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Jasphy v. Osinsky

364 N.J. Super. 13, 834 A.2d 426 (App. Div. 2003)

CONTRACTS; DAMAGES; LIMITATION—If a contractual limitation of damages in a consumer contract is unconscionably low, it may be set aside.

The lower court struck down a limitation of liability clause in a fur storage agreement because it felt that the $1 per garment limit was unconscionable. The Appellate Division agreed. Here, a customer brought three fur coats to a store for storage and cleaning. Four years earlier, they were appraised for a value of almost $20,000. The customer signed a written “fur storage sales receipt.” On the back of the receipt, there was a statement that if no specific value was specified or if separate insurance were not purchased, “insurance in the amount of $1.00 would be placed on the garment.” Above the customer’s signature was a statement that the customer understood that the furrier was liable only to the amount of the “declared valuation.” The customer did not state the value of the coats. In fact, there was no room on the receipt to specify that information. The next day, a fire destroyed the three furs. When suit was filed, the lower court held that the limitation in the bailment contract was unenforceable because there was no place for the customer to fill in the value of the furs and the limitation provision was never discussed with the customer nor was the customer alerted to the same. It found no evidence that the limitation liability clause was part of the parties’ agreement. The furrier did not dispute the customer’s allegation that she was unaware of the agreement. Consequently, because the clause was not part of the bargain, the lower court struck it from the agreement.

On appeal, the Court agreed with both parties that the storage receipt was a bailment contract. “When a bailment has mutual benefits for the bailor and bailee, the bailee has a duty to ‘exercise reasonable care for the safekeeping of the chattel bailed.’” When goods are lost in a bailee’s possession, a presumption of negligence arises. It is then the bailee’s obligation to show that the loss did not occur through its negligence or that it exercised due care. Also, the Court believed that the contract in question was “a contract of adhesion.” In fact, the furrier conceded this point at argument. Public policy in New Jersey law concerns itself with the “inequality of bargaining power, and in fact a complete lack of opportunity to bargain at all.” The Appellate Division looked to other jurisdictions for guidance and found limitation provisions that do “not reflect the true valuation of the bailed article” are construed most strongly against a bailee. Further, “other jurisdictions appear[ed] reluctant to enforce a limitation of liability clause against a lay bailor as opposed to a more sophisticated businessman.” Under those circumstances, the Appellate Division did “not hesitate to hold the limitation and liability clause unenforceable and properly stricken from the contract by the trial court.”

The furrier argued that a New Jersey statute expressly provides that a warehouse receipt and storage agreement may limit the amount of liability in case of a loss. The Court rejected that contention. The cited statute applies exclusively to storage/warehouse agreements. Here the Court agreed that perhaps this was truly a contract for the cleaning of furs, but was still willing to resolve the issue “on the assumption that the contract here was a storage agreement.” Even at that, according to the Court, the cited statute “does not permit warehousemen to limit their liability in all possible ways, insulated from ‘review.’” The law still “must adhere to the limitations imposed by case law and it is subject to traditional contractual limitations such as unconscionability.”

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