Discount Fabric House of Racine, Inc. v. Wisconsin Telephone Co.

Citation345 N.W.2d 417,117 Wis.2d 587
Decision Date27 March 1984
Docket NumberNo. 82-350,82-350
PartiesDISCOUNT FABRIC HOUSE OF RACINE, INC., Plaintiff-Respondent-Petitioner, v. WISCONSIN TELEPHONE COMPANY, a Wisconsin corporation, Defendant-Appellant.
CourtUnited States State Supreme Court of Wisconsin

Russell M. Ware, Racine, argued, for plaintiff-respondent-petitioner; Schoone, McManus, Hankel, Ware & Fortune, S.C., Racine, on brief.

F.D. Huber, Jr., Milwaukee, for defendant-appellant.

STEINMETZ, Justice.

The issue in the case is whether the relief from liability provision in the Wisconsin Telephone Company's yellow pages advertising contract is unconscionable and unenforceable as against the public policy of this state.

Edward C. Flatten and his wife, Oryne, have operated a drapery and fabric business in Racine since 1968. They incorporated in 1974 as Discount Fabric House of Racine, Inc. and in 1976 started doing business as The Inside Look, a division of Discount Fabric House of Racine, Inc. They had been listed yearly in the Racine yellow pages and regularly had one display advertisement in that directory.

After carrying the quarter-page advertising display in the yellow pages correctly for three years, in 1978 the telephone company omitted the plaintiff's long-standing trade name "Discount Fabric House" from the display ad. Discount Fabric House commenced this action to recover damages for business losses resulting from the telephone company's error in the directory.

The telephone company raised as a defense the following clause from the advertising contract between Discount Fabric House and itself:

"4. Applicant agrees that the Telephone Company shall not be liable for errors or omissions (including total omissions) in directory advertising beyond the applicable charges for the item or items in which errors or omissions occur for the issue life of the directory involved."

The advertising contract between the telephone company and Discount Fabric House is a form contract that the telephone company uses for all of its yellow pages advertising sales. Mr. Flatten had signed similar contracts for advertising in previous years and there was no fraud or mistake pleaded or raised at trial. The parties stipulated that all yellow pages advertising in Wisconsin for the year in question utilized the same form contract. Furthermore, none of the telephone company's employees or agents had the authority to alter any of the terms or provisions of the standard contract, nor had they ever done so. The parties also stipulated that there was never any bargaining on either price or terms with any advertiser; each subscriber in the Racine directory paid exactly the same for the same size listing or advertisement.

The jury determined that Discount Fabric House sustained $9,000 in business damages as a result of the omission of its trade name from its display advertisement. The Racine county circuit court, Honorable John C. Ahlgrimm, then ruled that the clause limiting liability was unconscionable and against public policy and granted judgment on the verdict.

The court of appeals certified the case to this court, which was denied. Thereafter, the court of appeals reversed the judgment of the trial court in Discount Fabric House v. Wisconsin Tel., 113 Wis.2d 258, 334 N.W.2d 922 (Ct.App.1983).

The telephone company labels this contract clause as a limited liability provision obviously to avoid the selective view courts give to exculpatory contracts. To the contrary, we find that this is an exculpatory contract. The Random House Dictionary of the English Language (Unabridged Edition 1966) defines "exculpatory" as "tending to clear from a charge of fault or guilt." When performing a negligent business act as here, the Telephone Company is not cleared of fault by the contract clause but rather is relieved of liability for that fault. To say that the clause is limiting rather than exculpatory because the clause considers a return of part or all of the applicable charges for the advertisement, does not consider the complete elimination of all resulting financial injuries caused by the negligent act. For the telephone company to return the charges, which were not earned due to its negligent breach of the contract, does not consider the resulting injury to the customer caused by its negligent or tortious act in not publishing the advertisement for which the customer had contracted. This is not a limiting clause but a clause that made the contract an exculpatory one in its nature.

We defined exculpatory contracts in Merten v. Nathan, 108 Wis.2d 205, 210, 321 N.W.2d 173 (1982) as follows: "contracts which relieve a party from liability for harm caused by his or her own negligence." Returning the contract price or a portion of it not earned does not relieve this clause from being exculpatory since it protects the telephone company against damages for its negligent act. Returning charges for the ad not earned due to negligence is not the same as paying damages for the mistake made.

A clearer example of a take-it-or-leave-it transaction is hard to imagine. The only way Discount Fabric House could purchase a display ad in the yellow pages was to sign a standard form contract provided by the telephone company. Although there are "yellow pages" published by independent publishers, the telephone company's yellow pages is the only one distributed to everyone with a telephone.

There is nothing in this record to show that the telephone company has filed a "tariff limitation" of liability for errors in its directory listings with the Wisconsin Public Service Commission. Such claim arises for the first time in the telephone company's brief in which it is admitted that such liability restricting filing was neither pleaded nor proved because the display ad involved was a matter of private contract. Yet, in the brief we are asked to consider that the tariff limitation does exist by taking judicial notice of administrative rules. We refuse to take such notice. In the record there is no approval by the commission of the exculpatory clause in this private contract executed by the telephone company for an ad in its yellow pages. The argument was not made in either the trial court or the court of appeals. We will not consider factual matters raised for the first time on appeal. Wirth v. Ehly, 93 Wis.2d 433, 444, 287 N.W.2d 140 (1980).

The courts have historically treated yellow page advertising as outside a utility's public service offering. It generally has been construed as a matter of private contract under which the parties may validly limit their liability. 1

The courts cited in footnote 1 have treated the restrictive clause as one limiting liability for errors or omissions. We refuse to adopt that holding and hold instead that the clause and surrounding circumstances between the parties made it an exculpatory contract. As we explained in Merten, 108 Wis.2d at 212, 321 N.W.2d 173:

"Adherence to principles of contract law would generally lead a court to enforce an exculpatory agreement without passing on the substance of the agreement. Adherence to principles of tort law would tend to make a court reluctant to allow parties to shift by contract the burden of negligent conduct from the actor to the victim who has no actual control or responsibility for the conduct causing the injury. The rules governing exculpatory contracts reflect the uneasy balance between these principles of contract and tort law." (Footnote omitted.)

There are four situations in which exculpatory contracts have been declared void on public policy grounds. (1) A contract arises out of a business generally thought suitable for public regulation; (2) the party seeking exculpation is engaged in performing a service of great importance to the public; (3) the party seeking exculpation holds itself out as willing to give reasonable public service to all who apply; and (4) the party invoking exculpation possesses a decisive advantage of bargaining strength.

This contract arises out of a private business transaction of the telephone company which in all other respects has been recognized as a monopoly and has been regulated by the Public Service Commission in performing its services. Certainly, the telephone company would not argue that it is engaged in a business other than one which performs a service of great importance to the public when it distributes a yellow pages book without cost to every telephone customer. The telephone company without question holds itself out as willing to give reasonable public service to all who apply for an advertisement in the yellow pages.

As to whether the telephone company, which is invoking exculpation, possesses a decisive advantage of bargaining strength, the courts have differed. Some courts hold there are many other modes of advertising which the businessman may employ if the contract offered him by the telephone company is not attractive. Wille v. Southwestern Bell Telephone Co., 219 Kan. 755, 549 P.2d 903, 910 (1976); also Classified Directory Subscribers Ass'n. v. Public Serv. Com'n, 383 F.2d 510, 513 (D.C.Cir.1967). The issue is not whether there are other modes of advertising available but whether such other modes are tied directly to the telephone service enjoyed by almost every home and business in the Racine area. Does any other mode of advertising reach every office or home where there is a telephone installed at no identifiable cost to the consumer or advertiser for distribution but only for the space of the ad in the yellow pages which is at a recognized reasonable and equal charge for all ad takers? The telephone company has wisely and responsibly taken advantage of an energy conserving society, both as to time and natural resources, by advertising that persons should determine the availability of products before traveling to shopping areas by letting their fingers do the walking through the yellow pages. The telephone company has...

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