Schulke Radio Productions, Ltd. v. Midwestern Broadcasting Co., 82-916

• Citation: 453 N.E.2d 683,6 Ohio St.3d 436,6 OBR 480
• Decision Date: 07 September 1983
• Docket Number: No. 82-916,82-916
• Parties: , 6 O.B.R. 480 SCHULKE RADIO PRODUCTIONS, LTD., Appellee, v. MIDWESTERN BROADCASTING COMPANY, Appellant.
• Court: United States State Supreme Court of Ohio

Page 436

6 Ohio St.3d 436

453 N.E.2d 683, 6 O.B.R. 480

SCHULKE RADIO PRODUCTIONS, LTD., Appellee, v. MIDWESTERN BROADCASTING COMPANY, Appellant.

No. 82-916.

Supreme Court of Ohio.

Sept. 7, 1983.

Syllabus by the Court

The law of the state chosen by the parties to govern their contractual rights and duties will be applied unless either the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or application of the law of the chosen state would be contrary to the fundamental policy of a state having a greater material interest in the issue than the chosen state and such state would be the state of the applicable law in the absence of a choice by the parties.

Appellee, Schulke Radio Productions, Ltd. (hereafter referred to as "Schulke"), is the successor in interest to Stereo Radio Productions, Ltd. (hereafter referred to as "Stereo"), and is in the business of producing tapes with a "beautiful music" format for radio programming. Appellant, Midwestern Broadcasting Company (hereafter referred to as "Midwestern"), is engaged in broadcasting, with interests in radio and television stations. One of its wholly owned subsidiaries is WXEZ, an FM radio station based in Toledo, Ohio.

In January 1972, Stereo and Midwestern entered into a written contract in which Stereo agreed to supply its beautiful music tapes and attendant services to WXEZ for a period of three years beginning with May 1972. These services included consultation regarding the station's equipment, engineering, promotional activities and other procedures. In return, Midwestern was to pay Stereo the sum of $1,200 per month.

At the end of the contract period, the parties entered into a second agreement operating for a four-year period beginning May 1, 1975. Under this contract, Stereo was to be paid $1,200 per month for the first through third year and $1,500 per month for the final year. One of the contract terms provided that all matters between the parties were to be settled in accordance with New York law.

In the summer of 1977, Lewis W. Dickie, president of Midwestern, became dissatisfied with the beautiful music format as WXEZ had not captured a very sizeable share of the market's listening audience. He notified James A. Schulke, Stereo's president, that he was considering changing to a different format. Schulke suggested that Midwestern purchase an optimod, a device for improving the intensity of sound produced by the station. Schulke suggested that he would consider letting Midwestern out of the contract if the optimod did not improve WXEZ's fall ratings.

WXEZ utilized the optimod device for about seven weeks and then switched to a "top forty" rock and roll format. At this point, Stereo stopped sending new tapes to WXEZ but continued billing under the contract. Midwestern continued to make its monthly payments until November 1977 and then ceased to do so.

On September 7, 1979, appellee filed an action in the Court of Common Pleas of Lucas County for breach of contract, demanding that all payments not made by Midwestern be made. At trial, Schulke testified concerning the assessment of damages. He stated that his company produced master tapes in London, England with a special thirty-five piece orchestra. Duplicates of the tapes were then prepared and sent to the various subscribing radio stations. Each station was supplied with a library of one hundred thirty tapes. The library was continuously updated so that every two years it would be entirely replaced. According to Schulke, the only amount that his company actually saved by not having to complete its contract with Midwestern was one hundred dollars per month attributable to the cost of servicing WXEZ and of supplying it with new tapes and schedules.

The trial court found that the contract had in fact been breached by Midwestern. The court further found that the state of New York did not bear any relationship to the parties and it therefore applied Ohio law on the issue of damages. Finally, the court found that appellee had failed to prove its damages under Ohio law and was therefore entitled to only nominal damages in the sum of five dollars plus court costs.

The court of appeals reversed and remanded, finding that the trial court had erred in refusing to apply New York law as stipulated in the parties' contract. The court further held that appellee was entitled to damages in the sum of $25,792 representing the contract price for each unpaid month, minus one hundred dollars per month representing appellee's savings, plus interest.

The cause is now before this court pursuant to the allowance of a motion to certify the record.

Cooper, Straub, Walinski & Cramer and H. Buswell Roberts, Jr., Toledo, for appellee.

Spengler, Nathanson, Heyman, McCarthy & Durfee, James R. Jeffery and Byron S. Choka, Toledo, for appellant.

JAMES P. CELEBREZZE, Justice.

The initial issue in this case is whether the court of appeals was correct in applying New York law, rather than Ohio law, in assessing the damages in this case.

Generally, Ohio follows the rule that where a conflict of law issue arises in a case involving a contract, the law of the state where the contract is to be performed governs. Montana Coal & Coke Co. v. Cincinnati Coal & Coke Co. (1904), 69 Ohio St. 351, 69 N.E. 613, paragraph one of the syllabus; Pittsburgh, Cin., C. & St. L. Ry. Co. v. Sheppard (1897), 56 Ohio St. 68, 46 N.E. 61, paragraph two of the syllabus. Some courts have noted that the rationale for this rule is that the place of performance bears the most significant relationship to the contract. S & S Chopper Service v. Scripter (1977), 59 Ohio App.2d 311, 394 N.E.2d 1011 ; Osborn v. Osborn (1966), 10 Ohio Misc. 171, 226 N.E.2d 814 .

In the instant matter, however, we are confronted with a question which we have not heretofore addressed, i.e., where the parties have specifically designated a forum other than the place of performance, should that decision be respected? The court below held, and we agree, that under these circumstances the correct rule to apply is the one set forth in the Restatement of Law 2d (1971) 561, Conflict of Laws, Section 187, which provides in part, as follows:

"(2) The law of the state chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue, unless either

"(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or "(b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties."

The trial court did not disagree with the applicability of this rule but held that the forum chosen by the parties had no relationship whatsoever to the parties or their contract. We do not agree with this finding. The record below indicates that at the time the 1975 contract was entered into, Stereo was located in the state of New York. It apparently moved its operations to New Jersey in 1976. In addition, the contract was executed by Schulke on behalf of Stereo in New York. Finally, until Stereo moved to New Jersey, part of its performance of the contract, including the preparation of the duplicate tapes, took place in New York. Under these circumstances, it is our conclusion that New York did bear a substantial relationship to the parties and the contract. Accordingly, there being no issue that the application of New York law would be contrary to the policies of this state, the court of appeals did not err in respecting the agreement of the parties.

The only remaining issue is whether the court of appeals properly assessed the appellee's damages under New York law. Money damages awarded in a breach of contract action are designed to place the aggrieved party in the same position it would have been in had the contract not been violated. West, Weir & Bartel, Inc. v. Mary Carter Paint Co. (1966), 25 A.D.2d 81, 87, 267 N.Y.S.2d 29, 35. The nonbreaching party must establish the fact of damage and then sustain its burden of proof as to the amount of damage by proof on any reasonable basis. Id. at 86, 267 N.Y.S.2d 29. The proper measure of damages is the difference between the price the nonbreaching party would have received under the contract less the necessary expense of performance on its part. R & I Electronics, Inc. v. Neuman (1978), 66 A.D.2d 836, 838, 411 N.Y.S.2d 401, 404. Under this rule, the breaching party is entitled to a credit for the amount saved by the aggrieved party in not having to perform under the contract. However, this amount does not necessarily include overhead, or fixed expenses. The wrongdoer is entitled to a credit for only those business costs as were reasonably saved by its breach. Id. at 838, 411 N.Y.S.2d 401.

In applying these rules, the court of appeals approved of a case having facts strikingly similar to those presented herein. Schubert v. Midwest Broadcasting Co. (1957), 1 Wis.2d 497, 85 N.W.2d 449, was an action to recover damages for the defendant's breach of a contract to telecast a television quiz program produced by the plaintiff's assignor. The defendant, which operated a television station, had contracted to televise the show for two years but suspended its operations prior to the expiration of that period. At the time of the breach, the defendant owed...