Scope of Liability Limitations in Sale of Goods: Direct versus Consequential Damages

Introduction

This commentary examines the Eleventh Circuit’s decision in Sweet Additions Ingredient Processors, LLC v. Meelunie America, Inc., 24-10335 (11th Cir. June 2, 2025). The dispute arose under a fixed-price sales contract for organic tapioca starch entered in September 2019. When COVID-19 disrupted international supply chains, Meelunie America (“Meelunie”) was unable to deliver the full contract quantity in 2021 unless Sweet Additions Ingredient Processors, LLC (“Sweet Additions”) agreed to higher shipping costs. Sweet Additions procured substitute starch at a higher price and sued for breach of contract, seeking both its cover costs and lost profits. The district court found that Meelunie’s “Terms and Conditions of Sale” were incorporated into the one-page contract and that their liability limitation barred Sweet Additions’ remedies in full. On appeal, the Eleventh Circuit agreed that the terms were incorporated but held that the limitation of liability prevents only special consequential, incidental, or exemplary damages—not direct damages such as cover costs and lost profits. The court vacated and remanded for a proper damages calculation.

Summary of the Judgment

• Contract Formation & Incorporation: The one-page Sales Contract twice expressly referred to Meelunie’s standalone “General Sales Conditions” and Sweet Additions had seen and performed under those Terms & Conditions (T&Cs) in prior transactions.
• Limitation of Liability Clause: Section 5 of the T&Cs capped Meelunie’s liability at the contract price for the goods and disclaimed “special consequential, incidental or exemplary damages including, but not limited to, loss of profits or revenue” and “cost of substitute products.”
• Eleventh Circuit Holding:
  1. The T&Cs were validly incorporated by reference under Florida law and the parties’ course of dealing.
  2. The limitation of liability does not bar direct damages such as the UCC’s “cover” costs nor lost profits when they flow directly from the breach. Only special consequential, incidental, or exemplary damages are disallowed.
• Result: The district court’s judgment was vacated, and the case was remanded for recalculation of Sweet Additions’ recoverable damages.

Analysis

1. Precedents Cited

The Eleventh Circuit applied Florida’s incorporation-by-reference doctrine (OBS Co. v. Pace Constr. Corp., 558 So. 2d 404 (Fla. 1990)) and surveyed a line of Florida cases:

• Spicer v. Tenet Florida Physician Services, LLC, 149 So. 3d 163 (Fla. 4th DCA 2014): held an arbitration sub-policy was not incorporated where no clear directions or attachments existed and the employee had no notice.
• BGT Group, Inc. v. Tradewinds Engine Services, LLC, 62 So. 3d 1192 (Fla. 4th DCA 2011): refused incorporation of unproduced sales terms on an invoice reference alone.
• Kaye v. Macari Building & Design, Inc., 967 So. 2d 1112 (Fla. 4th DCA 2007): enforced incorporation of a well-known AIA standard form by clear reference to its date and edition.
• Avatar Properties, Inc. v. Greetham, 27 So. 3d 764 (Fla. 2d DCA 2010): upheld incorporation of a home-warranty by purchaser initials and explicit directions to review or request the document.

These cases establish that a collateral document will be incorporated when (a) the primary writing expressly refers to it as binding, and (b) the reference or context puts the signatory on clear notice how to access or review it.

2. Legal Reasoning

A. Incorporation by Reference
The Court held that Florida law requires two elements: (1) a specific statement that the contract is subject to the collateral document, and (2) a sufficient description or reference to identify that document. Here, the Sales Contract stated twice that it was “on [Meelunie’s] general sales conditions” and noted that a copy could be “obtained upon request.” Moreover, in prior dealings Sweet Additions had received and paid invoices under those T&Cs. Under the UCC’s course-of-dealing principles (Fla. Stat. § 671.205), this sequence of conduct confirmed both parties’ understanding and intent.

B. Interpretation of the Limitation of Liability
The limitation of liability capped direct seller liability at the contract price for the goods, then disclaimed “special consequential, incidental or exemplary damages including, but not limited to, loss of profits or revenue” and “cost of substitute products.” The Court applied these interpretive guideposts:

1. Plain language and structure: The disclaimed items fall in a nonrestrictive “including” clause that lists examples of the broader terms “consequential, incidental or exemplary damages.” Grammar and noscitur a sociis confirm the listed examples simply illustrate consequential or incidental harm, not redefine direct damages.
2. UCC framework: Under Michigan’s adoption (Mich. Comp. Laws § 440.2712–.2715), “cover” costs and direct lost profits are distinct from incidental or consequential damages. Section 2-712 allows a buyer to cover and recover the price difference as direct damages; consequential damages are separately defined and limited to losses foreseeable from third-party dealings.
3. Fixed-price sale rationale: A purchaser’s remedy of cover to secure the contract price benefit is essential to the fixed-price bargain. Except for truly incidental or consequential harm, a limitation clause cannot nullify core expectations or render the promise illusory.
4. Avoidance of illusoriness: Interpreting the clause to bar all cover costs and lost profits would allow the seller to escape any monetary obligation, defeating consideration and the contract itself.
5. Uniform judicial construction: Courts across circuits interpreting similar liability-limitation clauses allow direct lost profits and cover costs while barring truly consequential damages. (See Penncro Assocs. v. Sprint Spectrum, 499 F.3d 1151 (10th Cir. 2007); Reid Hosp. & Health Care Servs. v. Conifer, 8 F.4th 642 (7th Cir. 2021), et al.)

Consequently, Sweet Additions may recover direct damages up to the overall price cap, but it may not recover special consequential, incidental, or exemplary damages as defined by the clause.

3. Impact

This decision clarifies two key points for sales-of-goods contracts, especially in commodity markets:

• Contract Drafting & Form Clauses: Sellers seeking to limit remedies must specify each category of damages they intend to exclude, including direct cover costs or lost profits, if that is their aim. A generic “including” clause may not suffice.
• Predictability of Remedies under the UCC: Buyers in fixed-price arrangements can rely on UCC cover and direct damages even where liability limitations exist, preserving core benefit-of-the-bargain remedies in supply chain disruptions.

Complex Concepts Simplified

• Incorporation by Reference: A contract can bind you to another document you didn’t sign so long as the contract plainly refers to it and tells you how to get it, and you know of it from prior dealing.
• Course of Dealing: A series of past transactions between the same parties can create a shared understanding of contract terms, filling in gaps or giving notice of incorporated terms.
• UCC Cover: If a seller breaches, a buyer can buy replacement goods (“cover”) and sue the seller for the price difference as a direct remedy.
• Direct vs. Consequential Damages: Direct damages flow immediately from a breach (e.g., price difference on cover or lost profits from the transaction). Consequential damages arise from secondary harms (e.g., penalties paid to the buyer’s customers or loss of goodwill).
• Nosci tur a Sociis: A rule of interpretation that a word in a list should be read in light of the words next to it. Here, “loss of profits” and “cost of substitute products” are examples of “consequential, incidental or exemplary damages,” not new categories of direct damages.
• Illusory Promise: A promise so broad that one party can escape its obligations at will is no promise at all—and cannot support a valid contract.

Conclusion

The Eleventh Circuit’s ruling in Sweet Additions v. Meelunie America establishes that form-contract liability limitations must be read in context of the UCC and established contract law principles. A clause disclaiming “special consequential, incidental or exemplary damages including loss of profits or cost of substitute goods” does not bar a buyer from recovering direct cover damages and lost profits that flow directly from the seller’s breach. It only excludes truly incidental or consequential harms. This decision underscores the importance of precise drafting in limitation of liability clauses and reaffirms a buyer’s core UCC remedies in fixed-price sales contracts disrupted by unforeseen events.