Clements Auto Co. v. Service Bureau Corp.

Service Bureau Corp. (defendant) was a computer company specializing in electronic data processing. In 1963 Service Bureau entered into contracts with Clements Auto Co., doing business as SM Supply Company (SM) (plaintiff), a company that operated wholesale supply houses in Minnesota and Wisconsin. Service Bureau represented to SM that Service Bureau’s services would be effective and efficient in inventory control. Service Bureau and SM’s contractual relationship lasted four years. The contracts included waivers of warranties and liability limits. By 1965, SM was fully aware that Service Bureau’s services did not work for SM, in part because Service Bureau’s reports were error prone and too voluminous for inventory control. Following the termination of their relationship in 1967, SM sued Service Bureau for rescission, breach of implied warranty, breach of contract, and fraudulent misrepresentation. Service Bureau filed a counterclaim to recover the remaining payments due under their contracts. The trial court dismissed all of SM’s claims against Service Bureau other than fraud, despite Service Bureau’s argument that any claim for fraud based on an innocent misrepresentation was waived under the waiver of warranty provisions in the contracts. The trial court awarded $480,811.33 in compensatory damages to SM, representing damages incurred through 1967. Service Bureau appealed.