Compensatory Damages - Consequential Damages: Foreseeability; Mitigation;

Certainty, Incidental Reliance

Case: Hydraform Products, Corp. v. American Steel & Aluminum Corp.. (1985, NH)
[pp. 960-967]

Facts:
○ Contract btwn parties for American to supply steel for Hydraform to
manufacture woodstoves. Hydraform informed American that late deliveries of steel
during peak season for manufacturing and selling stoves could ruin Hydraform's
business for a year. So American said that if Hydraform would place an order for
enough steel to make 400 woodstoves, American would stock enough steel in advance.
The steel under this agreement would be delivered in 4 installments. Along with
each delivery was a receipt that Hydraform signed, specifying that American was
not liable for consequential damages. Deliveries of the steel were late and some
were defective, but American promised to correct these problems.
○ Hydraform finally concluded that American would never perform as agreed,
and attempted to get steel from other manufacturers, but was unable to procure the
required amount in time for the sales season. The delays led to cancelled orders,
and by the end of the season Hydraform only made 250 stoves. Hydraform ended up
having to sell the woodstove division of its business.
○ Hydraform then brought action for breach of K, claiming $100k in lost
profits, and $220k as consequential loss on the sale of the business. American
brought motion to dismiss based on the limitation on consequential damages in the
clause, and also that Hydraform failed to mitigate damages by cover
(substitution).
○ American's motion to dismiss was denied. (see reasoning 1 below)
○ Hydraform was awarded $80,245.12 in damages, and American appeals.

Issue 1: Should the clause insulating American from liability for consequential
damages be enforceable? -No.

Holding/Reasoning 1: Lower court's motion to dismiss denial affirmed.

○ the limitation of damages clause was unenforceable on the alternate
grounds that:
§ it would have been a material alteration of the K, or
§ was unconscionable, or
§ Was a term that had failed of its essential purpose

Issue 2: Should the trial court have allowed the jury to consider the claims for
lost profits in the year of the K, and for the 2 years thereafter, as well as for
the loss resulting from a lower sales price of the business?

Holding/Reasoning 2:
• Consequential damages must be:
○ Reasonably foreseeable (limited to "loss resulting from requirements and
needs which the seller at the time of K had reason to know" of.
○ Ascertainable (limited to recompense for the reasonably ascertainable
consequences of the breach. Speculative losses are not recoverable)
○ Unavoidable (recoverable only if the loss "could not reasonably be
prevented by cover of otherwise.")
• Analysis of each claim based on above rules:
○ Claim for lost profits in the year of the K
§ PG 963
○ Claim for lost profits for the following 2 years
○ Claim for the loss resulting from a lower sales price of the business