## Facts

- Atlantic Richfield Company (ARCO) entered into franchise agreements with individual dealers to operate AM/PM mini-markets and ARCO-branded gasoline stations, requiring dealers to sell only ARCO gasoline.
- From about 1982 to 1985, ARCO supplied unleaded gasoline reformulated with a blending agent called Oxinol.
- The dealers alleged the gasoline was defective and caused poor vehicle performance and fuel-system damage, leading to customer dissatisfaction.
- The dealers claimed decreased gasoline sales volume and reduced profits during the period they were required to sell the allegedly nonconforming gasoline.
- The complaint asserted claims for breach of express and implied warranties and related theories (including misrepresentation and exemplary damages), seeking lost profits and consequential damages.
- ARCO argued the damages were essentially “loss of good will,” which is not recoverable because it is too speculative.
- The trial court sustained preliminary objections (demurrer) and dismissed the complaint; the Superior Court affirmed, treating the damages as nonrecoverable good-will losses and rejecting tort recovery.
- The Supreme Court of Pennsylvania granted review to determine whether the pleaded facts stated a viable warranty claim and whether the alleged damages were barred as speculative good-will losses.

## Issues

1. Whether the dealers pleaded sufficient facts to state UCC-based breach-of-warranty claims for allegedly nonconforming gasoline and resulting economic harm.
2. Whether alleged lost profits from reduced gasoline sales were categorically barred as nonrecoverable, speculative “loss of good will.”
3. Whether the dealers could pursue tort and exemplary-damages claims where the asserted duties arose from the franchise and sales contracts.

## Decision

- The Supreme Court reversed the dismissal in part, holding the dealers adequately pleaded breach-of-warranty claims and should be allowed to attempt to prove consequential damages, including lost profits.
- The Court rejected the lower courts’ categorical characterization of the claimed damages as “loss of good will,” concluding the pleaded damages were not necessarily goodwill and were not too speculative as a matter of law at the pleading stage.
- The Court affirmed the dismissal in part, holding the tort and exemplary-damages claims were not viable because the relevant duties arose under contract rather than tort.
- The case was remanded for further proceedings on the warranty-based claims.

## Legal Principles

- Under the UCC, a buyer may seek consequential damages, including lost profits, for delivery of nonconforming goods when such damages are foreseeable and causally linked to the breach and can be proven with reasonable certainty.
- Lost profits attributable to reduced sales from an allegedly defective product are not automatically reclassified as “good will” damages and barred as speculative.
- On preliminary objections in the nature of a demurrer, courts accept well-pleaded facts as true and should not dismiss merely because damages may be difficult to prove; the question is whether the pleaded damages are legally cognizable if proven.
- Where the alleged wrongdoing concerns quality/performance under a commercial contract and warranties, remedies generally lie in contract/UCC, not tort; punitive or exemplary damages are not available absent a viable tort basis.

## Conclusion

The court allowed franchisee-dealers to proceed on UCC warranty claims seeking lost profits and other consequential damages from allegedly defective gasoline, holding such damages were not barred at the pleading stage as speculative goodwill losses, while limiting the dispute to contractual remedies by affirming dismissal of tort and exemplary-damages claims.


AM/PM Franchise Ass'n v. Atl. Richfield Co., 526 Pa. 110, 584 A.2d 915 (Pa. 1990)