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District Court of Appeal, Second District, Division 3, California.


Civ. 18525.

Decided: March 28, 1952

Eugene S. Ives, Los Angeles, for appellant. Lawler, Felix & Hall and Reed A. Stout, all of Los Angeles, for respondent.

Plaintiff brought this action against American District Telegraph Company (hereafter referred to as defendant), and six of its employees for damages allegedly sustained as the result of alleged breach of contract under which defendant had a duty to promptly dispatch guards or call the police, or both, when a burglary signal was received in its central station from plaintiff's Wilmington market. In one cause of action it was alleged that defendant negligently installed, maintained and operated its system and failed to promptly notify the police; in a second cause of action it was alleged that defendant violated its contract in that it failed to send its representative as it had agreed to do and failed to promptly notify the police after it had received a burglary alarm. The agreement, so far as pertinent, reads as follows.1 Two trials were had. At the first the jury found for plaintiff in the sum of $35,930 but the court granted a new trial on the ground of insufficiency of the evidence. At the second trial the jury could not agree and was dismissed. Pursuant to Code of Civil Procedure, section 630, judgment was entered for defendants on their motion for a directed verdict theretofore made. Plaintiff appeals, contending that since there was sufficient evidence of defendants' negligence and breach of contract, and damage proximately resulting therefrom, to sustain a jury verdict it was error to grant defendants' motion. Defendant contends that there was insufficient evidence to prove that the acts or omissions of its employees proximately caused any damage to plaintiff. It also contends that its liability was limited by the contract to the sum of fifty dollars.

Viewing the evidence in the light most favorable to plaintiff, Anthony v. Hobbie, 25 Cal.2d 814, 155 P.2d 826, the following facts were established: On November 16, 1947, at about 7:30 p.m. Mr. Horton, assistant manager of plaintiff's Wilmington store, set the burglar alarm system, locked the doors and walked to the parking lot accompanied by another employee of plaintiff. As he entered his car, Mr. Horton was accosted by an armed robber and at gun point forced to open the store, the inner office and the safe. The robber took the contents of the safe, taped Mr. Horton so he could not follow, and left. At the time the robber taped Mr. Horton he threw the latter's watch to the floor, it broke and the hands were stopped at 7:50. Approximately 14 minutes elapsed from the time Mr. Horton re-opened the front doot until the robber left the market with the loot, some $35,000 in money and checks. While this was transpiring at the market signals were received at the ADT central station. At 7:42 defendant Mysel made a report that signals had come in from station 321 in sequence of 1–4–4–3. Since the opening of a door sent 3 rounds of signals and closing sent 1, the interpretation of this sequence would be closing of door at 7:30 (1 round), opening and closing of outside door (4 rounds), at 7:35 opening and closing of office door (4 rounds), and opening of safe (3 rounds) all between 7:30 and 7:42. Although the evidence of the defendants indicated that the signals came somewhat later, we may not weigh conflicting evidence or hold as a matter of law that defendant's employees acted promptly after the signals were received. Defendant Garber (service supervisor at the central station) did not call a guard until 7:51 and defendant Bushman called the police at the same time. At 7:49 Garber had called the market and at about 7:50 Mr. Horton got to the phone, knocked it off the hook and called for help. Police officers reached the premises at 7:52, within one minute after receiving a call. Defendant Nead, an ADT guard, lived 9 blocks from the market and arrived there in 5–10 minutes. Defendants Clay and Van Hooser, also ADT guards, arrived just after 8:00. Between 7:30 and 7:50 Nead had been at home in reach of the telephone and the police officers had had their radios on.

Although plaintiff did not have the holdup alarm service, the agreement did authorize defendant to cause the arrest of persons who entered the premises without authority, defendant did call the police and it had, in the past, made a practice of calling the police upon receipt of burglar alarms. In view of these facts, the ambiguity of the agreement with respect to calling the police, and the repeated signals received, it would have been reasonable to conclude that defendant had that duty. If not, the need to send guards promptly was all the more imperative. Irrespective of a duty to call the police there was a duty to send defendant's representative to the premises ‘upon receipt of a burglar alarm.’ Promptness was of the essence of defendant's obligation. The service would be of little value in case of a burglary if defendant's employees do not act at once upon receipt of an alarm. If they assume that the entry is a legal one and take their own time in making an investigation they do so at defendant's peril. Their tactics, as related above, could reasonably be classed as an omission to render the agreed service, and consequently, a failure of performance. This is true with respect to their delay in sending a representative to plaintiff's premises as well as to delay in notifying the police.

With respect to the question of proximate cause it is to be kept in mind that the breach alleged was the failure to take prompt measures which might have prevented a burglary that was under way. Defendant contends that there is no way of knowing whether the burglary could have been prevented, and that any attempt to determine this question would involve speculation and guesswork. Cases are cited from other jurisdictions in which it was held that the burglaries were not the proximate result of the failure of alarm systems to register signals, and that it was purely speculative whether if alarms had been given the burglaries could have been prevented. This is a question that cannot be answered without regard to the facts in evidence in the particular case. In the present case the probabilities were to be weighed in the light of common experience in such matters and presented a triable issue of fact. The questions of fact were whether it could reasonably have been foreseen that the burglar would be successful unless defendant responded promptly to the alarms by sending a representative and notifying the police, and whether it was probable that by acting promptly defendant could have prevented the loss. Such questions are for the trier of fact. Gibson v. Garcia, 96 Cal.App.2d 681, 687, 216 P.2d 119; Finnegan v. Royal Realty Co., 35 Cal.2d 409, 218 P.2d 17. If these questions are answered in the affirmative the loss would be deemed the proximate result of defendant's delay in responding to the alarms. Upon the evidence that was before the court we think it would have been reasonable to conclude that if defendant's employees had used the diligence the circumstances demanded the burglar could have been intercepted and the theft could have been prevented. It would seem that the parties believed that defendant's service would prevent burglaries, at least under some circumstances. Here there was but one individual committing the burglary. He was acting deliberately, and there was reason to believe he would have been captured by the police if they had been called to the scene before he left the building. We therefore conclude that there was evidence from which the court would have been warranted in finding that plaintiff's loss was the proximate result of defendant's breach of its contract.

The remaining question is whether there was a valid agreement for liquidated damages. Defendant contends that the concluding provision of the agreement quoted above is merely an agreement for limitation of liability, and cites American District Telegraph Co. v. Roberts & Son, 219 Ala. 595, 122 So. 837, 838, as a case exactly in point. In that case a provision for liquidated damages identical with the one in our case, with an exception which does not change the sense of it, was held to be merely a limitation of liability. We are unable to reach the same conclusion. It is true the agreement reads that the liability ‘shall be limited to and fixed at the sum of $50.00 as liquidated damages, and not as a penalty, and this liability shall be exclusive’, but plaintiff's agreement to this limitation is inseparable from defendant's obligation to pay the sum as liquidated damages. Fifty dollars is payable if a loss results by reason of defendant's breach, whether the amount be more or less than fifty dollars. If, therefore, this liability is not enforcible, there is no limitation of liability.

We believe that the parties entered into a valid contract for the payment of liquidated damages. Under section 1671, Civil Code, such an agreement may be made ‘when, from the nature of the case, it would be impracticable or extremely difficult to fix the actual damage.’ Our statutory law is merely a statement of the principle universally recognized that a valid agreement may be made for the payment of liquidated damages, whereas an agreement for the payment of a penalty is invalid. The question of validity depends upon whether the agreement is for one thing or the other. The distinction between a valid and an invalid agreement is the distinction between an agreement for liquidated damages and one for a penalty. It is almost exclusively a question of the intention of the parties as derived from the agreement, their relations and the surrounding circumstances. Hanlon Drydock & Shipbuilding Co. v. G. W. McNear, Inc., 70 Cal.App. 204, 232 P. 1002; Wright v. Rodgers, 198 Cal. 137, 141, 243 P. 866; 25 C.J.S., Damages, § 103, page 659; 3 Williston on Contracts, sec. 778 at p. 2188 (Rev.Ed. 1936); 1 Sedgwick on Damages, sec. 420b (9th Ed. 1913). Section 1671 is in harmony with the rule that the promise to pay money for a breach of an agreement will be regarded as a penalty unless there is great uncertainty or extreme difficulty with respect to forecasting the actual damage that would result from the breach. Section 1671 uses the words ‘impracticable’ and ‘extremely difficult,’ but they are not particularly significant inasmuch as the rule, however it may be stated, allows the parties to contract for liquidated damages if it is necessary to do so in order that they may know with reasonable certainty the extent of liability for breach of the agreement. Necessarily, business judgment enters into their negotiations and the limitations which they see fit to agree upon. The agreement here provides that it was impracticable and extremely difficult to fix the damages that might result from defendant's failure to render its service. This provision is entitled to much weight in ascertaining the intentions of the parties. Consolidated Lumber Co. v. City of Los Angeles, 33 Cal.App. 698, 166 P. 385.

Before discussing the facts of the present case we should dispose of plaintiff's contention that the questions of impracticability and extreme difficulty are to be considered as relating to the evidence which is available to prove the extent of the damage after the loss has occurred. It is not contended that the amount of any loss that might be suffered could be measured by any knowledge that the parties had at the time they contracted, or by any conditions that could be foreseen with any degree of certainty. It is claimed that it is immaterial that impracticability or extreme difficulty exist at the time of the agreement, and that there is certainty as to the amount of damage whenever it is susceptible of proof after the injury has occurred. Plaintiff says: ‘Now how or in what way is it impracticable or extremely difficult for a court to fix the actual damage? It is, of course, easy to do so, the amount of money stolen is the damage. This amount is easily ascertainable either when the contract was entered into or later at the time of the loss. The technique of determining the amount is the same at both times.’ This is not the rule. It is the ability of the parties, not of the court, to fix actual damage that controls. In determining the question of practicability and extreme difficulty the court should place itself in the position of the parties at the time the contract was made, and should consider the nature of the breaches that might occur and any consequences that were reasonably foreseeable. In Hanlon Drydock & Shipbuilding Co. v. G. W. McNear, Inc., supra, 70 Cal.App. 204, 232 P. 1002, the contention was advanced that a valid agreement cannot be made for liquidated damages unless it is extremely difficult to ascertain the amount of damage after the loss has been suffered. In rejecting this theory the court said, 70 Cal.App. at page 211, 232 P. at page 1005: ‘If adopted it would practically destroy the power given contracting parties under section 1671 of the Civil Code in any case to make a binding agreement as to stipulated damages, and would in effect be adding to that code section a proviso, namely, ‘provided such impracticability continues up to and exists at the time of the breach.’ Appellant's theory is manifestly contrary to authorities of other jurisdictions, notably the federal jurisdiction, it finds no support in the textbooks so far as our attention has been called, and if inference may be indulged in, we think the cases of the local jurisdiction clearly indicate that there is no intention to depart from the universal rule established elsewhere.' Numerous authorities were cited supporting the general proposition quoted from City of New Britain v. New Britain Telephone Co., 74 Conn. 326, 50 A. 881, 1015: ‘It is the look forward, and not backward, that we are called upon to take’. See also Kimbro v. Wells, 112 Ark. 126, 165 S.W. 645. This proposition is too well settled to admit of further discussion.

The fact that the parties stipulated that fifty dollars was to be paid for each breach of contract as liquidated damages and not as a penalty is not conclusive. Dyer Bros. Golden West Iron Works v. Central Iron Works, 182 Cal. 588, 592, 189 P. 445; 25 C.J.S., Damages, § 105, page 662. But at the same time, it expresses their judgment and understanding of a situation as to which they had superior knowledge.

It has been said that the question whether it is impracticable or extremely difficult to fix damages is largely one of fact, Dyer Bros. Golden West Iron Works v. Central Iron Works, supra, 182 Cal. at page 593, 189 P. 445, also that it is necessary to allege and prove facts from which the court can say as a matter of law that the contract is valid, Thomas v. Anthony, 30 Cal.App. 217, 221, 157 P. 823, McInerney v. Mack, 34 Cal.App. 153, 157, 166 P. 867. But if the trial court finds that it was impracticable or extremely difficult to fix the damages and it appears from the nature of the detriment that would be suffered that the damages could be fixed without difficulty, a judgment based on the finding will be reversed, Stark v. Shemada, 187 Cal. 785, 204 P. 214. Although the question is one upon which a finding is necessary, Consolidated Lumber Co. v. City of Los Angeles, supra, 33 Cal.App. 698, 166 P. 385, it becomes one of law where the facts are not in dispute and the question admits of but a single answer. Such is the present case. When the court places itself in the position of the contracting parties and considers the uncertainty as to what might happen if plaintiff's store should be entered, it will satisfactorily appear that there is no basis whatever for a conclusion that it would have been practicable or reasonably possible for the parties to fix the probable damage. The question, upon the admitted facts, is clearly one of law.

Where impracticability or extreme difficulty appears as a matter of law, and the parties have expressly agreed upon a sum as liquidated damages, it cannot be said that they contracted for a penalty if the sum agreed upon would exceed the loss in some circumstances and fail to equal it in others. Such is the present case.

Defendant was to send a representative to plaintiff's store whenever a signal was received which indicated that a door had been opened or closed while the system was in operation, namely, outside business hours. It was to report all such occurrences to plaintiff. Failure to receive the signals, or to respond to them, or to report, would be a violation of the agreement. Such entrances of the building might be made by persons having authority as well as by burglars or by persons bent upon mischief. They might or might not cause damage. There might be the theft of a ham, or of a truckload of goods, or the contents of a safe. There might be a breaking in for the purpose of theft and no theft. If money was taken it might be a few dollars or many thousands. Books might be tampered with, or papers abstracted. Damage might be caused in many way that were not foreseeable. By what method could the parties have ascertained at the time of the contract what the nature of an entry might be, or its consequences. And if burglary was anticipated, how could it have been foretold what the loss would probably be. The answer is that what might happen as a result of the failure of defendant's service was a matter of utmost uncertainty. Defendant was furnishing service and obligating itself to a limited extent to compensate plaintiff for loss due to failure of the service. There was no limitation as to the nature of the loss to which liability would attach, but only as to the amount. But for this limitation defendant would have been in effect an insurer to the extent of plaintiff's losses resulting from failure of defendant to render the agreed service. Even if it had been possible, we think it would have been impracticable and extremely difficult to foretell what would happen on plaintiff's premises while they were without the protection which defendant's service afforded. And even if the nature of the injury could have been foreseen, the extent of the damage could have been determined only after it had been sustained. As said in 70 Cal.App. 204, 215, 232 P. 1002, 1006, supra: ‘The uncertainty contemplated by the rule is an uncertainty as to the extent and amount, not as to the proper measure of damages. Sedgwick on Damages, p. 769.’ From the standpoint of defendant it was important that it should know the extent of its liability. For the small annual compensation received it could not, of course, afford to assume heavy responsibility for losses through burglaries or other depredations. On the other hand plaintiff, while entitled to same compensation for defendant's breaches of contract, would have no means of knowing either the nature or the extent of any losses that might result. It could not expect defendant to furnish it with the security which burglary insurance would afford. And in view of the fact that neither party could foresee what the consequence of a breach would be, it was entirely reasonable for them to agree upon the sum of $50 which would be paid whether defendant's loss for a given breach was greater or less than that amount. We do not see how the court could reject the altogether reasonable agreement of the parties that they were contracting for liquidated damages, and yet it would be necessary to do this in order to construe the agreement as one for a penalty. Not only this, but there would have to be sound reasons for regarding it as a penalty. An indispensable reason would be that the amount provided to be paid bore no reasonable relation to the losses the parties thought might be sustained. We cannot say this is the case without assuming knowledge on the subject superior to that of the parties. The court can have no such superior knowledge.

We do not find it necessary to analyze the cases relied upon by plaintiff in which agreements claimed to be for liquidated damages were held to be agreements for penalties. A number of those cases were discussed and distinguished in 70 Cal.App. 204, 232 P. 1002, supra. It may be observed, however, that in all the cases relied upon by plaintiff, it was within the power of the obligor, by his partial performance, to limit the amount of damages that might result from a breach of his agreement. For illustration, in Pacific Factor Co. v. Adler, 90 Cal. 110, 27 P. 36, defendant was to pay three cents for every burlap bag he failed to deliver to plaintiff; in Stark v. Shemada, 187 Cal. 785, 204 P. 214, the agreement was to deliver furniture for a price; in Rice v. Schmid, 18 Cal.2d 382, 115 P.2d 498, 138 A.L.R. 589, it was for the sale of flour; in Robert Marsh & Co., Inc., v. Tremper, 210 Cal. 572, 292 P. 950, a stipulated sum was to be paid to compensate a broker for his time, trouble and expense in negotiating a sale; in Eva v. McMahon, 77 Cal. 467, 19 P. 872, the agreement was to deliver possession of land; in Sherman v. Gray, 11 Cal.App. 348, 104 P. 1004, a contractor agreed to pay a stipulated sum if he failed to grade and level earth and make a fill. In each case the parties could foresee the consequence of the obligor's failure to fulfill his agreement and could fairly estimate the amount of the damage. In each case the function of the agreed sum was to insure performance by the obligor. The so-called liquidated damages were therefore properly held to be penalties. The Hanlon Drydock case, 70 Cal.App. 204, 232 P. 1002, 1004, supra, supports our views with respect to the present contract. The Drydock Company was to pay a sum for each day's delay in repairing a tanker. The agreement was held to be a valid one for liquidated damages upon evidence that at the time the agreement was made ‘owing to fluctuating rates and unsettled shipping conditions, the varlue of the use of oil tankers or any other vessels could not be prophesied.’ The parties made a bona fide attempt to estimate compensation for delay. In the present case the parties had no control over, and could not foresee, what might happen to plaintiff's premises, and it would have been impossible to approximate the possible damage. Furthermore, the fifty dollar sum does not in any way act as a penalty to insure performance of the contract.

We must therefore conclude that the parties agreed upon a price to be paid for defendant's service, well understanding and intending that plaintiff would be compensated in a limited amount for damage sustained through failure of the service without the necessity of proof as to the extent of the damage. It was a proper case for an agreement for liquidated damages.

Plaintiff further contends that its action is for negligence and that the agreement for liquidated damages does not apply to liability for negligence. No authority is cited which supports this position. The second cause of action of the complaint alleged that the failure to send a representative to plaintiff's premises and notify the police promptly was a breach of the agreement. Allegations of the first cause of action were that the same failure was negligence. Damages in both causes were alleged to be the value of the property that was stolen. It thus appears that no breach of duty was alleged other than failure to render the agreed service. Whether this failure was wilful or negligent, it would be a breach of contract and the liquidated damage provision would apply.

As we construe the agreement for liquidated damages it is not enforcible against defendant unless plaintiff suffered a loss as a proximate result of defendant's breach.

The order directing entry of judgment for defendant was, in effect, an order directing a verdict for defendant, although it was made after the jury had failed to agree. It must be presumed to have been made upon every ground that would support such an order, under the familiar rule that all intendments are in favor of the correctness of the judgment, 2 Cal.Jur. p. 864. It will therefore be presumed that the court determined either that defendant did not violate its agreement, or that, if there was a breach, it was not a proximate cause of the loss. These were questions of fact which might have been decided in plaintiff's favor. But if this was error it would not warrant a reversal of the judgment for a retrial. If plaintiff should prevail upon these issues its recovery would be limited to fifty dollars. Defendant has a right to defend upon the issues of breach of contract and proximate cause.

The judgment is reversed, with the qualification that if, within 20 days after filing of the remittitur, defendant files written consent thereto, judgment shall be entered against it for the sum of fifty dollars. No costs of appeal.


1.  ‘Under this agreement made June 12, 1947, the American District Telegraph Company, hereinafter called the ‘Contractor,’ agrees to install and maintain or cause to be installed and maintained, during the term of this agreement, in the premises of Better Food Markets Inc., hereinafter called the ‘Subscriber,’ at 744 Marine Avenue, in the City of Wilmington, State of California, a Central Station Burglar Alarm and Holdup Alarm System, as specified in the schedule on the reverse side hereof, including transmission boxes and wire connections, necessary to transmit signals from the premises of the Subscriber to the Contractor's Central Station, and will, subject to the terms and conditions hereof, until the termination of this agreement, maintain such system in good working order, with the understanding that the entire system, including all devices, instruments, appliances and all connections, wires, conduits, foils, screens, cabinets, springs and other materials associated therewith, are and shall be and remain the personal property of the Contractor.‘The Contractor, on receipt of a burglar alarm signal from the Subscriber's premises, agrees to send to said premises, its representative to act as agent of and in the interest of the Subscriber. If provided with a key by the Subscriber for such purpose, the representative will enter the premises and search them. The Subscriber hereby authorizes and directs the Contractor to cause the arrest of any person or persons unauthorized to enter his premises and to hold him or them until released by the Subscriber or an authorized known representative, and in such cases to idemnify the Contractor against any liability, cost or expense in consequence of such arrest.‘The Contractor, on receipt of a holdup alarm signal from the Subscriber's premises, agrees to transmit the alarm promptly to headquarters of the public police department.‘The Subscriber agrees to furnish the Contractor a list of the names and individual signatures of all persons who shall have the right to enter the premises of the Subscriber between the regularly scheduled times for closing and opening the premises and who may be called upon for a key to enter the premises of the Subscriber, during such periods.‘The Contractor agrees to furnish the Subscriber daily, a report in writing showing the times the Subscriber's premises were irregularly opened the preceding day (between the regularly scheduled times for closing and opening the premises) and if requested by the Subscriber a weekly report in writing showing the times said premises were regularly opened and closed each day.‘The Subscriber hereby agrees to pay the Contractor, its agents or assigns, the sum of Six Hundred Sixty and no/100 Dollars ($660.00) upon the completion of the said installation, and to pay in addition, the sum of Five Hundred Ninety-five and no/100 Dollars ($595.00) per annum, monthly in advance, for the period of five years from the date such system is operative under this agreement, and thereafter the Subscriber shall pay the said sum per annum, monthly in advance, until the termination of this agreement, which is terminable not less than thirty days after written notice of desire to terminate is given by either party to the other at any time after the expiration of the five-year period. Any advance payments made for service to be supplied subsequent to the date of such termination shall be refunded to the Subscriber.‘This agreement may be cancelled, without previous notice, at the option of the Contractor, in case the Contractor's Central Station, connecting wires or equipment are destroyed by five or other catastrophe or so substantially damaged that it is impracticable to continue service and may likewise be cancelled at the option of the Subscriber in the event that the Subscriber's plant is so destroyed or damaged. * * *‘It is understood and agreed that the Contractor's obligation relates to the maintenance solely of the specified protective signaling system and that it is in no way obligated to maintain, service, replace, operate or assure the operation of the property, system or any device or devices of the Subscriber or others to which the Contractor's said system is attached, nor to repair or redecorate any portion of the Subscriber's premises upon removal of Contractor's said protective signaling system. It is agreed by and between the parties that the Contractor is not an insurer, that the payments hereinbefore named are based solely on the value of the service in the maintenance of the system described, that it is impracticable and extremely difficult to fix the actual damages, if any, which may proximately result from a failure on the part of the contractor to perform such service and in case of failure to perform such service and a resulting loss its liability hereunder shall be limited to and fixed at the sum of fifty dollars as liquidated damages, and not as a penalty, and this liability shall be exclusive.’

SHINN, Presiding Justice.

PARKER WOOD and VALLÉE, JJ., concur.