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decided: June 28, 1976.


Appeal from Judgment of the Court of Common Pleas, Civil Action, Law, Montgomery County, at No. 72-12361, dated March 25, 1975. No. 1162 October Term, 1975.


Butera & Delwiler, Clarke F. Hess, King of Prussia, for appellant.

Joseph A. Ryan, Paoli, for appellee.

Watkins, President Judge, and Jacobs, Hoffman, Cercone, Price, Van der Voort and Spaeth, JJ.

Author: Cercone

[ 241 Pa. Super. Page 398]

This appeal arises from a jury verdict in favor of plaintiff (appellee herein) in the amount of $38,869.19 based upon its agency contract with defendant-appellant. Principally, appellant challenges the trial court's direction of a partial verdict for appellee in the amount

[ 241 Pa. Super. Page 399]

    of $27,297.19.*fn1 For the reasons which follow we agree that the court improperly removed one issue from the jury's consideration and, with respect to that issue and the damages attributable thereto, we must remand for a new trial. The relevant facts are as follows:

Appellant is the owner of a Philadelphia FM radio station (call-lettered WIOQ). Appellee is a Philadelphia based advertising agency formerly employed by appellant to help boost "listenership" of WIOQ by advertising the radio station in the various print and broadcast media in the Philadelphia area. The written contract evidencing the agreement was signed in April, 1972, although the agreement was effective as of March 22, 1972. Quite complete in most respects, the writing contemplated providing all of the usual services of an advertising agency in an effort to promote WIOQ. Because of the inordinate amount of time and effort spent in the initial stages of an advertising campaign, the agency would not agree to organize such an advertising campaign for a client unless, in addition to payment for labor, material, talent and money expended, the client were willing to retain the agency under a one-year contract with a promise on the part of the client to generate $30,000 in additional income for the agency. Typically, a client (such as WIOQ) might generate such income as follows: Advertising agencies receive special discounts, usually 15 percent, on advertising time or space purchased from the media. In placing an advertisement through use of an agency, a client pays to the agency the fee he would pay if he purchased the time directly from the medium. The agency takes 15% of that sum as a commission and passes the balance on to the medium. Hence, while it costs the client nothing extra, he generates income for the agency by

[ 241 Pa. Super. Page 400]

    using its services to purchase advertising for his product, radio entertainment in the instant case. Rather than bill this $30,000 representing expected profits in a lump sum, the agency prorated the guaranty at $2500 per month for the year, with credits entered and carried over when advertising revenues exceeded the $2500 monthly allocation. Thus, under the agreement here in question, practically speaking, appellant agreed to purchase approximately $200,000 worth of advertising during the contractual year. To the extent that the client fell short of that target, he paid the agency 15 percent of the difference.

With respect to appellant's paying the costs necessarily involved in formulating a coherent advertising campaign, including the agency's internal costs arising from the use of its personnel, the contract uniformly provided that appellant's prior approval of expenses was required before they were to be incurred by the agency; that is to say, appellant was only required to pay "per estimates agreed on in advance." Primarily, the reason for the instant dispute is not that the costs incurred and fees charged by the agency for the advertising campaign were unreasonably high, but rather that they were too expensive for appellant's budget, so that, had appellant known the costs in advance, it would have requested a less ambitious and less costly venture.

The only evidence concerning this issue revealed that on several occasions during the initial stages of the relationship between appellant and appellee, the parties met and discussed possible ideas for promoting the radio station on television stations and in news media for the purpose of increasing its listenership. Once the format and media were agreed upon the agency went ahead with production and placed the advertisements on television and in newspapers, The agency then billed WIOQ for the costs of the campaign. ...

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