Quick Summary
In Paul Gottlieb & Co., Inc. (plaintiff) v. Alps South Corp. (defendant), Gottlieb supplied fabric to Alps for medical devices, but after substituting yarn without notice, causing product failure, Gottlieb sued for nonpayment while Alps counterclaimed for breach of warranty.
The issue was whether a contract clause limiting liability was enforceable under UCC standards. The appellate court found that it was enforceable and that consequential damages were not properly proven by Alps. The case was remanded for reassessment of direct and incidental damages only.
Facts of the Case
Paul Gottlieb & Company, Inc. (Gottlieb) (plaintiff), a New York-based fabric converter, provided specialty knitted fabrics to its customers. Alps South Corporation (Alps) (defendant), a medical device company in Florida, contracted with Gottlieb for specialty fabric for its prosthetic liners used by amputees. The business relationship began positively with Gottlieb’s fabric being incorporated into Alps’ products and receiving favorable customer feedback.
However, disputes arose six months into the partnership when Alps received inconsistent fabric samples from Gottlieb. Alps informed Gottlieb of the deficiencies and required improved fabric quality for their continued business relationship. Gottlieb, without informing Alps, substituted a different yarn into the fabric, which led to a deterioration of Alps’ products and subsequent customer complaints, prompting a product recall. Gottlieb sued for nonpayment, and Alps counterclaimed for damages due to Gottlieb’s breach of warranty.
Procedural History
- Gottlieb filed a suit against Alps for nonpayment for the fabric supplied.
- Alps counterclaimed, alleging damages caused by Gottlieb’s breach of warranty.
- The trial court awarded damages to both parties and ruled that a limitation of liability clause in the contract was unenforceable.
- Gottlieb appealed the decision regarding the limitation of liability clause and consequential damages.
I.R.A.C. Format
Issue
- Whether the limitation of liability clause in the contract between Gottlieb and Alps was enforceable under the Uniform Commercial Code (UCC).
- Whether consequential damages awarded to Alps were appropriate and sufficiently established by competent proof.
Rule of Law
Under the UCC, a limitation of liability clause is considered a material alteration of a contract between merchants unless it results in surprise or hardship when incorporated without express awareness by the other party.
Reasoning and Analysis
The court applied section 2-207 of the UCC, which addresses ‘the battle of the forms’ in contracts between merchants, to determine whether additional or different terms become part of a legally enforceable contract. The clause at issue was found on multiple contracts exchanged between Gottlieb and Alps, and no objections to its inclusion were raised by Alps in a reasonable time frame.
The court concluded that Alps had failed to prove that the limitation of liability clause caused surprise or hardship as required by the UCC for a term to materially alter a contract. Consequently, the court held that the trial court erred in not enforcing the limitation of liability clause.
Regarding lost profits, the appellate court found that Alps had not proved lost profits with reasonable certainty as required by Florida law, which requires that damages not be speculative or conjectural. As such, the award for lost profits was deemed improper.
Conclusion
The appellate court reversed the trial court’s decision and remanded for a new hearing on damages, excluding consequential damages and lost profits but allowing for direct and incidental damages related to Gottlieb’s breach of contract.
Key Takeaways
- The UCC allows additional contract terms between merchants unless they materially alter the contract, causing surprise or hardship.
- A limitation of liability clause in a merchant contract is enforceable if no objection is made within a reasonable time and it does not materially alter the contract.
- Lost profits must be proven with reasonable certainty and cannot be based on speculation or conjecture.
- Consequential damages are barred if a valid limitation of liability clause is present, but direct and incidental damages may still be recovered.
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