Fretwell v. Protection Alarm Co.
764 P.2d 149, 1988 Okla. LEXIS 90, 1988 OK 84 (1988)
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Rule of Law:
A contractual provision that clearly and unequivocally limits a party's liability for its own future acts of negligence is enforceable and will not be voided as an unlawful penalty or liquidated damages clause, provided it is not unconscionable or against public policy.
Facts:
- Fretwell's, Inc. had a renewal contract with Protection Alarm Company for alarm services at the Fretwell family's residence for a monthly fee of $46.00.
- The contract stated that Protection Alarm was not an insurer and contained a clause limiting its liability for any failure of service or performance to a maximum of $50.
- The contract also required the subscriber to indemnify Protection Alarm against any claims arising from its own negligence.
- In August 1984, an alarm signal was received at Protection Alarm's monitoring station.
- Protection Alarm notified the police and dispatched an employee, who arrived at the Fretwells' residence.
- Upon being told by police that the residence was secure, the employee did not use a key provided by the Fretwells to inspect the interior, nor did he discover that the phone line carrying the alarm signal had been cut.
- After the police and the employee left, one or more burglars entered the residence and stole property valued at $91,379.93.
Procedural Posture:
- The Fretwells filed a negligence action against Protection Alarm Company in an Oklahoma trial court.
- Following a trial, the jury returned a verdict in favor of the Fretwells and awarded them $91,379.93 in damages.
- Protection Alarm Company, as appellant, appealed the judgment to the Supreme Court of Oklahoma.
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Issue:
Does a clause in an alarm service contract that limits the provider's liability for its own negligence to a nominal sum of fifty dollars validly restrict the amount of damages recoverable in a negligence action arising from that contract?
Opinions:
Majority - Justice Alma Wilson
Yes. A clause in an alarm service contract that limits the provider's liability for its own negligence to a nominal sum validly restricts the amount of damages recoverable. The court reasoned that the tort action arose out of the contractual relationship, so any lawful limitations within the contract can limit the tortfeasor's liability. The court determined the clause was a limitation of liability, not an unenforceable penalty or liquidated damages clause, distinguishing it from statutory provisions governing penalties by citing the Restatement of Contracts § 339, Comment (g). The court emphasized that the alarm company is not an insurer, a fact explicitly stated in the contract, and the low monthly payments reflected the value of the service, not the value of the property being protected. Finding that such clauses are not unconscionable or against public policy and are upheld by a majority of jurisdictions, the court held the provision enforceable. The court also upheld the indemnity clause because the contract's intent to indemnify the company for its own negligence was unequivocally clear.
Analysis:
This decision solidifies the enforceability of limitation of liability clauses in service contracts in Oklahoma, aligning the state with the majority rule. It clarifies the critical distinction between an unenforceable penalty and a valid limitation of liability, signaling that courts will respect the allocation of risk agreed upon by contracting parties. The ruling places the onus on consumers, particularly in contexts like alarm services, to secure their own insurance for high-value property rather than relying on the service provider as an insurer. This precedent provides significant protection for service-based businesses by allowing them to cap their potential liability and offer more affordable services.
