Eaves Brooks Costume Co., Inc. v. Y.B.H. Realty Corp.

Decision Date12 June 1990
Citation76 N.Y.2d 220,556 N.E.2d 1093,557 N.Y.S.2d 286
Parties, 556 N.E.2d 1093 EAVES BROOKS COSTUME COMPANY, INC., Also Known as Eaves Costume Co., Inc., Appellant, v. Y.B.H. REALTY CORP. et al., Defendants, and M. Lionel Aprill et al., Doing Business as New York Automatic Sprinkler Service Co., et al., Respondents.
CourtNew York Court of Appeals Court of Appeals

Kenneth D. Goldberg, Jack L. Cohen, Richard P. Marin and Steven H. Beldock, New York City, for appellant.

Steven Farmer, Garden City, for M. Lionel Aprill, respondent.

Charles P. Duffy, New York City, for Wells Fargo Alarm Services, respondent.

HOPINION OF THE COURT

WACHTLER, Chief Judge.

This is an action to recover for property damage sustained by a commercial tenant when a fire sprinkler system malfunctioned and flooded the leased premises. The question presented on this appeal is whether the tenant can recover against the two companies under contract with the building's owners to inspect the sprinkler system and to maintain an alarm system.

We agree with the Appellate Division, 149 A.D.2d 652, 540 N.Y.S.2d 464, that the complaint should be dismissed as against those two defendants. We rest our decision, however, not on the distinction between misfeasance and nonfeasance relied upon by that court to determine whether a contractual duty could give rise to tort liability to a third party, but rather on a weighing of the policy considerations applicable generally to the question whether a tort duty should be so extended. Based upon these considerations, we conclude that the alleged negligence of those defendants in performing their contractual obligations did not breach any duty of care owed to plaintiff.

Plaintiff Eaves Brooks Costume Company is in the business of renting and selling costumes for the theatre industry. In 1981, Eaves Brooks leased the top four floors of a building located in Long Island City and owned by defendants Y.B.H. Realty Corp. and Photostam Companies, Inc. * The building was equipped with a fire sprinkler system covering 96,000 square feet and including approximately 1,000 sprinkler heads.

At the relevant times, defendant New York Automatic Sprinkler Service Co. was under contract with the building's owners to inspect the sprinkler system and to report all service needs to them. The contract called for 12 inspections per year, at a yearly cost of $120. The contract price was for inspection only and did not obligate New York Automatic to provide maintenance. The contract further provided that New York Automatic "shall be under no liability except as herein expressly set forth, and, in no event shall its aggregate liability for damages, whatever the cause and whether or not due to negligence, be greater than One Hundred ($100) Dollars, unless at the time of the execution hereof, the parties agree in writing upon a greater liability in consideration of an additional sum to be paid by Subscriber". There is no dispute that New York Automatic had in fact conducted such inspections for several years.

Similarly, defendant Wells Fargo Alarm Services was under contract with the owners to install and maintain a central station fire alarm system in the building. Pursuant to this contract, Wells Fargo installed a "paddle switch" to detect water flow in the sprinkler system and to send a signal to Wells Fargo's offices in the event that the sprinkler system was activated. The annual charge for this service was $660. The contract limited Wells Fargo's liability as follows: "It is understood that Wells Fargo is not an insurer; that insurance shall be obtained by Subscriber, if any is desired; that the sums payable hereunder * * * are based upon the value of services offered and the scope of liability undertaken and such sums are not related to the value of property belonging to Subscriber or to others located on Subscriber's premises * * *. It is agreed that if Wells Fargo should be found liable for any losses or damages attributable to a failure of systems or services in any respect, its liability shall be limited to a sum equal to ten percent of the annual charge hereunder, or $250.00, whichever is greater. The Subscriber may obtain a greater limitation of liability, if desired, by payment of an increased annual rate, which shall be negotiated between the Subscriber and Wells Fargo upon the request of the Subscriber in writing."

According to plaintiff's allegations, on or about Saturday, November 14, 1981, a sprinkler head on the fifth floor of the building malfunctioned and began discharging water at a rate of about 2,760 gallons per hour. The building was unoccupied over the weekend and the alarm system failed to operate. Thus, the flooding continued until it was discovered by plaintiff's employees on Monday, November 16. By that time, the water had done extensive damage to plaintiff's inventory of costumes stored in the building. According to the complaint, the damage exceeded $1 million.

An expert hired by plaintiff concluded that the probable cause of the sprinkler head malfunction was deterioration, due to age, of its fusible link, which can cause the sprinkler to activate at progressively lower temperatures. Nationally recognized standards recommend periodic sample testing of sprinklers that have been in service for 50 years and replacement of all sprinklers made before 1920. The sprinkler heads in this system were manufactured in 1915.

With respect to the alarm system, plaintiff's expert reported that the paddle switch was improperly located and that the system apparently had not been tested as frequently as recommended.

Plaintiff commenced this damages action against New York Automatic, Wells Fargo and the building's owners, alleging as relevant here that New York Automatic failed to detect and notify the building's owners of the defects in the system and that Wells Fargo had improperly installed and maintained the alarm system, particularly the paddle switch. After issue was joined, New York Automatic and Wells Fargo moved for summary judgment dismissing the complaint. In addition, Wells Fargo moved in the alternative for partial summary judgment limiting its liability to $250, pursuant to the limitation on liability contained in its contract with the owners. Plaintiff cross-moved to strike Wells Fargo's affirmative defense based on the contractual limitation of liability.

Supreme Court granted defendants' motions to the extent of dismissing plaintiff's complaint insofar as it pleaded causes of action for breach of contract, concluding that plaintiff was an unintended, incidental beneficiary of the contracts. Otherwise, however, the court denied defendants' motions, holding that defendants could be liable in tort for the negligent performance of contractual duties if their conduct amounted to misfeasance, but not if their conduct was nonfeasance. The court concluded that there was an issue of fact in that...

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