Battle of the Forms, Cure, and Cover in a Custom-Label Bottle Sale
On March 1, Buyer, a beverage distributor, emailed Seller: 'Please ship 10,000 12-oz bottles with our new-label artwork at $0.40 each, delivery by May 1. We need conforming labels for our June launch.' Seller replied: 'Accepted - shipping as requested. Our standard terms apply: all disputes are arbitrated in State X, and our liability is limited to the purchase price and excludes consequential damages.' Buyer did not respond. Seller shipped 10,000 bottles on April 25; 400 carried the old label. Buyer inspected on April 27, emailed 'We reject the entire shipment; this is worthless for the launch,' and on April 29 bought 10,000 bottles from another supplier at $0.65 each. Buyer also lost a $40,000 distribution contract because of the delay. On April 28, Seller offered to replace the 400 bottles by May 1; Buyer refused. Buyer sues in court. Seller moves to compel arbitration and to limit damages to the purchase price. Buyer claims full cover damages and the $40,000 lost profits.
1. Are the arbitration clause and the consequential-damages limitation part of the contract?
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Under UCC section 2-207, Buyer's email is an offer. Seller's response is a definite and seasonable expression of acceptance unless it is expressly made conditional on Buyer's assent to the additional terms. 'Our standard terms apply' is not express condition language such as 'this acceptance is conditioned on your assent.' A contract is therefore formed. Between merchants, additional terms become part of the contract unless they materially alter it, are objected to, or the offer expressly limits acceptance. A consequential-damages exclusion is a material alteration because it substantially shifts risk. An arbitration clause is also typically treated as material because it waives a jury trial, although courts are split. Because these terms materially alter the deal and Buyer never assented, they are not part of the contract. The motion to compel arbitration should be denied, and damages are not capped at the purchase price.
2. Was Buyer entitled to reject the entire shipment and cover?
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Section 2-601 gives a buyer the right to reject goods that fail in any respect to conform, so the 400 mislabeled bottles justified rejecting those bottles. But section 2-508 gives the seller a right to cure if the time for performance has not expired and the seller seasonably notifies the buyer of an intention to cure. Seller shipped April 25, the contract delivery date was May 1, and Seller offered on April 28 to replace the 400 bottles by May 1. That is a timely and reasonable cure. Buyer's April 27 rejection of the entire shipment and April 29 cover were premature as to the 9,600 conforming bottles and as to the 400 bottles Seller could replace. Buyer should have allowed cure. Refusing a proper cure is a breach and makes the cover unreasonable. Buyer may still recover for any delay damages caused by the original nonconformity, but it cannot treat the whole contract as breached.
3. What damages can Buyer recover?
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Damages are measured under the UCC. If Buyer's cover had been proper, section 2-712 would give the difference between the cover price and the contract price: $0.25 times 10,000, or $2,500, plus incidental damages. But because Buyer covered the entire quantity before Seller's cure period expired, the cover is not reasonable as to the conforming bottles. The court may limit recovery to the 400 bottles or deny cover damages altogether. Consequential damages under section 2-715 are available only if foreseeable and proven with reasonable certainty. Seller knew about the June launch, so lost profits from the $40,000 distribution contract might be foreseeable, but Buyer must prove causation and mitigate. If the limitation clause were enforced, consequential damages would be excluded; because it is not part of the contract, the court may award them if proven. Buyer's refusal of cure will reduce any award.