We are presently involved in a case in which we represent a retail carpet dealer who sold broadloom to a company that was in the process of setting up a new retail clothing store. As is often the case, this new company was doing major renovations to the new space and, as usual, the floor covering was the last item scheduled to be installed before the grand opening.

The owner of this store was obviously in a rush to make sure that all the renovations, including the broadloom, were completed in a timely manner so that his opening would not be delayed.

Until the opening, he was paying rent on a store which was not providing any revenue. When they were finally ready to lay the carpet, there were only a few days left until their scheduled opening. The broadloom, which had been delivered to the dealer by the mill only a few days before, was then immediately shipped to the new store for installation. When it was unrolled at the store, however, it was found to have various defects rendering it unusable. The manufacturer immediately agreed to provide a replacement, but it would be about three weeks by the time it could be delivered and installed. This obviously delayed the grand opening.

Although the installation, when finally completed, was more or less perfect, the owner refused to pay the balance of the purchase price, approximately one-half of the total. This refusal was based upon his claim that due to the dealer’s failure to properly and timely provide and install defect-free carpet, he was caused to suffer money damages as a result of his delayed opening.

The loss of the profits that he would have made during this three-week period, he reasoned, exceeded the balance due the dealer and, therefore, the dealer and/or the mill should be responsible for these lost profits. This dispute eventually ended up in court.

As we’ve often noted in the past, the law concerning the sale of goods is found in the Uniform Commercial Code (UCC). This code, with only minor variations, has been made a part of the law of every state. In general, it provides that a seller who breaches a contract of sale will be liable to his buyer for all damages suffered by that buyer as a result of that breach. Under this general rule, the seller in the above case would, in fact, be responsible not only for replacement of the defective carpet but any consequential or incidental damages such as loss of profits, which are directly attributable to the defects. That’s the general rule.

The UCC, however, further provides that the parties to a sales contract may agree to limit the seller’s liability for damages in the event that a problem does arise. In reliance upon this part of the law, we showed the judge the sales order form which had been signed by both the dealer and the new store owner.

The back of this form contained the following paragraph:

“Seller shall not be responsible for any general, special or consequential damages arising from any defect or breach of this agreement by the seller and the sole liability of the seller from breach of warranty or otherwise shall be strictly limited, at the option of the seller, to either the return of the goods sold hereunder and the repayment of the purchase price or that seller shall repair or replace the non-conforming goods.”

This language, a part of the agreement of sale, we argued, complies with the section of the code which states that “consequential damages may be limited or excluded unless the limitation is unconscionable.” The judge agreed with our argument. Since this limitation is not unconscionable, he determined, it is binding upon the parties. Thus, the dealer, by his replacement of the defective carpet, fully complied with his obligations under the contract of sale and store owner’s claim that he was entitled to obtain additional damages for his lost profits was dismissed.

Language similar to that contained in this dealer’s sales form should be placed in every contract or sales order form that you make with a buyer. However, keep in mind that very often different rules apply where the buyer is a consumer; generally defined as an individual buying for his house use.

Many states have laws which limit or eliminate a seller’s right to limit his liability in the event of a breach in this type of sale. In any case, nonetheless, it’s probably a good idea to include the language in the first place and let someone else prove it’s not binding.