The opinion of the court was delivered by: TENNEY
This is an action to recover damages for an alleged breach of contract brought by the Gold Bond Stamp Company of Georgia (hereinafter referred to as "Gold Bond"), a company engaged in the licensing of trading stamps, against the Bradfute Corporation (hereinafter referred to as "Bradfute"), organized for the purpose of creating, distributing and operating sales stimulation games for businesses. Jurisdiction of this action, pursuant to Title 28, United States Code, Section 1332(a)(1), is founded upon diversity of citizenship and an amount in controversy exceeding $10,000.00.
Gold Bond, a Georgia subsidiary of the parent company, was incorporated in 1960 for the purpose of operating the Gold Bond Stamp Plan in the southeastern region of the United States. Specifically, the Gold Bond Stamp Plan is a program by which retail stores, licensed by Gold Bond, distribute Gold Bond trading stamps with merchandise purchased by their customers. The customers, once having pasted the trading stamps in "savers books", may present filled books of stamps to Gold Bond at one of its affiliated "redemption centers" where the books can be exchanged for either cash or gift merchandise.
The reason for the establishment of the Georgia subsidiary was that in 1960 the parent company acquired, as a principal account, Colonial Stores, Inc. (hereinafter referred to as "Colonial"), a large chain of retail food stores operating in the southeastern region of the United States, which, by virtue of a formal agreement signed in February of that year, contracted to become a licensee of the Gold Bond stamp program.
Bradfute, as previously mentioned, is a company which devises and operates promotional contests and games to effect increased volume of sales in retail stores by providing additional incentive for customer purchases. Inasmuch as Bradfute intended to present a fall promotion program to Colonial, it communicated with Warren Carlson, vice-president and southeastern regional manager of Gold Bond, to inquire whether Gold Bond, having recently acquired Colonial as a customer account, would be interested in participating in the promotion. Since the proposed program was to be presented to Colonial on June 2, 1961, it was agreed between Howard Bradfute, president of the Bradfute Corporation, R. W. Ballard, manager of the Atlanta division of Gold Bond, and Warren Carlson, that they would meet together on the day preceding the presentation to determine the extent of Gold Bond's interest, if any, in assuming an active role in the promotion.
At the meeting, Howard Bradfute described the program as a bingo game (referred to as the " Sandy Saver" game) requiring the supermarket to distribute game cards to its customers. Following the distribution, a list of winning numbers furnished by Bradfute would be published in the local newspapers against which the customers would attempt to match the numbers on their cards. A customer successfully matching all the numbers constituting a complete row on his card would be a winner, thereby entitling him or her, as the case might be, to a prize, the nature of which would depend on the particular row which had been completed. Supposedly, if the game were a success, all parties to the promotion would profit therefrom. Bradfute, of course, would be paid for operating the game, Colonial would profit from the increase in retail sales, and Gold Bond would profit by an increased demand for trading stamps.
Inasmuch as Gold Bond's suggested role in the overall program consisted solely of furnishing the prizes or, in this instance, books of trading stamps, the net profit which Gold Bond could reasonably anticipate from its participation directly depended upon the number of prizes which it would be required to furnish. With regard to this principal consideration, Bradfute assured Gold Bond that the game was controlled by a mathe-matical formula which gave them complete control over the number of winners which the game would produce. Accordingly, Bradfute represented that Gold Bond would be required to supply, as prizes, only 3 books of stamps for every 1,000 game cards purchased by Colonial and distributed to the customers. Additionally, as a further inducement, Bradfute agreed to pay to Gold Bond the sum of $2.00 for every 1,000 cards sold.
On the following day, June 2, 1961, Howard Bradfute, Warren Carlson and R. W. Ballard met with Charles Johnson, the general business manager for all divisions of Colonial, at which time Johnson was informed that an agreement had been reached between Bradfute and Gold Bond to the effect that Gold Bond would supply the prizes in the event that Colonial decided to entertain the operation of the Sandy Saver game in its retail outlets.
Subsequently, in July 1961, it was mutually accepted as between Bradfute and Colonial that the Sandy Saver game would be run in the supermarkets for an 8-week period and, on August 17, 1961, a contract was entered into reciting the terms of the agreement. Immediately thereafter, a prize breakdown sheet dated August 21, 1961 was sent by Howard Bradfute to Gold Bond (Plaintiff's Exh. 4) indicating specifically how many prizes in each of the various prize categories would be required during each week of the contest. The sheet recited numerical totals reflecting the fact that there would be 2,101 prizes comprising 7,203 books of Gold Bond stamps. Further, as regards the processing of winning game cards, it was established that Bradfute would verify the winning cards and thereafter compose a list of the game winners which would be updated on a daily basis. The list would be periodically sent to Gold Bond, which, in turn, would issue the gift certificates accompanied by congratulatory letters.
On October 2, 1961, the game was introduced to the public in the Atlanta stores. On the following day, Warren Carlson received a telephone call from R. W. Ballard, who informed him that on that same day, three or four 100-book winners had been reported in one of the Colonial stores. This development was cause for concern in that, according to the prize breakdown sheet submitted to Gold Bond, there had been no 100-book winners expected during the first week of the contest.
Thereafter, a meeting was called on October 4, 1961, at which Howard Bradfute reported that because of the erroneous inclusion of certain numbers in some of the game cards, there would be approximately fifty 100-book winners over and above the figure which had been initially established by the game formula. Following the discovery of this error, Colonial, with the knowledge of Gold Bond, attempted to minimize the number of extra winners by agreeing to a change in the newspaper ads so that the number "41" would be substituted for the number "44". Colonial, also with Gold Bond's knowledge, instructed its store managers and sales personnel to delete from the undistributed game cards a certain card which Bradfute had determined contained the error resulting in the alleged 100-book winners. Subsequently, however, it was discovered that other errors had been made resulting in an excess of 2-book winners and, eventually, 200-book winners.
A brief glance at the process by which Bradfute produced the Sandy Saver game cards indicates that the first step was to make a "board" or "mechanical" consisting of a piece of cardboard on which there were affixed bingo-styled squares. Each square resembled a grid with 25 playing numbers arranged in accordance with Bradfute's mathematical formula. The boards were keyed with symbols indicating certain instructions which the printer would follow upon receiving the boards for processing. Specifically, the key told the printer the position in which each particular board was to be placed on the ultimate plate, such plate normally containing 15 boards. The boards were further marked with other distinguishing symbols so that the winning boards could be identified from the non-winners.
The printer would deliver the boards to the platemaker-engraver who would in turn photograph them, thereby producing negatives from which positive films were made. The platemaker would then take the positive films of the respective boards and place them, one by one, in accordance with the key symbols, over a plate which is then exposed through each of the 15 film positives. This resulted in a full-size press plate containing the reproduction of the 15 boards for a total of 180 bingo squares. The boards would eventually be returned to Bradfute together with a blueprint taken of the press plate which Bradfute would check for accuracy. The plate would then be used to print the job.
The films of boards used in previous games had been retained by the platemaker and were used for the Sandy Saver promotion. It should be noted that these films showed numbers and grids only, without any editorial material or artwork. The editorial copy and artwork, supplied by Bradfute, was added by means of a separate film which, when superimposed on the plate and then exposed, resulted in the total composition of grids, numbers, ornamental artwork and the printed legends as well.
The difficulty in the Sandy Saver production order arose by reason of a decision to make the playing cards oblong (horizontal) rather than upright (vertical). When these instructions were received by the printer, he passed them on, together with the films, to the platemaker. The platemaker, in order to effect the transformation, was required to cut all the playing numbers from the individual films. This procedure implemented by the use of a scissor, had to be accomplished with each of the 180 bingo squares that would ultimately appear on the new plate. In the process, the squares became separated from the key symbols which had been located on the margin of the film. Due to some inadvertent shuffling by the workmen in the plant, certain of the winning boards became mixed in with the non-winners and were subsequently etched onto the non-winning plate. In other words, the non-winning plate contained the impression of certain winning boards.
The final stage of the production process was to cut piles of press sheets into 30 blocks of 6 cards each, collate or intersperse winning cards with non-winners and cut the resulting 6-block into individual cards.
Although it was the practice of Bradfute to check the game cards after they came off the press sheet and before they were sent to the bindery, and in spite of the fact that such practice was followed in this case, the winning cards which had slipped their way into the losing group remained undetected prior to their distribution in the stores.
It is plaintiff Gold Bond's contention that on June 1, 1961, it entered into a legally enforceable oral contract with Bradfute in which it obligated itself to furnish all the prizes for the Sandy Saver promotional game. Plaintiff alleges, however, that a built-in warranty existed which set an upper limitation on the number of prizes that would be required for the successful operation of the contest. Gold Bond asserts that the warranty consisted of a material representation by Bradfute that the game was predetermined according to a mathematical formula which guaranteed that no more than 2,101 prizes comprising a total of 7,203 books of Gold Bond stamps would be needed. Plaintiff contends that because of the errors which resulted from the accidental intermingling of winning cards with losing ones, it found itself in a ...