Roll-Up Shutters, Inc. v. South Cent. Bell Tel. Co.

Louisiana Court of Appeal
394 So. 2d 796 (1981)

ELI5:

Rule of Law:

A limitation of liability clause in a commercial contract for advertising is enforceable and not contrary to public policy when the error results from ordinary negligence, as opposed to gross negligence or willful misconduct.

Facts:

On December 12, 1977, Roll-Up Shutters, Inc., through its president Norris Babin, entered into a contract with South Central Bell Telephone Co. (SCBT) for an advertisement in the Yellow Pages.
The contract was procured by L. M. Berry and Co. (LMB), acting as an agent for SCBT.
The contract contained a clause limiting SCBT's liability for any errors or omissions in the advertisement to the charges for that advertisement.
Roll-Up Shutters, Inc. submitted two photographs from which drawings of its shutters were to be made for the ad.
Babin approved a sample layout of the ad before the final drawings were completed.
When the Yellow Pages directory was published in April 1978, the drawing in the advertisement was defective, depicting the shutters as rolling up from the bottom of the window instead of the top.
Babin did not have the opportunity to review the final version of the advertisement, including the completed drawings, before it was published.

Procedural Posture:

Roll-Up Shutters, Inc. sued South Central Bell Telephone Co. and L. M. Berry and Co. in a Louisiana trial court for damages resulting from a defective advertisement.
The case was tried before a jury.
At the conclusion of the plaintiff's case, the trial court granted a directed verdict in favor of Roll-Up Shutters, Inc., finding the defendants liable.
However, the trial court enforced the contract's limitation of liability clause and limited the damage award to $1,480.20, the cost of the advertising.
Roll-Up Shutters, Inc., as the appellant, appealed the judgment limiting damages to the Court of Appeal of Louisiana, Fourth Circuit.

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Issue:

Does a contractual provision that limits a telephone company's liability for errors in a Yellow Pages advertisement to the amount paid for the ad violate public policy and is it therefore unenforceable?

Opinions:

Majority - Boutall, Judge

No, the contractual provision is enforceable. Under Louisiana law, agreements legally entered into have the effect of law between the parties unless they are contrary to law or public morals. This limitation of liability clause is not contrary to public policy and aligns with the overwhelming majority of jurisdictions that have upheld similar provisions in Yellow Pages advertising contracts. Such clauses are valid for errors arising from ordinary negligence or carelessness, which describes the defect in this case. The court found no evidence of gross negligence or willful misconduct that would render the clause inapplicable. Furthermore, L. M. Berry and Co. (LMB), as a disclosed agent for SCBT, is not personally liable on the contract because it did not bind itself personally or exceed its authority.

Analysis:

This decision reinforces the principle of freedom of contract in commercial settings, establishing that sophisticated parties are generally bound by the terms they agree to, including limitations on liability. It aligns Louisiana with the majority U.S. rule upholding such clauses for ordinary negligence in advertising contracts, thereby providing predictability for businesses like telephone companies. The ruling distinguishes between ordinary negligence, for which liability can be contractually limited, and gross negligence or willful misconduct, which may fall outside such protections. This sets a clear standard for future cases challenging liability-limiting provisions, requiring plaintiffs to prove a higher level of culpability to recover damages beyond the contractual limit.

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