## Facts

- A group of wholesale supply businesses operating in Minnesota and Wisconsin contracted in 1963 for computerized data-processing services intended to improve inventory control and accounting across multiple outlets with more than 60,000 stocked items each.
- The vendor was a data-processing services company affiliated with a major computer manufacturer and marketed itself as a specialist able to design and implement systems for complex business operations.
- The vendor’s sales and technical personnel represented that the proposed system would be suitable, effective, and efficient for the businesses’ inventory and accounting needs.
- The contracts contained warranty disclaimers and clauses limiting the vendor’s liability.
- The system generated reports that were highly error-prone and too voluminous to be practically usable for inventory control, causing operational disruption and losses.
- By 1965, the businesses understood the system was not working properly, but continued the relationship for a period based on the vendor’s ongoing assurances and attempted fixes.
- The parties’ relationship ended in 1967, after roughly four years of performance problems.

## Issues

1. Whether the vendor’s statements about the suitability and capability of its data-processing system constituted actionable misrepresentation under applicable state law.
2. Whether contractual warranty disclaimers and limitation-of-liability clauses barred or restricted recovery for misrepresentation, including negligent or “innocent” misrepresentation.
3. Whether the damages awarded were supported by the evidence or were too speculative or remote.

## Decision

- The court of appeals affirmed the judgment for the businesses.
- It upheld the trial court’s finding that the vendor made material, false representations that induced the businesses to enter and remain in the contractual relationship.
- It held that warranty disclaimers and liability limitations did not preclude tort recovery for misrepresentation that induced the contracts.
- It sustained the compensatory damages award of $480,811 as supported by the evidence and not clearly erroneous.
- It left undisturbed the trial court’s rejection of the businesses’ non-fraud contract and warranty theories and the denial of the vendor’s counterclaim for unpaid charges in light of the misrepresentation findings.

## Legal Principles

- A party may be liable for actionable misrepresentation where material false statements induce justifiable reliance resulting in damages; liability need not be limited to intentional deceit if the governing law recognizes negligent or “innocent” misrepresentation.
- Where a claim sounds in tort for misrepresentation inducing contract formation or continuation, contractual warranty disclaimers and limitation-of-liability clauses for contract performance do not necessarily bar the misrepresentation claim or control the measure of damages.
- Justifiable reliance may be found where a specialized service provider possesses superior technical knowledge and the customer reasonably depends on the provider’s assurances, even if performance problems become apparent and the customer continues temporarily while relying on promised corrections.
- Appellate review of fact findings and related inferences in a bench trial is deferential; damage calculations are upheld if supported by evidence and not clearly erroneous, particularly where damages are certain in fact though difficult to quantify precisely.

## Conclusion

The Eighth Circuit affirmed a substantial damages award for misrepresentation in the sale and implementation of data-processing services, holding that contractual disclaimers and liability limits did not shield the vendor from tort liability for material false representations that induced reliance and caused proven commercial losses.


Clements Auto Co. v. Service Bureau Corp., 444 F.2d 169 (8th Cir. 1971)