Brief Fact Summary. Plaintiff Dale R. Horning Co. purchased defective glass products from Defendant Falconer Glass Industries, Inc. resulting in additional costs to Plaintiff for the replacement of the defective products. Plaintiff initiated this cause of action to recover consequential damages incurred from the replacement of the defective products and the resulting delay. Defendant included a provision disclaiming liability for consequential damages on the back of its form.
Synopsis of Rule of Law. An additional term limiting liability for consequential damages in an agreement between merchants will not be enforced when enforcement would result in hardship to the non-assenting party.
Issue. Is the additional term disclaiming Defendant’s liability for consequential damages part of the contract between the parties?
Held. No. Defendant’s provision disclaiming liability for consequential damages is not part of the contract between the parties.
In a contract between merchants additional terms are included unless they materially alter the agreement between the parties. If the inclusion of a term without express awareness of the other party would result in surprise or hardship, the term is said to materially alter the agreement. Courts are split on whether a provision limiting consequential damages materially alters a contract. In the present case, the Court focuses on whether the inclusion would result in surprise or hardship, not whether the provision is reasonable.
In looking at whether the provision materially altered the agreement based on surprise to Plaintiff, the Court looks at both a subjective and objective standard. Subjectively, Plaintiff was not aware of the provision on the back of Defendant’s form. However, objectively, Plaintiff was aware that such provisions do appear on the back of supplier forms. The Court determined that because Plaintiff should anticipate such provisions, the provision does not materially alter the contract under the surprise aspect.
In looking at hardship, the Court focuses on whether enforcing the provision would result in “substantial economic hardship” to Plaintiff. Under the fact of the present case, where Defendant knew of Plaintiff’s requirements and potential liability for delay in completing the work, the Court applies a presumption that Plaintiff can recover consequential damages to avoid hardship.
The Court also notes that the limitation of liability for consequential damages was not mentioned in the oral agreement or later negotiated, but was instead inserted in fine print on the back of Defendant’s form.
Discussion. In the present case, the additional term disclaiming Defendant’s liability for consequential damages was not part of the contract between the parties. The Court reasoned that to include this type of provision, located in fine print on the back of the form, and would result in hardship to Plaintiff.