Reuben H. Donnelley Corp. v. Krasny Supply Co., Inc., 1-89-2660

• Decision Date: 25 June 1991
• Docket Number: No. 1-89-2660,1-89-2660
• Parties: , 169 Ill.Dec. 521 REUBEN H. DONNELLEY CORPORATION, Plaintiff, Counter-Defendant/Appellee, v. KRASNY SUPPLY COMPANY, INC., Defendant, Counter-Plaintiff/Appellant. First District, Second Division
• Court: United States Appellate Court of Illinois

Page 8

592 N.E.2d 8

227 Ill.App.3d 414, 169 Ill.Dec. 521

REUBEN H. DONNELLEY CORPORATION, Plaintiff, Counter-Defendant/Appellee, v. KRASNY SUPPLY COMPANY, INC., Defendant, Counter-Plaintiff/Appellant.

No. 1-89-2660.

Appellate Court of Illinois,

First District, Second Division.

June 25, 1991.

Richard D. Grossman, Danne, Crane, Heyman & Simon, Chicago, for defendant, counter-plaintiff/appellant.

Steven H. Hoeft, Martha V. Sackley, Jennifer S. Walz of McDermott, Will & Emery, Chicago, for plaintiff, counter-defendant/appellee.

Justice COCCIA delivered the opinion of the court:

Plaintiff Reuben H. Donnelley Corporation ("Donnelley") filed a breach of contract action against defendant Krasny Supply Company, Inc., when defendant failed to pay the cost of an advertisement it placed in plaintiff's telephone yellow pages directory. Defendant filed a counterclaim for consequential damages, alleging that plaintiff erroneously printed the advertisement with the telephone number of defendant's competitor. The trial court entered partial summary judgment in favor of plaintiff on the counterclaim, based on an exculpatory clause limiting claims for lost profits. Defendant appeals from that order. On plaintiff's own motion, its complaint was dismissed. No portion of the suit remains pending below.

The pleadings, affidavits and depositions in the record establish the following. For fifteen years prior to 1981, defendant's owners placed advertisements with plaintiff for various businesses which defendant's owner operated.

In 1979, defendant bought the name "Krasny Supply Company, Inc." when the Krasny Supply Company, a restaurant supply wholesaler, went out of business. Defendant, which had been in the restaurant supply business for many years, began operating a restaurant equipment and supply business under the name "Krasny Supply Company, Inc."

In 1981, the previous owners of Krasny Supply Company started a new business, named "Krasny & Company." Krasny & Company was in direct competition with defendant Krasny Supply Company.

In September 1981, defendant Krasny Supply Company placed an advertisement in the 1982 yellow pages. The contract contained the following exculpatory clause:

"IT IS UNDERSTOOD AND AGREED BY [DEFENDANT], IN THE EVENT OF ANY ERRORS OR OMISSIONS ON THE PART OF [PLAINTIFF] IN CONNECTION WITH THE REPRESENTATION REQUESTED OR IN ANY LISTING REFERRED TO ON OR IN CONNECTION WITH SUCH REQUEST, AS TO ANY DIRECTORY ISSUE, THE LIABILITY OF [PLAINTIFF] ARISING FROM SUCH ERROR OR OMISSION IN THE REPRESENTATION REQUESTED SHALL BE LIMITED TO AND IN NO EVENT EXCEED THE AMOUNT PAID THEREFOR[ ] HEREUNDER WITH RESPECT TO SUCH ISSUE OF THE DIRECTORY. The limitation of liability provided hereunder shall apply no matter how caused or arising, no matter whether same shall constitute a breach of contract or a tort, negligent or otherwise and regardless of the form in which any legal or equitable action may be brought against [plaintiff]. Under no circumstances shall [plaintiff] be liable for special consequential or exemplary damages."

When the Krasny Supply Company advertisement which defendant had purchased was published by plaintiff, it erroneously listed the telephone number for defendant's competitor, Krasny & Company. Defendant Krasny Supply Company consequently refused to pay plaintiff the $2,703 cost of the advertisement. Apparently orders meant for defendant Krasny Supply Company were actually given to the competitor, Krasny & Company, due to the erroneous advertisement. This suit followed.

Irving Naiditch, president of defendant Krasny Supply Company, testified at a deposition that in 1982, when he purchased the 1982 advertisement from plaintiff, he objected to the exculpatory clause in the contract. Naiditch asked plaintiff's salesman whether the exculpatory clause could be amended because he believed plaintiff should be responsible for any error. Plaintiff informed Naiditch that if defendant wanted to place the advertisement, there was no alternative but to sign the contract because there was only one "Red Book," which is the Chicago area yellow pages. Naiditch testified further that defendant had no choice but to sign plaintiff's contract because plaintiff had a "monopoly" and defendant had no place else to go for yellow pages advertising. Naiditch also stated that defendant advertised through the yellow pages, direct mail fliers, catalogues, and brochures.

Richard Amend, vice-president of defendant Krasny Supply Company, stated in an answer to plaintiff's interrogatories that in 1978 or 1979, he also had objected to the exculpatory clause in regard to advertisements he placed with plaintiff for other companies he operated. Defendant was told that the contract was a standard form contract and its language was not negotiable. Amend would have to sign the contract exactly as printed or its advertising would not be accepted.

Plaintiff moved for partial summary judgment, seeking to strike defendant's counterclaim for lost profits, based on the contract's exculpatory clause.

On July 7, 1989, the court entered partial summary judgment in favor of plaintiff, finding no triable issue of fact as to the unconscionability of the exculpatory clause.

On August 29, 1989, the court granted defendant's motion for reconsideration in part, only for the purpose of adding Naiditch's full deposition transcript to the record. The court also dismissed plaintiff's complaint on plaintiff's own motion. The court entered judgment for defendant on the counterclaim to the extent that it relieved defendant from payment of the $2,703 cost of the advertisement. The court left intact its original partial summary judgment order finding no triable issue of fact as to the unconscionability of the contract. Defendant appeals from the August 29, 1989 order.

On appeal, defendant maintains that a triable issue of fact exists as to whether or not the contract was unconscionable.

A motion for summary judgment is properly granted where the pleadings, depositions, admissions and affidavits on file reveal that no genuine issue of material fact exists and the movant is entitled to judgment as a matter of law. Ill.Rev.Stat.1989, ch. 110, par. 2-1005(c); Fooden v. Board of Governors of State Colleges & Universities (1971), 48 Ill.2d 580, 272 N.E.2d 497.

Plaintiff based its motion for summary judgment on the exculpatory clause contained in the contract. Once plaintiff established the existence of a valid exculpatory clause, the burden of production on the motion shifted to defendant.

A party opposing a motion for summary judgment may come forward with counter-affidavits or other documents which establish that genuine issues of material fact exist thus precluding summary judgment. Kimbrough v. Jewel Companies, Inc. (1981), 92 Ill.App.3d 813, 819, 48 Ill.Dec. 297, 302, 416 N.E.2d 328, 333.

Defendant responded to plaintiff's motion for summary judgment by arguing that the exculpatory clause was unconscionable. Defendant Krasny Supply Company, as counter-plaintiff, bears the ultimate burden of proof at trial on the elements of its action. Where the issue of unconscionability is alleged, the party alleging the unconscionability has the burden at trial to produce sufficient evidence of unconscionability. Dana Point Condominium Association, Inc. v. Keystone Services Co. (1986), 141 Ill.App.3d 916, 921, 96 Ill.Dec. 249, 253, 491 N.E.2d 63, 67.

Defendant argues that the "gross disparity of bargaining power" between itself and plaintiff, the "absence of a meaningful choice" of advertisers, and the "unreasonably favorable terms for plaintiff" establish that the exculpatory clause at issue is unconscionable, or a contract of adhesion.

Exculpatory clauses are not favored and must be strictly construed against the benefitting party. (Harris v. Walker (1988), 119 Ill.2d 542, 548, 116 Ill.Dec. 702, 519 N.E.2d 917.) Nevertheless, private parties to a contract may allocate the risk of negligence as they see fit and exculpatory clauses are not violative of public policy as a matter of law. (McClure Engineering Associates, Inc. v. Reuben Donnelley Corp. (1983), 95 Ill.2d 68, 69 Ill.Dec. 183, 447 N.E.2d 400.) In the absence of legislation to the contrary, courts will not interfere with contracts containing exculpatory clauses, unless there is a defect in the contract negotiation process such that a disparity in bargaining power denied a party a meaningful choice. (McClure Engineering Associates, Inc. v. Reuben Donnelley Corp.) Absent such a defect, the contract will be enforced as written and a court will not set aside the contract merely because that agreement later turns out to be a bad bargain for one of the parties. Dana Point Condominium Association, Inc. v. Keystone Services Co.

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