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October 12, 1993


Appeal from the Circuit Court of the County of St. Louis. Honorable Kenneth M. Weinstock.

James A. Pudlowski, Judge, Paul J. Simon, Presiding Judge, and Albert J. Stephan, Jr., Judge, Concur.

The opinion of the court was delivered by: Pudlowski

This appeal arises from a breach of contract action resulting in a jury verdict for Plaintiff, Southwestern Bell Yellow Pages (Yellow Pages), in the sum of $9,883 and summary judgment in favor of Yellow Pages on defendants Robbins' and Aker's (R & A) counterclaim for negligent misrepresentation.

In 1986 R & A entered into a contract to purchase advertising for their brake companies in the 1986 edition of the Southwestern Bell Telephone book. R & A owned separate brake companies but decided to advertise them jointly since they both operated under the 'Just Brakes' franchise. The contract specified that the advertisement was to be red, three-eighths of a page ad and it was to come with two complimentary line listings and a complimentary gold page cut-out discount coupon. They also purchased an additional line listing. The ad referred to the coupon which was to be found in the back of the book. The total cost was $19,776. The contract contained an exculpatory clause which limited Yellow Pages' liability for omissions or errors to "the price paid for the relevant part of such advertising for the issue in which the error or omission occurs."

When the August 1986 version was printed, R & A noticed that although the book contained the ad and the three line listings, the coupon had been omitted. Yellow Pages testified that the coupon was inadvertently omitted, possibly due to the fact that Yellow Pages took R & A's order on the day in which everything was due to the printer, after the deadline for submission had passed. R & A still gave a discount to anyone who mentioned the Yellow Pages ad whether or not they mentioned the missing coupon. The information contained in the advertisement and the line listings were all correctly printed so there was nothing which would frustrate a customer's ability to contact R or A. R & A claimed, however, that the absence of the coupon, when the advertisement mentioned a coupon, undercut their credibility since a customer might think they offered different discounts to different customers. R & A refused to pay the contract price or the contract price less the price of the coupon to Yellow Pages claiming that Yellow Pages failed to substantially perform the contract because the omitted coupon was a material part of the contracted performance.

Yellow Pages brought an action for breach of contract. R & A counterclaimed for breach of contract, negligence and negligent misrepresentation. The counterclaim for negligent misrepresentation was based on the argument that Yellow Pages negligently represented that they would print the coupon when they knew or should have known that the coupon would not be printed. The trial court granted Yellow Pages summary judgment on R & A's three-count counterclaim.

At trial, R & A claimed that most of their advertising contained cut-out discount coupons and that a potential customer who had a coupon would almost always make a purchase. They contend that they would not have purchased the advertisement if it did not come with the coupon. Yellow Pages claimed that if R & A desired only the coupon, they could have purchased it separately for $2,662 instead of spending $19,776 for the advertisement which came with the coupon. Furthermore, Yellow Pages submitted evidence that R & A ordered a larger and more expensive advertisement during the year in question than the Just Brakes franchise had ordered the preceding year. Additionally, Robbins admitted during cross-examination that they wanted the advertisement as well as the coupon.

R & A also claimed that the omission of the coupon led to a substantial decline in gross sales. Robbins testified as to his monthly gross sales from August 1984 to July 1987 and the percentage of his monthly gross sales attributable to coupons. He calculated these figures based on invoice sheets on which he noted whether a customer submitted a coupon, or in the year the coupons were omitted, whether a customer mentioned the Yellow Pages ad. Neither R nor A kept records of the number of people who were drawn to Just Brakes by the ad but declined to make purchases.

Yellow Pages claimed the coupon was gratuitous and that because they had substantially performed by printing the ad and the three line listings, they were entitled to the costs due under the doctrine of substantial performance. Yellow Pages also claimed that the omission of the coupon in this particular case did not significantly diminish the effectiveness of the advertisement. To support its position and rebut R & A's position, Yellow Pages called Terrance J. Schroepfer, an economist employed by Southwestern Bell Telephone, as an expert witness. Schroepfer testified that the gross sales analysis suggested by R & A was deceptive because of the many factors which could account for the decrease in gross sales. He claimed that the proper way to determine whether R & A received the substantial benefit of their bargain was by way of a customer contacts analysis, i.e., a comparison of the percentage of customers who came to R & A's stores as a result of the ad in 1985 when the coupon was included in the Yellow Pages book verses 1986 when the coupon was omitted. Although under the gross sales analysis, there was a marked decline in R & A's business during the year the coupons were omitted, under the customer contacts analysis, the difference was statistically insignificant. Schroepfer also testified, over objection, about other factors which could account for the decrease in R & A's gross sales during the year in which the coupon was omitted.

Yellow Pages further explored the possibility of alternative causes for the decline in gross sales during the cross-examinations of R & A. There was a great deal of testimony regarding the financial state of R & A's businesses prior to and during the year in question. It is important to note that these businesses were not healthy and thriving prior to Yellow Pages inadvertent omission of the coupon. R & A's franchises had never made a profit and their gross sales were declining every year, not just the year in question. The coupon was omitted from August 1986 thru August 1987. During the preceding years, a coupon placed by the franchisor was included in the Yellow Pages. Robbins testified during cross-examination that his business suffered losses of approximately $61,000 in 1984, $30,000 in 1985, $14,000 in 1986 and $31,000 in 1987. *fn1 Furthermore, during cross-examination Robbins tabulated the figures he gave on direct-examination based on book year sales (September - August) rather than calendar year sales (January - December). He testified that his average monthly sales from September 1984 to August 1985 were $19,239; from September 1985 to August 1986 were $16,367 and from September 1986 to August 1987 were $13,262, evidencing consistently declining profits. Robbins' average monthly sales dropped $2,872 when a coupon was included in the Yellow Pages, and $3,105 when the coupon was omitted. Akers, who like Robbins had no background in the automotive business, also testified that he lost money every year that he owned his store.

Robbins also admitted that the brake business was extremely competitive and R & A's businesses had to compete with larger businesses such as Midas, Meineke and dealers in addition to other corner-service stations and brother-in-laws. Furthermore, he testified that the franchisor promised services he never delivered; R & A did not receive the promised training, they were not receiving parts at a volume discount and they did not have a central warehouse for parts for their use. Robbins, who purchased the business intending to be an absentee owner, and had no knowledge of the automotive industry, ended up volunteering as President of the Just Brakes Corporate Systems, in an attempt to save his business. Moreover Akers testified on cross-examination that his business had four different managers in a little over two years: one of whom stayed for only one week, one who had problems with alcohol and had an unkempt appearance, and one who was in the process of having a nervous breakdown. R & A no longer own the franchises.

Julie Lea, a Southwestern Bell Yellow Pages Customer Service Specialist and a prior sales representative, testified that Yellow Pages used testimonials to induce shopkeepers, including R & A, to purchase coupons which could be purchased separately for $2,661. These testimonials stated that 60% to 70% of other customers' new business had been generated by the gold coupons, and that 80% of all households use the coupons. She testified, however, that Yellow Page's goal was to bring shopkeepers and potential customers in contact, but that it was up to the shopkeeper to make the sale.

The jury was instructed that if they determined that Yellow Pages substantially performed, they could reduce the contract price less any sum necessary to correct any variations. (M.A.I. 4.08). The jury returned a verdict for Yellow Pages in the sum of $9,883.

R & A's appeal is based on four points. First, they claim the trial court erred in denying their motion for a directed verdict and a judgment notwithstanding the verdict on the ground that Yellow Pages failed to substantially perform the contract. Second, R & A claim the trial court erred in granting Yellow Pages' motion for summary judgment on their counterclaim for negligent misrepresentation. Third, they claim that the trial court erred in admitting evidence, over objection, of managerial problems that Aker had experienced and of a lawsuit that R & A had filed against their franchisor. Fourth, R & A claim that the trial court erred in denying their motion for a directed verdict or a judgment ...

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