Cirillo v. Slomin's Inc.

Majority - F. Dana Winslow, J.

Yes, a seller of a home alarm system can be held liable for fraud and gross negligence despite contractual disclaimers and liability limitations, particularly in consumer transactions where a duty to disclose material limitations exists. The court found that the plaintiffs sufficiently pleaded a cause of action for fraud. Although plaintiffs did not explicitly allege Slomin's sales agent, Goldberg, knew his statements were false, such knowledge could be inferred or constituted a "reckless misstatement" or "pretense of knowledge when knowledge there is none," and details of knowledge are often within the defendant's purview at the pleading stage. The fraud claim was also not barred as merely a breach of contract because Slomin's had an independent legal duty to speak truthfully and accurately about its system, and to disclose material limitations not apparent to the purchaser, particularly under the "special facts" doctrine given its superior knowledge. The court distinguished this consumer transaction from the sophisticated, arm’s length business deal in Danann Realty Corp. v. Harris, where specific disclaimers were enforced. It reasoned that in consumer contexts, boilerplate non-negotiable disclaimers of reliance, especially concerning technical matters, do not automatically negate justifiable reliance on a salesperson's representations. The court stated that the danger of fraudulent claims is outweighed by the danger of unrestrained fraud against consumers. The general or specific disclaimers were deemed insufficient to clearly and unambiguously apprise plaintiffs of the specific limitation that the system would fail if phone lines were cut, especially in light of Goldberg's contradictory representations. Exculpatory clauses cannot shield a party from liability for intentional misconduct or gross negligence, though they may for ordinary negligence. The negligence claim was also sustained to the extent it alleged gross negligence. While ordinary negligence claims might be barred by exculpatory clauses, claims of gross negligence ("reckless indifference to the rights of others") are not. The court adopted the "safety-insurance policy of tort law" from La Barre v. Mitchell, distinguishing it from Arell's Fine Jewelers v. Honeywell, Inc., noting that a home burglary carries risks to personal safety beyond purely economic loss, making a defectively designed or inadequately disclosed alarm system inherently dangerous. An independent duty to warn the homeowner of the system's vulnerability arose from the ongoing contractual relationship. However, the court dismissed the breach of warranty claims (implied and express). Implied warranties were validly excluded by conspicuous disclaimers explicitly mentioning "merchantability" and "fitness for a particular purpose." The express warranty claim based on oral representations was barred by the parol evidence rule (UCC 2-202) because it sought to enforce the oral statement, unlike fraud in the inducement. Finally, contractual clauses limiting monetary damages were deemed unenforceable against claims of fraud and gross negligence, similar to exculpatory clauses.