Mendel v. Mountain States Tel. & Tel. Co.

• Decision Date: 24 October 1977
• Docket Number: CA-CIV,No. 2,2
• Citation: 573 P.2d 891,117 Ariz. 491
• Parties: Julius MENDEL and Lillian R. Mendel, husband and wife, Appellants, v. The MOUNTAIN STATES TELEPHONE & TELEGRAPH CO., aka Mountain Bell, a Foreign Corporation, Appellee. 2545.
• Court: Arizona Court of Appeals

Page 891

573 P.2d 891

117 Ariz. 491

Julius MENDEL and Lillian R. Mendel, husband and wife, Appellants, v.The MOUNTAIN STATES TELEPHONE & TELEGRAPH CO., aka Mountain Bell, a Foreign Corporation, Appellee.

No. 2 CA-CIV 2545.

Court of Appeals of Arizona, Division 2.

Oct. 24, 1977.

Rehearing Denied Dec. 5, 1977.

Review Denied Jan. 10, 1978.

Ronald W. Sommer, Tucson, for appellants.

Bilby, Shoenhair, Warnock & Dolph, P.C. by Barry M. Davis, Tucson, for appellee.

OPINION

HOWARD, Chief Judge.

Appellants operate a business in Pima County, Arizona known as Western Television, which sells and services electronic entertainment equipment.Since 1948they have advertised in the yellow pages as an authorized retailer and servicer of Motorola appliances.In the 1973-1974 telephone directory, three ads which identified appellants' business as an authorized Motorola dealer and service representative were erroneously omitted from the yellow pages.These ads cost appellants $55.80 per year.

The written contract between the parties concerning these advertisements contained the following provision:

"9.In case of error in the advertisement as published, or in case of the omission of all or any part of the advertisement from publication, the Telephone Company's liability, if any, shall be limited to a pro rata abatement of the charge paid to the Telephone Company for such advertisements in the same proportion that the error or omission reduces, if at all, the value of the entire advertisement, but in no event shall such liability exceed the amount payable to the Telephone Company for said advertisement during the service life of the directory in which the error or omission occurs."

Appellants filed this suit for damages for loss of good will and profits.It was tried to the court, sitting without a jury.At the close of appellants' opening statement, appellee moved for a "directed verdict" which was granted by the trial court after permitting appellants to make an offer of proof.

We first note a procedural matter.Since there was no jury, there can be no "directed verdict".Nor was this an involuntary dismissal under Rule 41(b),Arizona Rules of Civil Procedure, 16 A.R.S., since it is evident that the court granted a "directed verdict" which meant that it ruled for the appellee as a matter of law on undisputed facts.In reality, the trial court granted a summary judgment.

The determinative issue in this case is whether the contractual provision limiting damages is valid.In this regard, appellants did not claim below that appellee's conduct was other than negligent.They claim the contractual provision is void because it is oppressive and unconscionable.As a basis for this contention they point to the unequal bargaining power of the parties, contending that this is a contract of adhesion and that they had no alternative but to sign the contract.They further contend that the contract is commercially unreasonable and that there was unfair surprise because of the fine print and location of the contractual provision.

These contentions are not new.This contractual provision has been the subject of extensive litigation.All courts except a Michigan appellate court have decided against appellants' position.A list of the courts deciding adversely to appellants can be found in the case of Gas House, Inc. v. Southern Bell Tel. & Tel. Company, 289 N.C. 175, 221 S.E.2d 499(1976).To that list should be added the case of University Hills Beauty Academy, Inc. v. Mountain States Telephone & Telegraph Company, 554 P.2d 723(Colo.App.1976)andWille v. Southwestern Bell Telephone Company, 219 Kan. 755, 549 P.2d 903(1976).See alsoAnnot: Telephone Directory Mistake Omission, 92 A.L.R.2d 919.The sole case in appellants' favor is Allen v. Michigan Bell Telephone Company, 18 Mich.App. 632, 171 N.W.2d 689(1969):

The general principle governing attacks on the validity of contracts as unreasonable is stated in 14 Williston on Contracts 3rd Ed. § 1632:

"People should be entitled to contract on their own terms without the indulgence of paternalism by courts in the alleviation of one side or another from the effects of a bad bargain.Also, they should be permitted to enter into contracts that actually may be unreasonable or which may lead to hardship on one side.It is only where it turns out that one side or the other is to be penalized by the enforcement of the terms of a contract so unconscionable that no decent, fairminded person would view the ensuing result without being possessed of a profound sense of injustice, that equity will deny the use of its good offices in the enforcement of such unconscionability."

The leading case on the question of the validity of such a limitation of liability clause in a contract for telephone directory advertising is McTighe v. New England Telephone & Telegraph Company, 216 F.2d 26(2nd Cir.1954).There the court stated:

"True it is that the courts will scrutinize with care clauses exonerating public utility companies, such as railroads, telegraph and telephone companies and others, from liability for the consequences of their own negligence, with reference to the public services rendered by them.The fact that the member of the public patronizing such public utility companies must take the contract proffered by the company or forego using the service has enabled the courts to inquire into the reasonableness of the type of clause now under discussion and by this test the clause applicable to the alphabetical (i. e., white pages) directory would as a matter of contract law be considered unreasonable and unenforceable.But the principle which enables courts to strike down and condemn clauses affecting the performance by the company of its functions as a public utility is limited to the area in which the public services are rendered and has no application whatever to the domain in which the public utility may freely contract in its private capacity.The obtaining of the services of the public utility by way of transportation or communications or providing gas or...