Facts
- Paul Gottlieb & Co., Inc. (a fabric converter) supplied specialty knitted fabric to Alps South Corp. (a medical-device manufacturer) for use in prosthetic liners.
- After testing, Alps selected a particular fabric identified as TL2646 Coolmax, incorporated it into liners, and initially received positive customer feedback.
- About six months into the relationship, Alps complained about fabric quality and conditioned continued business on improved quality, but did not disclose specialized end-use risks or potential switching costs.
- Gottlieb later substituted a different yarn in the fabric without notifying Alps; the substitute was less elastic.
- Alps’s customers complained about liners made with the substituted yarn, leading Alps to recall and destroy affected liners; the parties later determined the yarn substitution caused the problems.
- Alps withheld payment; Gottlieb sued for nonpayment, and Alps counterclaimed for breach of contract and warranty.
- Gottlieb’s standardized forms repeatedly included a limitation-of-liability clause on the reverse side purporting to exclude or limit consequential damages; Alps received these forms over time and did not timely object.
Issues
- Under Florida’s adoption of UCC § 2-207, did the limitation-of-liability clause in Gottlieb’s merchant form become part of the parties’ contract, or was it excluded as a material alteration?
- If consequential damages were not excluded, did Alps prove consequential damages with competent, non-speculative evidence?
Decision
- The appellate court reversed the trial court’s refusal to enforce the limitation-of-liability clause.
- It held the clause did not materially alter the contract as a matter of law and therefore was part of the agreement between merchants.
- Because the clause limited liability for consequential damages, the award of consequential damages to Alps could not stand.
- The court also concluded the consequential damages awarded were not sufficiently proven.
- The case was remanded for a new hearing limited to determining direct and incidental (benefit-of-the-bargain) damages attributable to the breach.
Legal Principles
- Under UCC § 2-207 between merchants, additional terms in a written confirmation become part of the contract unless: (1) the offer expressly limits acceptance to its terms, (2) the additional terms materially alter the contract, or (3) timely objection is given.
- A term materially alters a merchant-to-merchant contract if it causes unreasonable surprise or hardship when incorporated without the other party’s express awareness.
- A limitation-of-liability clause excluding consequential damages may be treated as non-material, particularly where repeated prior forms and course of dealing show the term was not unexpected and no timely objection was made.
- Even when a seller breaches, UCC remedies may be confined by an enforceable limitation clause to direct and incidental damages rather than consequential damages.
Conclusion
The court held that the consequential-damages limitation in the seller’s standardized forms became part of the merchants’ contract under UCC § 2-207 because it did not create unreasonable surprise or hardship, and it remanded for recalculation of damages limited to direct and incidental losses.