Facts
- Great Lakes Heat Treating Co., a newly formed commercial heat-treating business, contracted with AGF, Inc. to purchase an automated “284 Shaker Hearth Furnace” represented as capable of processing about 500 pounds of parts per hour.
- The furnace was delivered in January 1980 and initially could not be assembled because parts did not fit properly; AGF was notified and sent a technician.
- After assembly, the furnace repeatedly malfunctioned and never consistently achieved the promised throughput, despite at least six repair attempts by AGF.
- Great Lakes withheld the remaining contract balance; AGF sued for the unpaid price.
- Great Lakes counterclaimed for breach of warranty and sought lost profits allegedly caused by the furnace’s underperformance.
- At trial, Great Lakes offered lost-profits proof through customer testimony, the owner’s testimony, and a CPA’s projections based in part on records and data from similar enterprises; the trial court excluded key portions of this evidence.
Issues
- Whether Great Lakes provided sufficient notice of breach under Ohio Rev. Code § 1302.65(C)(1) (UCC 2-607(3)(a)) to preserve remedies for breach of warranty.
- Whether a new business may recover lost profits for breach of contract in Ohio and, if so, what evidence can establish those profits with reasonable certainty.
Decision
- The Ohio Supreme Court held Great Lakes gave adequate notice of breach; no specific words or formal notice were required, and repeated complaints coupled with AGF’s repair efforts satisfied the statute.
- The court held a new business is not categorically barred from recovering lost profits; such damages are recoverable if proven with reasonable certainty.
- The court ruled the trial court unduly restricted Great Lakes’ lost-profits evidence, including expert testimony relying on comparable-business data.
- The judgment was reversed in part and the cause remanded for further proceedings consistent with the opinion, particularly on lost-profits damages.
Legal Principles
- Under Ohio Rev. Code § 1302.65(C)(1), a buyer’s notice of breach need not follow any specific form; practical communications that inform the seller of the problem and allow an opportunity to cure can satisfy the requirement.
- In Ohio, a new business may recover lost profits in a breach-of-contract action, but the profits must be established with reasonable certainty.
- Reasonable certainty does not require mathematical precision; it requires evidence sufficient to avoid purely speculative awards.
- Lost profits for a new business may be proven through expert testimony, economic and financial data, market surveys and analyses, records of similar enterprises, and other relevant facts; expert reliance on such material is not automatically inadmissible solely because the underlying data were not independently admitted.
Conclusion
The court confirmed that informal, repeated complaints and repair efforts can satisfy UCC notice of breach, and it rejected a per se rule against new-business lost profits, requiring instead that such damages be supported by reasonably certain evidence, including expert analysis grounded in comparable-business and market data.