Battle of the Forms: Arbitration Clause, Consequential-Damages Disclaimer, and Lost Festival Profits

Identify the writings. The purchase order is an offer; the acknowledgment is a definite expression of acceptance even though it states additional terms. Under § 2-207(1), a contract is formed unless the acceptance is expressly made conditional on assent to the additional terms. The acknowledgment is not expressly conditional, so a contract exists.

Between merchants. Under § 2-207(2), additional terms become part of the contract unless they materially alter it, the offer expressly limits acceptance to its terms, or the offeror objects within a reasonable time. Buyer did not object, and the purchase order did not expressly limit acceptance.

Arbitration clause. A clause requiring binding arbitration in Fort Wayne materially alters the contract. It waives jury trial, changes the forum, and imposes costs and procedures the buyer did not bargain for. Most courts, including Indiana courts applying the UCC, treat an arbitration clause in a standard acknowledgment as a material alteration when it appears for the first time in the acceptance. It therefore drops out.

Consequential-damages disclaimer. A disclaimer of consequential damages also materially alters the bargain. The purchase order specified the seller's standard limited warranty, not a waiver of consequential damages. A term that eliminates a whole category of damages creates surprise and hardship and is a material alteration under § 2-207(2)(b).

Alternative route. Because the parties performed, a court could analyze the contract under § 2-207(3): the terms are those on which the writings agree, supplemented by UCC gap-fillers. Under that route, neither the arbitration clause nor the disclaimer becomes part of the contract. Either way, seller's motion to compel arbitration should fail.

Acceptance. Under § 2-606(1)(a), a buyer accepts goods when, after a reasonable opportunity to inspect, it signifies that the goods are conforming or that it will keep them despite their nonconformity. Buyer received the chairs May 30 and did not reject them; it notified seller of the cracked frames on June 4. Five days is likely a reasonable inspection period, and the five-day inspection term in the acknowledgment probably never became part of the contract. Buyer therefore accepted the goods.

Notice. Under § 2-607(3)(a), buyer must notify seller of any breach within a reasonable time. The June 4 email satisfies that requirement. Notice need only be enough to inform seller that the transaction is claimed to involve a breach; it need not state a precise damages theory.

Revocation of acceptance. Under § 2-608, buyer may revoke only if the nonconformity substantially impairs the value of the whole shipment and acceptance was reasonable without discovery. Eighty cracked chairs out of 1,000 is an 8% defect, and the replacement frames restored the chairs' use by June 25. That is unlikely to be a substantial impairment of the whole. Revocation is therefore a weak remedy.

Damages. Buyer may recover under § 2-714 for the difference between the value of the goods accepted and the value they would have had if as warranted. If buyer reasonably covered by renting substitute chairs, § 2-712 cover damages are available. Buyer must mitigate and cannot recover for defects it could have avoided through reasonable cover. Seller's replacement frames may reduce the recoverable difference in value but do not eliminate the loss of use for the period before repair.

Consequential damages standard. Under § 2-715(2), consequential damages include lost profits if they were foreseeable at the time of contracting and could not reasonably be prevented by cover or otherwise. The seller must have had reason to know of the buyer's particular needs.

Foreseeability. The purchase order said nothing about a June 15 event or a July 4 festival. A seller of standard patio chairs would foresee resale or rental use in general, but not the specific lost profits from a particular event. The specific $26,000 claim is therefore unlikely to be recoverable unless buyer can show seller knew of the events when the contract was formed.

Cover. Under § 2-715(2)(a), lost profits are not recoverable if buyer could have covered by purchasing or renting substitute chairs. Buyer had from June 4 to June 15 to rent 80 chairs. If rental chairs were available at a reasonable price, buyer's failure to cover bars the lost-profits claim; buyer's recovery is limited to the cost of cover minus the contract price, plus incidental damages.

Disclaimer. If the consequential-damages disclaimer had become part of the contract, § 2-719(3) would bar lost profits unless the limitation is unconscionable. A commercial buyer of patio chairs would have difficulty showing unconscionability. But the disclaimer was a material alteration and never became part of the contract, so it does not control.

Conclusion. Buyer probably cannot recover the $26,000. It can recover the difference in value of the 80 cracked chairs or reasonable cover costs, plus incidental expenses, if it proves them with reasonable certainty.