## Facts

- Hydraform Products Corporation manufactured seasonal steel woodstoves and purchased steel from American Steel & Aluminum Corporation, a commercial steel supplier.
- Hydraform first placed a trial order for steel for about 40 stoves; deliveries were late, but Hydraform later ordered steel for about 400 stoves for the upcoming season.
- American delivered steel in multiple shipments, each accompanied by a delivery receipt drafted by American and signed by Hydraform’s employees.
- The receipts limited Hydraform’s remedy to replacement or refund and excluded consequential damages.
- During performance, American made repeated late deliveries and delivered some defective steel; replacement steel was also delayed despite repeated assurances that performance would improve.
- Hydraform manufactured only about 250 of the intended 400 stoves, missed the peak selling season, and lost sales.
- Hydraform later sold its woodstove division in September 1979 for $150,000 plus royalties; its president claimed the sale price was below the division’s value absent American’s performance problems.
- A jury awarded Hydraform $80,245.12 after the trial court allowed consequential-damages theories including lost profits within the 400-stove arrangement, two years of future lost profits, and loss in business value.

## Issues

1. Whether a delivery-receipt term limiting remedies to replacement/refund and excluding consequential damages was unconscionable and unenforceable in a commercial sale under UCC § 2-719.
2. Whether repeated late and defective deliveries and delayed replacements caused the limited remedy to fail of its essential purpose, permitting consequential damages despite the exclusion.
3. Whether consequential damages could include (a) lost profits on the unproduced portion of the 400-stove arrangement, (b) two years of future lost profits, and (c) diminution in business value on sale.
4. Whether Hydraform’s actions in seeking alternative suppliers satisfied the duty to mitigate in light of American’s assurances.

## Decision

- The limitation/exclusion term was not unconscionable and was initially enforceable in a commercial setting.
- The limited remedy failed of its essential purpose because late, defective, and delayed replacement deliveries left Hydraform without an effective remedy within its seasonal sales window.
- Consequential damages were available notwithstanding the exclusion, but only to the extent proved with reasonable certainty and within the scope of foreseeable loss tied to the 400-stove arrangement.
- The trial court erred by submitting two years of future lost profits and diminution in business value to the jury as consequential damages because those categories were too speculative and insufficiently ascertainable.
- The judgment was vacated or modified as necessary to remove improper damage components, while preserving recoverable contract-tied consequential damages.

## Legal Principles

- Under UCC § 2-719(3), a clause limiting or excluding consequential damages in a commercial contract is generally enforceable unless unconscionable; commercial consequential losses are not prima facie unconscionable.
- Lack of fraud, absence of patent overreaching, and the availability of alternative suppliers support enforceability of consequential-damages limitations between commercial parties.
- Under UCC § 2-719(2), even an otherwise valid exclusive or limited remedy is displaced when circumstances cause it to fail of its essential purpose, including when timely replacement is not provided and the buyer is left without an effective remedy.
- Consequential damages, including lost profits, must be foreseeable at contracting and proven with reasonable certainty; damages not anchored to a defined transaction or supported by nonconjectural proof are not recoverable.
- Mitigation is assessed in context; reliance on a breaching seller’s repeated assurances may support a finding that the buyer acted reasonably in the timing and manner of efforts to obtain substitutes.

## Conclusion

The court held that the commercial exclusion of consequential damages was not unconscionable, but it did not bar recovery because repeated late, defective, and delayed replacement deliveries caused the replacement/refund remedy to fail of its essential purpose; Hydraform could recover reasonably certain, foreseeable lost profits tied to the 400-stove arrangement, but not speculative future profits or alleged loss in overall business value.


Hydraform Prods. Corp. v. Am. Steel & Aluminum Corp., 127 N.H. 187, 498 A.2d 339 (N.H. 1985)