Hydraform Products Corp. v. American Steel & Aluminum Corp.

• Decision Date: 16 August 1985
• Docket Number: No. 83-375,83-375
• Citation: 127 N.H. 187,498 A.2d 339
• Parties: , 41 UCC Rep.Serv. 1201 HYDRAFORM PRODUCTS CORPORATION v. AMERICAN STEEL & ALUMINUM CORPORATION.
• Court: New Hampshire Supreme Court

Page 339

498 A.2d 339

127 N.H. 187, 41 UCC Rep.Serv. 1201

HYDRAFORM PRODUCTS CORPORATION v. AMERICAN STEEL & ALUMINUM CORPORATION.

No. 83-375.

Supreme Court of New Hampshire.

Aug. 16, 1985.

Devine, Millimet, Stahl & Branch P.A., Manchester (Bartram C. Branch and Raymond E. Liguori (orally), on brief, Manchester), for plaintiff.

Sheehan, Phinney, Bass & Green P.A., Manchester (Thomas H. Richards and Peter S. Cowan (orally), Manchester), on brief, for defendant.

SOUTER, Justice.

The defendant, American Steel & Aluminum Corporation, appeals from the judgment entered on a jury verdict against it. The plaintiff, Hydraform Products Corporation, brought this action for direct and consequential damages based on claims of negligent misrepresentation and breach of a contract to supply steel to be used in manufacturing woodstoves. American claims that prior to trial, the Superior Court (Nadeau, J.) erroneously held that a limitation of damages clause was ineffective to bar the claim for consequential damages. American further claims, inter alia, that the Trial Court (Dalianis, J.) erred (a) in allowing the jury to calculate lost profits on the basis of a volume of business in excess of what the contract disclosed and for a period beyond the year in which the steel was to be supplied; (b) in allowing the jury to award damages for the diminished value of the woodstove division of Hydraform's business; (c) in failing to direct a verdict for the defendant on the misrepresentation claim; and (d) in allowing Hydraform's president to testify as an expert witness. We hold that the trial court properly refused to enforce the limitation of damages clause, but we sustain the other claims of error and reverse the judgment.

Hydraform was incorporated in 1975 and began manufacturing and selling woodstoves in 1976. During the sales season of 1977-78 it sold 640 stoves. It purchased steel from a number of suppliers until July 1978, when it entered into a "trial run" contract with American for enough steel to manufacture 40 stoves. Upon delivery of the steel, certain of Hydraform's agents and employees signed a delivery receipt prepared by American, containing the following language:

"Seller will replace or refund the purchase price for any goods which at the time of delivery to buyer were damaged, defective or not in conformance with the buyer's written purchase order, provided that the buyer gives seller written notice by mail of such damage, defect or deviation within 10 days following its receipt of the goods. In no event shall seller be liable for labor costs expended on such goods or other consequential damages."

(Emphasis added.)

When some of the deliveries under this contract were late, Hydraform's president, J.R. Choate, explained to an agent of American that late deliveries of steel during the peak season for manufacturing and selling stoves could ruin Hydraform's business for a year. In response, American's agent stated that if Hydraform placed a further order, American would sheer and stockpile in advance, at its own plant, enough steel for 400 stoves, and would supply further steel on demand. Thereafter Hydraform did submit a purchase order for steel sufficient to manufacture 400 stoves, to be delivered in four equal installments on the first days of September, October, November and December of 1978.

American's acceptance of this offer took the form of deliveries accompanied by receipt forms. The forms included the same language limiting American's liability for damages that had appeared on the receipts used during the trial run agreement. Hydraform's employees signed these receipts as the steel was delivered from time to time, and no one representing Hydraform ever objected to that language.

Other aspects of American's performance under the trial run contract reoccurred as well. Deliveries were late, some of the steel delivered was defective, and replacements of defective steel were tardy. Throughout the fall of 1978 Mr. Choate protested the slow and defective shipments, while American's agent continually reassured him that the deficient performance would be corrected. Late in the fall, Mr. Choate finally concluded that American would never perform as agreed, and attempted to obtain steel from other suppliers. He found, however, that none could supply the steel he required in time to manufacture stoves for the 1978-79 sales season. In the meantime, the delays in manufacturing had led to cancelled orders, and by the end of the season Hydraform had manufactured and sold only 250 stoves. In September, 1979, Hydraform sold its woodstove manufacturing division for $150,000 plus royalties.

In December, 1979, Hydraform brought an action for breach of contract, which provoked a countersuit by American. In January, 1983, American moved to dismiss Hydraform's claims for consequential damages to compensate for lost profits and for loss on the sale of the business. American based the motion on the limitation of damages clause and upon its defense that Hydraform had failed to mitigate its damages by cover or otherwise. In February, 1983, Hydraform's pretrial statement filed under Superior Court Rule 62 disclosed that it claimed $100,000 as damages for lost profits generally and $220,000 as a loss on the sale of the business. Later in February, 1983, the superior court permitted Hydraform to amend its writ by adding further counts, which included claims for fraudulent and negligent misrepresentation. Hydraform did not, however, proceed to trial on the claim of fraud.

In April, 1983, Nadeau, J., denied American's motion to dismiss the claims for consequential damages. He relied on the Uniform Commercial Code as adopted in New Hampshire, RSA chapter 382-A, in ruling that the limitation of damages clause was unenforceable on the alternative grounds that the clause would have been a material alteration of the contract, see RSA 382-A:2-207(2)(b), or was unconscionable or was a term that had failed of its essential purpose, see RSA 382-A:2-719(2) and (3). He further concluded that, under the circumstances of the case, the failure to cover, if proven, would not bar consequential damages.

The case was tried to a jury before Dalianis, J. American's exceptions at trial are discussed in detail below. At the close of the evidence, American objected to the use of a verdict form with provision for special findings, and the case was submitted for a general verdict, which the jury returned for Hydraform in the amount of $80,245.12.

American's first assignment of error for our consideration challenges the trial court's refusal to recognize the provision insulating American from liability for consequential damages caused by defective goods. We hold that the trial court was correct.

To begin with, we think the trial court was correct in construing the quoted language in question as a single provision. Theoretically, of course, it can be analyzed as two distinct terms, the first providing for replacement or refund if the seller gives notice of non-conformance within ten days of receipt, the second precluding recovery of certain labor costs and general consequential damages. However, the fact that the terms were placed together confirms what we believe is the more reasonable interpretation, that the parties were agreeing to eliminate a right to consequential damages for the very reason that replacement or refund would operate as effective remedies. Therefore, we are unable to view this as a case in which the status of the limitation of damages clause should be determined independently of the provision for replacement or refund.

Thus reading the provision as a unity, we believe that it became a term of the parties' contract. RSA 382-A:2-207(1) contemplates that an offeree's reply may operate as an acceptance, even though it proposes a term additional to or different from the terms of the offer. When the parties are merchants the additional term becomes a part of the contract unless the offer itself precludes such an addition, or the new term would be a material alteration of the contract, or the offeror seasonably objects. Id. at 2-207(2).

In this case, the trial court found that the parties did not dispute their merchant status. Since the offer contained no preclusion and since Hydraform never objected to the new provision, the limitation must have become a term of the contract unless it worked a material alteration. We conclude that it did not.

Official comment 4 to § 2-207 implies that the test for material alteration is whether the term in question would result in surprise or hardship if incorporated in the contract without the express assent of the party placed at a disadvantage by it. While this standard may seem to beg the question, comment 5 notes that a limitation of remedy that is otherwise reasonable under §§ 2-718 and 2-719 of the code is not considered to be unreasonably surprising. It thus becomes a term of the contract in the absence of preclusion in the original offer or seasonable objection by the offeror. Since § 2-718 is not applicable here, the issue of material alteration turns on whether the term is reasonable when judged under the standard of § 2-719.

The relevant portions of § 2-719 are these:

"(1) Subject to the provisions of subsections (2) and (3) ...

(a) the agreement ... may limit ... the measure of damages recoverable ... as by limiting the buyer's remedies to ... replacement of non-conforming goods ...; and

(b) resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy.

(2) Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this chapter.

(3) Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie...