## Facts

- Protection Alarm Company installed and monitored a burglary-alarm system at the Fretwells’ residence under a written service contract with Fretwell’s, Inc., for the Fretwells’ benefit.
- In August 1984, an alarm signal was received at Protection Alarm’s monitoring station.
- Protection Alarm notified police and dispatched an employee to the residence.
- At the scene, police told the employee the residence was secure.
- The employee did not obtain a key to inspect the interior and did not discover the telephone line to the alarm company had been cut, preventing a second alarm signal.
- After police and the employee left, burglars entered and stole property valued at $91,379.93.
- The contract stated Protection Alarm “is not an insurer” and limited its liability for loss from system failure or failure to perform to the lesser of $50 or the subscriber’s actual loss, described as “liquidated damages, and not as a penalty.”
- The contract also provided that greater assumed liability would require an additional price.

## Issues

1. Whether a contract clause stating the alarm company is “not an insurer” and limiting liability to $50 is enforceable against residential customers suing in negligence as third-party beneficiaries.
2. Whether the $50 provision is an unenforceable liquidated-damages term or a valid contractual limitation of liability.
3. Whether the contract validly expressed and could enforce an intent to protect the alarm company from liability for its own negligence.

## Decision

- The Oklahoma Supreme Court reversed the jury judgment for $91,379.93 and remanded.
- The court held the contract’s $50 limitation of liability was valid and enforceable.
- The limitation applied notwithstanding that the plaintiffs proceeded on a negligence theory and were third-party beneficiaries of the service contract.

## Legal Principles

- In private service contracts (as distinguished from certain public service contracts), parties may agree to limit damages to a specified amount, if not contrary to public policy.
- A clearly stated “not an insurer” clause coupled with a low stated damages cap tied to the service price may operate as a valid limitation of liability rather than an unenforceable penalty.
- Third-party beneficiaries who seek to enforce rights arising from a contract are generally bound by the contract’s limitations on remedies and liability.
- Contract language may effectively shield a promisor from liability for its own negligence when the intent is expressed in clear terms and enforcement is not barred by public policy.

## Conclusion

The court enforced the alarm-service contract’s $50 liability cap, treating it as a valid allocation of risk in a private monitoring agreement and binding the third-party-beneficiary homeowners to the contract’s limitation despite their negligence claim.


Fretwell v. Prot. Alarm Co., 764 P.2d 149 (Okla. 1988)