendant and dismissing its gross negligence claim.
Plaintiff next claims that the trial court erred in granting partial
summary disposition to defendant. The parties do not challenge the trial
court's ruling that a genuine issue of material fact exists regarding whether
the backup equipment was subject to the liquidated damages provision in the
original lease. Instead, plaintiff challenges the trial court's grant of
summary disposition to defendant on the basis that the liquidated damages
provision limited defendant's liability for ordinary negligence concerning the
original equipment. Plaintiff argues that since the backup equipment was
installed shortly before the burglary, and was not covered by any contract, the
original equipment was transformed into a new and completely integrated system
with the backup equipment, and therefore, the liquidated damages provision
contained in the original lease is inapplicable to the entire system.
Defendant, on the other hand, argues that it is not difficult to separate the
originally installed equipment from the backup equipment installed in early
1996, and in any event, if there was no additional contract covering the
1996 installation, as plaintiff submits, then those services are
within the scope of the original contract and are subject to the
liquidated damages provision.

Issue: 
Was the lower court correct?

Decision and Discussion: 
Appeals Court concluded that the trial court did not
err in granting defendant's motion for summary disposition on plaintiff's gross
negligence claim. Generally, the question whether a party's conduct was
reasonable under the applicable standard of care is one for the factfinder;
however, in light of the evidence presented, if reasonable minds could
not[LINK] differ, then summary disposition is appropriate.  Gross negligence is
defined as conduct so reckless as to demonstrate a substantial lack of concern
for whether an injury results.  To establish its gross negligence claim,
plaintiff presented testimony from Richard Cantor, the president of an alarm
company in New York, who identified several instances of alleged reckless
conduct by defendant which, in his opinion, constituted gross negligence. We
note that although expert witness testimony may include opinion evidence, when
a proper foundation is laid, an expert witness may not opine on the issue of a
party's gross negligence. Indeed, to permit a witness to give his opinion or
interpretation of the facts would invade the province of the jury. In any
event, upon review of the record, we agree with the trial court's finding that
Carson's testimony does not establish gross negligence by defendant, and thus,
plaintiff has not provided any documentary evidence to support its claim.
     Further, plaintiff does not indicate how defendant's conduct constituted
gross negligence rather than ordinary negligence or breach of contract; nor
does defendant specify the alleged acts of gross negligence that proximately
caused plaintiff's damages. Moreover, plaintiff does not provide any
factual support from the record for its bare assertions. Plaintiff merely
alleges that defendant did not provide the services that it had promised to
provide. Conclusory allegations, unsupported by facts contained in the record,
do not provide sufficient basis for reversal. Therefore, the trial court did
not err in granting summary disposition to defendant and dismissing plaintiff's
claim for gross negligence.
    Regarding the second issue, the Appeals Court then addressed the
service issue, beginning its analysis that:
    This Court has previously upheld the validity of similar liquidated damages
provisions limiting liability where alarm systems failed. Indeed,
it is not contrary to public policy for a party to contract against
liability for damages caused by ordinary negligence. Here, plaintiff has
provided no legal authority for its assertion that the installation of backup
equipment transformed the alarm system into one new system such that the
original lease, with its liquidated damages provision, was inapplicable to the
original equipment. Further, plaintiff has presented no compelling argument nor
referred this Court to any case law that would support its position. A party
may not merely announce a position and leave it to this Court to discover and
rationalize the basis for the claim.  On this record, we conclude that the
trial court did not err in rejecting plaintiff's "integration" argument and
partially granting defendant's motion for summary disposition on plaintiff's
negligence claim.
    This case was decided in Michigan.  The case is D. MALIN, INC., d/b/a
Stretch A Buck Discount and Jewelry Sales v AUDIO CENTRAL ALARM COMPANY,
and was decided on October 29, 1999 by the Court of Appeals of Michigan.  Much
of the above is directly quoted from the court's decision


  

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lock out codes and emotional distress Facts:

My office commenced a collection action for an alarm company against a home owner on a 7
years monitoring only contract, prepared by me.  Case sought a few thousand dollars,
inclusive of attorneys fees.  The home owner served an answer denying that he owed any
money.  Then the home owner -- defendant made a motion to amend his answer to assert a
counterclaim for $50,000 for intentional infliction of emotional distress because the alarm
company locked the subscriber out of the panel, rendering the system useless.  The contract
did not require that the code be delivered unless the subscriber completed performance of the
contract.  The defendant did own the alarm system, but not the panel software for
communication that had the lock out code.
    The contract contained a provision prohibiting counterclaims.  We also claimed that there
was no cause of action for emotional distress.
Issue:
    Should the defendant's motion to amend to add the counterclaim be granted?
Court's holding:
    Judge denied the motion holding that defendant did not state a cause of action for
intentional infliction of emotional distress, and the contract provision prohibiting
counterclaims was enforceable.
Discussion:
    The court didn't go into much discussion.  Here is parts of the papers we submitted in
opposition to the motion, which discusses the issues and our position on the motion:
 
    GENE W. ROSEN, an attorney duly admitted to practice law in the Courts of the State of
New York, affirms the following to be true under the penalty of perjury:
 1. I am associated with the firm of KIRSCHENBAUM & KIRSCHENBAUM, P.C., attorneys for the
plaintiff.  I am fully familiar with the facts and circumstances herein.
 2. This affirmation is submitted in opposition to the defendant's motion to amend his answer
to interpose counterclaims against the plaintiff.
 3. CPLR 3025 motions for leave to amend pleadings should be denied where the proposed
amendment is "palpably insufficient as a matter of law or totally devoid of merit."   Norman
v. Ferrara, 107 A.D.2d 739, 740, 484 N.Y.S.2d 600, 601 (2d Dep't 1985) (stating that the
"merits of the proposed amendments will not be examined on the motion to amend ? unless the
insufficiency or lack of merit is clear and free from doubt").  In the present action,
defendant has not proffered any indicia that the counterclaim in the proposed amendment has
any basis in fact or law.       
 4. In order to sustain a cause of action for intentional infliction of emotional distress,
one must allege conduct that is both extreme and outrageous.   Howell v. New York Post Co.,
81 N.Y.2d 115, 122, 596 N.Y.S.2d 350, 353 612 N.E.2d 699, 703 (1993) (stating that everyone
one "of the intentional infliction of emotional distress claims considered by [the New York
State Court of Appeals] . . . has failed because the alleged conduct was not sufficiently
outrageous").  It is beyond reasonable cavil that the conduct complained of by the defendant
in his present motion could satisfy such a rigorous standard.  Id. (stating "the requirements
of the rule are rigorous, and difficult to satisfy");  Murphy v. American Home Prods. Corp.,
58 N.Y.2d 293, 461 N.Y.S.2d 232, 448 N.E.2d 86 (1983) ("[l]iability has been found only where
the conduct has been so outrageous in character, and so extreme in degree, as to go beyond
all possible bounds of decency, and to be regarded as atrocious, and utterly intolerable in a
civilized community"); Burlew v. American Mut. Ins. Co., 63 N.Y.2d 412, 482 N.Y.S.2d 720, 472
N.E.2d 682 (1984) (holding that an employer intentionally waiting a number of months before
authorizing surgery for an employee seriously injured on the job did not describe any conduct
remotely approaching the standard of behavior necessary to establish such a claim); Seltzer
v. Bayer, 272 A.D.2d 263, 709 N.Y.S.2d 21 (1st Dep't 2000) (finding that allegations that the
defendant dumped a pile of cement on the sidewalk in front of the plaintiff's house, tossed
lighted cigarettes into the plaintiff's backyard, threw eggs on his front steps, and
threatened to paint a swastika on his house were insufficient to support a cause of action
for intentional infliction of emotional distress); Cunningham v. Security Mut. Ins. Co., 260
A.D.2d 983, 689 N.Y.S.2d 290 (3d Dep't 1999) (finding allegations that the defendant failed
to timely compensate the plaintiff for a loss leaving her without a home, adequate
possessions or funds for over a year and that the defendant wrongfully accused the plaintiff
of committing arson and submitting false statements under oath were also insufficient to
state a cause of action).
 5. Accordingly, the defendant cannot counterclaim for intentional infliction of emotional
distress. The plaintiff withholding the lockout code on an alarm system, covered by a
contract that the defendant breached, falls far below the threshold of outrageous conduct
required for such a claim. Furthermore, the defendant does not offer any medical support that
he suffered emotional harm. The defendant's proposed counterclaim is completely devoid of
merit. This Court should deny his motion to amend the answer to include this counterclaim.
 6. In paragraph 5 of the January 11, 2006 contract, a copy of which is annexed to the
complaint as Exhibit "A", the defendant agreed not to interpose any counterclaims against the
plaintiff:
"In any action commenced by NYMP against Subscriber, Subscriber shall not be permitted to
interpose any counterclaim."
 
The enforcement of a provision in a contract prohibiting a party from interposing a
counterclaim is well supported, especially in the Second Department. See, North Fork Bank &
Trust Company v. Bernstein & Gerhsman, 201 A.D.2d 472, 607 N.Y.S.2d 135 (2d Dept. 1994)
(dismissing counterclaims as a matter of law because defendant expressly waived their right
to interpose counterclaims); Extebank v.Marco Group, 194 A.D.2d 516, 599 N.Y.S.2d 973 (2d
Dept. 1993) (holding there was no triable issue of fact due to an express  waiver of the
right to interpose a counterclaim); and Federal Deposit Ins.Corp. v. Borne, 599 F.Supp. 891
(D.C.N.Y. 1984) (stating in the absence of a counterclaim for fraud, the court upheld the
waiver of the right to interpose a counterclaim). Accordingly, the defendant should be held
to the terms he agreed to and should be prohibited from interposing any counterclaims in this
action. 

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Importance of indemnity and other language in contract

Facts:
    Owner of building used as warehouse leased the premises to tenant.  Tenant suffered a fire.  An
adjoining property owners building was damaged.  Adjoining owner sues the Owner who in turn sues the
tenant for indemnity.  For all you fire alarm company owners, here are the facts of the fire directly
from the court decision [by the way you can read the entire decision on my web site under Illinois
cases http://www.kirschenbaumesq.com/casesbystate.htm :
    " In the evening on October 26, 2003, a fire started at the warehouse. The
building's alarm system notified the fire department, and the building's
sprinkler system activated. The Granite City fire department responded to the
warehouse and, in a short period of time, appeared to have extinguished the
fire. While the fire department was at the scene of the fire, someone
deactivated the warehouse's alarm/sprinkler system. Six or seven hours after the
fire department left the warehouse, during the early morning hours of October
27, 2003, the fire re ignited. However, no one had reactivated the warehouse's
alarm/sprinkler system. Therefore, the fire department did not receive an
immediate alert from the building's fire alarm system, and the sprinklers did
not activate when the fire reignited. At some point, someone noticed the
reignited fire and notified the fire department, but when the firefighters
finally returned the second time, they were unable to immediately control the
fire. The fire burned for more than 10 hours. It destroyed Delivery Network's
warehouse and the warehouse's contents, as well as an adjacent warehouse
facility and its contents.

   The owners of the adjacent warehouse, its warehouse tenants, and Delivery
Network's own tenants filed lawsuits against Delivery Network, alleging that
Delivery Network's negligence was the proximate cause of their fire damages.
Specifically, they alleged that Delivery Network's failure to reset the
alarm/sprinkler system after the first fire was the proximate cause of the
damage to their property which occurred when the fire reignited."
 
Issue:
    Did the tenant owe indemnity to the Owner?  Owner filed a claim for contribution against Tenant,
alleging
that Tenant's negligent failure to properly operate and maintain its wall unit
heaters in its leased office space was a proximate cause of the fire. Owner sought contribution
from Tenant in the event any third parties [in this case the adjoining property owner] obtained a
judgment against Owner as a result of the fire damage.
Decision:
    This case presents the issue of whether a landlord's liability insurance
carrier has a subrogation right to seek contribution against a tenant where the
tenant's negligence causes damage to the real and personal property of third
parties.


Discussion:
    Nothing in the lease agreement indicates that the parties intended to
exculpate Tenant from fire damage to third parties caused by Tenant's own negligence.
There is no express exculpatory provision in the lease, and viewing the lease as
a whole, we conclude there is no evidence that the parties intended the Owner
to bear the burden of losses suffered by third parties as a result of the
tenant's negligence. There is a provision in the lease with respect to Tenant's
responsibility to procure insurance covering the contents of its office space,
but that provision makes no reference to third-party claims. Under the facts of
the present case, we cannot find that Tenant is a coinsured under Owner's
 liability insurance coverage. There is no evidence in this record to
support the holding that the parties intended Owner's liability
insurance to cover Tenant's negligently caused damages to the property of others.
The court concluded therefore that under the terms of the lease both parties remained responsible
for any damages they caused to third parties through their own negligence.
    The case was remanded to trial court to determine damages.
Relevance to alarm industry:
    A properly worded alarm contract contains several important provisions that are addressed in this
case and a reading of the decision will quickly show you how crucial it is to have the right terms
expressed.  The provisions that come into play are the indemnity provision,  the insurance procurement
clause and exculpatory clause.
 
 

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