ZURICH-AMERICAN INSURANCE COMPANY Plaintiff-Appellee vs. CITADEL ALARM, INC.
Court of Appeals, Eighth Appellate District of Ohio, Cuyahoga County, Ohio;
1986 Ohio App. LEXIS 6728; May 8, 1986
PRIOR HISTORY: Civil appeal from Common Pleas Court Case No. C.P. 066,416.
DISPOSITION: JUDGMENT: Affirmed
PROCEDURAL POSTURE: Defendant alarm company appealed from the judgment of
the common pleas court (Ohio), which found it liable to plaintiff subrogee
for damages that resulted from a burglary at a store owned by the subrogee's
insured. The trial court heard evidence on negligence and breach of warranty
but did not make findings of fact and conclusions of law pursuant to Ohio R.
Civ. P. 52. The subrogee cross-appealed the failure to award prejudgment
OVERVIEW: The alarm company installed an alarm and provided monitoring
service. The alarm failed. The service contract contained a clause that
limited damages. On appeal, the court noted that in the absence of findings
of fact and conclusions of law, it had a duty to affirm as long as there was
competent, credible evidence going to all the essential elements of either
negligence or warranty. The court found that damages limited to a portion of
the monthly service fee were totally disproportionate to any loss, and held
that on contract principles alone, liquidated damage clauses were
unenforceable as penalties if they produced an unconscionable result. The
court also held that the trial court could have found the clause
unconscionable under Ohio Rev. Code Ann. § 1302.93. The court noted that the
clause did not comply with the requirement of Ohio Rev. Code Ann. § 1302.29
that it be conspicuous and found that the trial court could have found that
a conspicuous "relation-back" clause at the end of the contract was
insufficient as a matter of law. The court also found that evidence of the
time needed to remove the goods and the police response time was sufficient
to find proximate cause.
OUTCOME: The court affirmed the judgment of the trial court against the
alarm company. The court also affirmed the denial of prejudgment interest.
COUNSEL: David J. Murray, Esq., Counsel for Appellee, 700 Ina Building,
14701 Detroit Road, Lakewood, Ohio 44107
R. Leland Evans, Esq., Counsel for appellant, 815 Superior Avenue, N.E.,
1305 Superior Building, Cleveland, Ohio 44114
JUDGES: KRUPANSKY, J., and CORRIGAN, J., CONCUR
OPINION: JOURNAL ENTRY and OPINION
ANN McMANAMON, P. J. Defendant Citadel Alarm, Inc. ("Citadel") appeals a
judgment of the common pleas court which found it liable to Zurich-American
Insurance Co. ("Zurich") for damages resulting from a burglary.
Citadel sells, installs, and monitors alarm systems. On April 16, 1982,
Citadel executed two agreements with Gloria Halloran, owner of The Feminine
Scene, a Womens' retail clothier and Zurich's insured. One of the documents,
"Proposal-Acceptance" ("the sale agreement") provided for "outright" sale to
Feminine Scene of a burglary alarm system to be provided and installed by
Citadel for $ 1,256.00. It included a one-year warranty on parts and labor
and noted that monitoring service would be provided by separate agreement.
The second document, styled "Service [*2] Agreement for Digital Central
Station Signalling Service, Police and Fire Department Direct-Connected and
Local Alarm Service," ("the service agreement") provided that Citadel would
furnish its "protective" services to Feminine Scene for $ 180 annually.
Less than a year after installation there was a break-in at the Feminine
Scene, during which the alarm system failed. Zurich compensated Halloran for
her loss of inventory, structural damage to her store, and lost profits
resulting from a required shut-down. Zurich was then subrogated to the
rights of Halloran, and commenced the instant action against Citadel,
alleging negligence and breach of warranty.
Before trial the parties stipulated inter alia,
"[T]hat at the time of the subject breakin [sic], the passive infrared detec
tor did not function properly due to the fact that it was improperly wired
by an employee of Citadel Alarm, either at the time of the original
installation or at the time the infrared detector was relocated."
The only issues to be litigated dealt with the proximate cause of the loss,
and the extent of recoverable damages. After a bench trial, the court
entered judgment against Citadel in the amount of [*3] $ 39,934.00. From
this judgment, Citadel timely appeals, raising two assignments of error. n1
Zurich cross-appeals, challenging the trial court's failure to award
prejudgment interest. n2
In Citadel's first assignment of error, it contends that the trial court
should have limited the amount of recoverable damages to fifty percent of
the annual service charge -- $ 90 -- pursuant to a remedy-limitation clause
in the Service Agreement. We disagree.
At the outset, we note that Citadel made no request for findings of fact and
conclusions of law pursuant to Civ. R. 52, and, as a consequence, we have no
way of knowing the specific basis for the court's ruling. Thus, since the
trial proceeded on alternative theories of negligence and breach of
warranty, as long as there is competent, credible evidence going to all the
essential elements of either case, it is our duty to affirm. C.E. Morris Co.
v. Foley Construction Co. (1978), 54 Ohio St. 2d 79.
Zurich maintains that the Sale Agreement and the Service Agreement are
separate contracts with separate considerations. As a consequence, Zurich
posits that, even though the Service Agreement limited remedies, this
limitation pertained [*4] only to items included in the Service Agreement,
and Zurich was entitled to recover losses for breach of warranty on items
contained in the sales contract.
Citadel argues that the documents comprise a single contract, so that the
limitation clause in the Service Contract pertains to the entire agreement
and therefore limited damages in either a negligence or breach of warranty
action. On the basis of the limitation clause, Citadel moved for partial
summary judgment on the issue of damages. The motion was ultimately denied
by the trial court. Citadel additionally moved, unsuccessfully, to exclude
all evidence of damages beyond the amount provided for in the limitation
Against this background, we consider the two contentions raised in this
assignment of error.
First, Citadel urges that the trial court erroneously applied the test set
forth in Samson Sales v. Honeywell (1984), 12 Ohio St. 3d 27, which held
that, on contract principles alone, liquidated damage clauses are
unenforceable as penalties if they produce an unconscionable result. Citadel
contends that the court should rather have applied the provisions of the
Ohio Uniform Commercial Code, since the contract [*5] between the parties
"involved the sale of goods."
Absent findings of fact and conclusions of law, we have no way of discerning
which "test" the trial court applied. Nevertheless, we find that from either
the perspective of the UCC or straight contract principles, the trial court
properly gave no effect to the limitation clause.
Assuming arguendo that the court chose to regard the service agreement and
the sales agreement as one, we find that the court could reasonably have
found the limitation clause inapplicable on UCC grounds. The relevant
language in the service agreement states:
"14. It is agreed that Citadel is not an insuror of Subscriber's premises.
The payments hereinbefore described are based solely on Citadel's cost of
furnishing the above services to Subscriber and are not intended to provide
for liability of Citadel or that Citadel shall assume responsibility for
loss to Subscriber or others resulting from burglary, theft, robbery, fire,
or any other cause whatsoever, whether or not such loss was occasioned by
malfeasance, misfeasance, or nonfeasance of Citadel in the performance of
its services hereunder, malfunctioning of equipment, or other relationship
established [*6] hereunder. From the nature of the services rendered the
parties agree it is difficult and impractical, if not impossible, to prove
the amount of damages, if any, which may proximately result from a failure
on the part of Citadel to perform any of its obligations hereunder.
"If, not withstanding the above provisions Citadel shall be adjudged liable
for any loss or damage due to a failure on the part of Citadel in any
respect under, or because of any relationship created by this agreement,
Citadel's liability hereunder to Subscriber, or others, or to any insurance
company by subrogation, shall be limited to and fixed at a sum equal to
fifty percent (50%) of the annual service charge hereunder, which the
parties agree is a reasonable approximation of the actual damages which they
presently anticipate would result from such a breach, as liquidated damages
and not as a penalty, and said payment by Citadel shall be Subscriber's or
any others complete and exclusive legal remedy hereunder."
The first paragraph in clause-14 represents a warranty disclaimer of any
liability for losses from burglary whether or not caused by improper
performance by Citadel. The second paragraph is a limitation [*7] of remedy
clause in the event that Citadel is, in fact, liable. Each of these clauses
is governed by separate provisions of the UCC.
The court could reasonably have found that the warranty was not, in fact,
disclaimed, and that the cause of action existed. R.C. 1302.29, which
governs the exclusion or modification of warranties under the UCC, states
that in order "to exclude or modify any implied warranty of fitness the
exclusion must be by a writing and conspicuous." Id. at (B). Clause-14 was
one of twenty-eight inconspicuous clauses contained in the body of the
service agreement. While, at the end of the document, there was a boldface
reference that the parties agree that they have read clause-14, the court
could reasonably have found that this "relation-back" theory of rendering
clause-14 conspicuous was insufficient as a matter of law.
The court could also have reasonably found that the limitation of remedy
clause was invalid. R.C. 1302.93, which governs the contractual modification
or limitation of remedies, provides that "[c]onsequential damages may be
limited or excluded unless the limitation or exclusion is unconscionable."
Id. at (C). Clearly, where a party invests [*8] approximately $ 1,500 in an
alarm system, designed to protect nearly $ 40,000 in inventory, it is
reasonable to find that a remedy limit of $ 90 is unconscionable.
Thus, under the UCC, the court could have found Citadel liable in the manner
it did. Citadel's reliance on Ins. Co. of North America v. Automatic
Sprinkler Corp. (1981), 67 Ohio St. 2d 91 is therefore misplaced. Automatic
Sprinkler was a case decided on UCC grounds, which held that the uniform
commercial code section dealing with limitation of remedies must be read in
pari materia with the section on disclaimer of warranties and, therefore,
both sections required conspicuous writings. Since we have already
determined that Citadel could reasonably be held liable on UCC grounds,
Automatic Sprinkler offers nothing to Citadel's case.
Citadel secondly contends that, even if the court correctly applied the
basic contract test propounded by Samson Sales, it incorrectly found that
clause-14 was unenforceable. We disagree.
The syllabus of Samson Sales provides:
Where the parties have agreed on the amount of damages, ascertained by
estimation and adjustment, and have expressed this agreement in clear [*9]
and unambiguous terms, the amount so fixed should be treated as liquidated
damages and not as a penalty, if the damages would be (1) uncertain as to
amount and difficult of proof, and if (2) the contract as a whole is not so
manifestly unconscionable, unreasonable, and disproportionate in amount as
to justify the conclusion that it does not express the true intention of the
parties, and if (3) the contract is consistent with the conclusion that it
was the intention of the parties that damages in the amount stated should
follow the breach thereof. ( Jones v. Stevens, 112 Ohio St. 43, paragraph
two of the syllabus, followed.)
The tripartite test of Samson Sales is stated in the conjunctive, and,
hence, all three elements must be met. Since (2) deals with
unconscionability, it must follow that, even when analyzed from principles
of non-UCC contract law, the limitations of clause-14 must fail as a
penalty. As we have already stated, a $ 90 cap on damages is too manifestly
disproportionate to the potential losses involved to be deemed conscionable.
The facts in Samson Sales bear a notable likeness to the instant case. In
Samson Sales, an alarm system was purchased from [*10] defendant at a cost
of $ 1,500. During a burglary, the alarm system failed, and plaintiff sued
for a $ 68,303 loss of merchandise. The remedy-limitation clause of the
contract limited recoverable damages to $ 50. In pertinent part, the court
"As to the second guideline recommended by this court, the stated sum of $
50 in the contract involved in this case is manifestly disproportionate to
either the consideration paid by Samson or the possible damage that
reasonably could be foreseen from the failure of Honeywell to notify the
police of the burglary. And with particular emphasis upon the third
condition proposed in Jones v. Stevens, supra, it is beyond comprehension
that the parties intended that damages in the amount of $ 50 should follow
the negligent breach of the contract." Id. at 29.
Accordingly, even if the court did apply the test of Samson Sales, it would
reasonably have found the damage-cap void as a penalty.
The first assignment is not well-taken.
The essence of Citadel's second assignment of error is that there was
insufficient evidence from which the court could conclude, by a
preponderance of the evidence, that Zurich met its burden relating [*11] to
proximate cause. Citadel further suggests that criminal intervention by
burglars was unforseeable, and thus constituted a supervening cause which
broke the chain of causation from the alarm's failure to the ultimate loss.
We reject these contentions. The court heard testimony that, based on the
large amount of items taken, there was a strong likelihood that the burglary
took a significant amount of time to accomplish. There was also testimony by
a Solon Police officer that, had police been properly notified by Citadel,
they would have reached the Feminine Scene sometime between two and ten
minutes. The weight to be given this evidence was for the court, which was
the trier of fact. State v. DeHass (1967), 10 Ohio St. 2d 230. Thus, the
court was free to infer that, had the alarm system worked properly, the
police would have aborted the burglary, and no loss would have been
sustained. As to the issue of foreseeability, it is clear that burglary is
the very thing an alarm system is purchased to forestall, and is eminently
foreseeable. Accordingly, Citadel's challenge to the issue of proximate
cause must fail. The second assignment of error is not well-taken.
On cross-appeal, [*12] Zurich contends that the the trial court erred in
not awarding it prejudgment interest on its damages. Again, we disagree.
It is well-settled that interest on a judgment should run only from the date
of the judgment where the amount due is unliquidated, i.e., uncertain. See,
e.g., Gornik v. Fuerst (March 31, 1983), Cuyahoga App. No. 45158,
unreported; Braverman v. Spriggs (1980), 68 Ohio App. 2d 58.
Zurich contends that all the losses were "estimable," and that these losses
amounted to the requisite sum certain due from the date of the burglary.
The losses were matters to be properly proved at trial. Indeed, in its
initial complaint, Zurich sought $ 44,663, the amount they "estimated" was
due when they commenced the suit. The trial court awarded $ 39,934. The
exact amount due remained for the court to determine. Accordingly, it is
clear that, until judgment was rendered, the damages remained unliquidated,
and prejudgment interest was inappropriate under R.C. 1343.03.
Zurich's cross-appeal is overruled. The judgment is affirmed.
Appellant's assignments of error are:
The trial court erred in finding that paragraph 14 of the contract between
appellant [*13] Citadel Alarm and appellee's insured, the Feminine Scene,
which paragraph conspicuously limits consequential damages to fifty percent
of the annual service charge, is not enforceable and, as a result, erred
both in granting appellee's motion for reconsideration of ruling on
defendant's motion for partial summary judgment and in denying appellant's
motion in limine.
(A) The contract between appellant Citadel Alarm, Inc. and appellee's
insured, the Feminine Scene, involved the sale of goods and is, therefore,
governed by the uniform commercial code. The trial court erred in applying
the test set forth in Samson Sales v. Honeywell, 12 OS 3d 27 (1984), which
does not even mention the uniform commercial code, rather than applying the
pertinent uniform commercial code sections as applied previously by the Ohio
Supreme Court in Insurance Company of North America v. Automatic Sprinkler
Corporation (1981), 67 OS 2d 91.
(B) Even if the trial court was correct in applying Samson Sales v.
Honeywell, 1984), 12 OS 3d 27 to the within matter, the trial court
misapplied the test set forth in that case and erred in finding that
paragraph 14 of the contract was unenforceable. [*14]
The trial court erred in finding that the failure of the alarm system to
work properly at the time of a breakin [sic] by unknown third parties was a
proximate cause of the loss sustained by appellee's insured.
The trial court erred in failing to award plaintiff-appellee and
cross-appellant, Zurich-American Insurance Company, prejudgment interest at
the rate of ten percent per annum dating from May 3, 1983, in its judgment
rendered June 3, 1985.
It is ordered that appellee recover of appellant its costs herein taxed.
The Court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this Court directing the
Cuyahoga County Common Pleas Court to carry this judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule
27 of the Rules of Appellate Procedure.
ZURICH-AMERICAN INSURANCE COMPANY Plaintiff-Appellee vs. CITADEL ALARM, INC. Defendant-Appellant
ZURICH-AMERICAN INSURANCE COMPANY Plaintiff-Appellee vs. CITADEL ALARM, INC.