Consequential Damages A refresher on consequential damages

1. Consequential DamagesA refresher on consequential damages T.Bowen 7 December 2011

2. Purpose • The purpose of this slide show is to use it as a tool for refreshing definitions and cases of consequential damages for legal professionals. • Attached you will also find a section “For the Client,” this was meant to help legal professionals explain complex legal principles to clients.

3. Definitions • We offer the following definitions to highlight the differentiation between consequential, general, and speculative damages. • While they are all compensatory, the difference is seen in the ability to place monetary value upon the injured party’s claim. • General damages are sought for loss of amenity. • Speculative damages are sought by the injured party as an assumption that they will occur. • Consequential damages, on the other hand, are actual losses.

4. Definitions • In seeking consequential damages, ex contractu, the focus of the case will be reasonably foreseeable damages and damages known to both parties at time of approval of the contract. • You’ll remember for Hadley v. Baxendale, that if one party is unaware of consequences by breach of contract, they will not be held responsible • Over time, this portion of contract law has stood firm. • The cases that follow represent suits filed for consequential damages.

5. Cases for Consideration • Hadley v. Baxendale, 1854 • Hadley contracts Baxendale to pick up, deliver to an engineering company, and promptly return a crankshaft to Hadley’s mill. Baxendale fails to deliver shaft for five days after the agreed upon return date. Hadley’s mill must remain closed until the shaft is returned. Baxendale claimed to be unaware of this consequence at time of signing. • Hadley sues for consequential damages in the form of consideration and lost profit. • The judge ruled in favor of Hadley, until his decision was overturned in appeal. The appellate judge ruled Baxendale should not be held accountable for consequences unknown to him. • This is the origination of reasonably foreseeable damages and damages known to all parties at time of contracting.

6. Cases for Consideration • In re Polemis & Furness, Withy & Co., 1921 • Polemis & Furness employ Withy & Co. to unload cargo from the Polemis ship. While unloading, a plank fell causing a spark that ignited the ship’s gasoline to catch on fire and damage the ship. • The judge ruled the damage to the ship by negligence of the workers was foreseeable, Polemis & Furness were awarded consequential damages for the ship. However, not the original amount. They sought full reimbursement of the ship, and received compensation for the damaged parts only. • Here, any form of negligence is enough to hold the negligent party liable for damages because the consequences were reasonably foreseeable and known as a possibility to both parties at time of contracting.

7. Cases for Consideration • Globe Refining Co. v. Landa Cotton Oil Co., 1903 • Globe pays consideration in advance for crude oil to be delivered by Landa. Landa refuses the sale. Globe sues for consequential and general damages in the form of the original consideration, lost profits, and reputation. • Judge rule remained in favor of Globe, but only for lost consideration of transportation costs. • Since this contract must be written, as dictated by the statute of frauds, all consequences must be reasonably relayed and accepted by all parties in order to claim damages after breach. • Consequential damages were awarded, because consideration was paid for the promise of Landa shipping the crude oil and Landa breached contract by failing to do so.

8. For Clients • Most clients, or potential clients, will be interested in the process of filing a suit against the defendant(s), and how they could procure monetary compensation as an injured party. • In this case, you should simplistically explain key terms that will define the process to instill comfortability in the client, and confidence in their choice in you to represent their loss.

9. For Clients • Explain the following to help your client assess their situation and what their options are for filing: • Legal definition of a contract; difference between written and oral contracts • Causation • How consideration will be factored into the judge’s rule • Differences in compensatory damages: general and consequential • For consequential damages include both types (rationally foreseeable to naturally arise and knowledge by all parties at time of contracting) • Damages your client is able to claim through their specific circumstance

10. For Clients • Some may choose to utilize an example. Here’s a quick one that, with little explanation, should make the concepts comprehensible for clients. • Susan, the owner of a bakery, hires Joe to pick up and deliver an industrial mixer to a mechanic, and promptly return by an agreed upon time. Both parties are aware that Susan’s bakery cannot operate without this mixer. Joe fails to return the mixer until 5 days after the agreed upon time. Susan now holds a legal right to file suit against Joe. She would be entitled to compensation for loss of profits and wages because these losses were rationally foreseeable by both parties at time of contracting.

11. Citations for Cases • Hadley v. Baxendale • (1854) 9 Ex Ch 341; 156 ER 145 • Polemis v. Furness • (1921) 3 KB 560 • Globe v. Landa • 190 U.S. 540; 23 S.Ct. 754; 47 L.Ed. 1171