Also known as: foreseeability doctrine · foreseeability
Written by attorneys — see sources below.
A limitation on compensatory damages in contract and tort that shields a wrongdoer from liability for losses that were not reasonably foreseeable at the time of the wrongful act or breach. The doctrine operates as a fairness principle by holding parties accountable only for risks they had reason to anticipate when acting or contracting. It applies to both ordinary and special circumstances known to the defendant.
Doris Duffy purchased a vehicle from a dealership in State X operated by Drake Logistics. The dealership had no offices, advertising, or sales efforts in State Y. Doris drove the vehicle to State Y for a family visit, where it malfunctioned and injured her. When she sued Drake Logistics in State Y, the court declined jurisdiction because the company's only link was the possibility that a buyer might transport the product there.
Eastern Air Lines contracted with Gulf Oil for jet fuel at a fixed price tied to posted domestic oil rates. Gulf later faced sharply higher costs due to imported oil price spikes and regulatory changes. Eastern sued for breach when Gulf sought to escape the deal. The court held Gulf to the contract after determining that the cost increases were within the risks the parties had allocated at formation.
Eastern Air Lines, Inc. and Gulf Oil Corporation maintained a business relationship spanning several decades involving the sale and purchase of aviation fuel. On June 27, 1972, following months of arm's length negotiation, the parties executed a contract under which Gulf agreed to supply Eastern's requirements of jet fuel at specified cities in the Eastern system through January 31, 1977. The agreement was Gulf's standard form aviation fuel contract and incorporated a price escalation clause tied to the average of the posted prices for West Texas sour crude oil 30.0-30.9 gravity as listed for Gulf, Shell, and Pan American in Platt's Oilgram Crude Oil Supplement. The contract price mechanism operated against the backdrop of U.S. government price controls in effect from 1972 through the fall of 1973. In late 1973 the Arab oil embargo occurred. OPEC unilaterally increased the price of their crude to the world market some 400% between September, 1973, and January 15, 1974. This triggered implementation of two-tier price controls under which old oil remained frozen at controlled levels while new and released oil prices rose from approximately $5 to $11 per barrel. Platt's continued publishing only the controlled old oil postings for West Texas Sour, and Eastern paid contract prices that rose from 11 cents to 15 cents per gallon. On March 8, 1974, Gulf demanded that Eastern accept a price increase or face cutoff of jet fuel supplies within fifteen days. Eastern filed its complaint in the United States District Court for the Southern District of Florida alleging breach and seeking preliminary and permanent mandatory injunctions. By agreement of the parties a preliminary injunction preserving the status quo was entered on March 20, 1974, requiring Gulf to continue performance and Eastern to pay according to contract terms pending final disposition. Gulf answered and asserted that the contract lacked mutuality, was not a binding requirements contract, and was commercially impracticable. At trial the parties presented evidence concerning Eastern's fuel liftings at Gulf stations, which varied daily, weekly, and monthly due to weather, schedules, aircraft loads, and fuel freighting practices that Gulf had accepted without objection over thirty years of dealing. Gulf introduced evidence of its increased crude oil costs, including intra-company transfer prices that incorporated profits from its overseas and domestic production subsidiaries, while the record showed Gulf recorded net profits after taxes of approximately $800 million in 1973 and more than $1.065 billion in 1974.
View caseConsolidated Rail operated tracks near People Express Airlines' terminal. A derailment released chemicals that forced the airline to shut down operations for several days. People Express sued for lost profits. The court allowed recovery only for those business losses that Consolidated Rail could reasonably have anticipated from a spill at that location.
On July 22, 1981, a fire began in the Port Newark freight yard of defendant Consolidated Rail Corporation when ethylene oxide manufactured by defendant BASF Wyandotte Company escaped from a tank car owned by defendant Union Tank Car Company and leased to BASF. The tank car was punctured during a coupling operation with another rail car and ignited. The municipal authorities evacuated the area within a one-mile radius surrounding the fire, which included the North Terminal building of Newark International Airport where plaintiff People Express Airlines’ business operations are based. People Express employees were prohibited from using the North Terminal for twelve hours, although the feared explosion never occurred. The plaintiff contends that it suffered business-interruption losses as a result of the evacuation. These losses consisted of cancelled scheduled flights and lost reservations because employees were unable to answer the telephones to accept bookings. Fixed operating expenses allocable to the evacuation period were incurred and paid despite the offices being closed. No physical damage to airline property and no personal injury occurred. According to the original complaint, each defendant acted negligently and these acts proximately caused the plaintiff’s harm. An amended complaint alleged additional counts of nuisance and strict liability. Conrail moved for summary judgment. The trial court granted the motion on the ground that absent property damage or personal injury economic loss was not recoverable in tort. The trial court also granted summary judgment motions by BASF and Union Car on the same reasoning. The Appellate Division reversed the trial court’s order granting summary judgment and remanded the cause to the trial court. This Court granted defendant Union Car’s petition for certification, in which Conrail and BASF joined. Plaintiff asserted at oral argument that at least some of the defendants were aware from prior experiences that ethylene oxide is a highly volatile substance. Further, emergency response plans in case of an accident had been prepared. When the fire occurred that gave rise to this lawsuit, some of the defendants’ consultants helped determine how much of the surrounding area to evacuate.
View caseSpur Industries operated a cattle feedlot in an undeveloped area. Del E. Webb later developed a retirement community nearby and sued to enjoin the feedlot as a nuisance. The court ordered Spur to relocate but required Webb to pay relocation costs because the feedlot's presence had been lawful when established and the harm became foreseeable only after the community was built.
In 1956, Spur’s predecessors in interest developed feedlots about ½ mile south of Olive Avenue in an area between the confluence of the usually dry Agua Fria and New Rivers, some 14 to 15 miles west of the urban area of Phoenix. By April and May of 1959, the Northside Hay Mill was feeding between 6,000 and 7,000 head of cattle and Welborn approximately 1,500 head on a combined area of 35 acres. In 1960, Spur purchased the property and expanded the feedlot operation from approximately thirty-five acres to one hundred fourteen acres by 1962, eventually maintaining between twenty thousand and thirty thousand head of cattle at the time of trial. Del E. Webb Development Co. began planning Sun City, a retirement community, in May 1959 after purchasing twenty thousand acres of farmland for fifteen million dollars. Construction of a golf course started that September. Homes were first offered in January 1960. The first residents moved in during 1960. By the time of trial, Sun City had a population of approximately fourteen thousand people, and the development had extended south to within five hundred feet of Spur's feedlot north of Olive Avenue. Residents of Sun City began complaining about odors and flies from the feedlot, which produced over a million pounds of wet manure per day, and Webb encountered sales resistance starting around 1963 in the southwestern portion of the development. Webb attempted to buy the feedlot from Spur but the parties could not agree on a price. Webb then filed suit alleging that the feedlot was a public nuisance because flies and odors drifted over the southern portion of Sun City, rendering in excess of one thousand three hundred lots unfit for residential development. The trial court, after proceedings that included an advisory jury later discharged and special actions in the Arizona Supreme Court, found the feedlot to be a nuisance, permanently enjoined its operation, and awarded damages to Webb. Spur appealed from the injunction and the damages award, while Webb cross-appealed from the trial court's refusal to award attorneys' fees. During the appeal process, Spur agreed to and did shut down its operation without prejudice to the final determination.
View casePaynesville Farmers Union Cooperative sprayed pesticides on neighboring fields. Wind carried the chemicals onto Johnson family farmland, damaging organic crops and requiring certification testing. The Johnsons sued for trespass and nuisance. The court limited recovery to harms that the cooperative could reasonably have foreseen from aerial application near certified organic operations.
Oluf and Debra Johnson are organic farmers in central Minnesota whose fields are certified under the National Organic Program. Paynesville Farmers Union Cooperative Oil Company is a member-owned provider that applies pesticides to conventional farm fields adjacent to the Johnsons' property. In June 2007 the Johnsons filed a complaint with the Minnesota Department of Agriculture alleging pesticide drift onto one of their transitional soybean fields. On June 15, 2007, winds of 9 to 21 miles per hour carried Status (diflufenzopyr and dicamba) and Roundup Original (glyphosate) from the Cooperative's spraying of a neighboring conventional field onto the Johnsons' soybeans. MDA testing detected dicamba below detection levels but no diflufenzopyr or glyphosate. The MDA nevertheless directed the Johnsons to plow down approximately 10 acres of the crop because of visual damage and the presence of dicamba. The Johnsons also notified their certifying agent, the Organic Crop Improvement Association. An August 27, 2007 OCIA letter stated that chemical drift may have occurred and that, if contamination were confirmed, the field would have to return to the beginning of the 36-month transition period. The Johnsons therefore restarted the three-year transition for that soybean field. In July 2008 the Johnsons reported a second incident in which Roundup Power Max and Select Max (glyphosate and clethodim) drifted onto a transitional alfalfa field. MDA testing found minimal glyphosate. On August 1, 2008, they reported a third incident involving Lorsban Advanced (chlorpyrifos) on the same alfalfa field. Testing again showed minimal residue. The MDA concluded that drift from the Cooperative's applications caused both positive results. The Johnsons took the alfalfa field out of organic production for an additional three years. The Johnsons sued the Cooperative for trespass, nuisance, negligence per se, and battery, claiming economic losses from the three-year transition periods, destruction of the soybean crop, increased weeding and reporting burdens, and adverse health effects to Oluf Johnson. They also sought a permanent injunction barring spraying within a half mile of their fields. The district court granted summary judgment to the Cooperative on all claims and denied the Johnsons' motion to amend the complaint to add the 2008 incidents. The court of appeals reversed in part. The Minnesota Supreme Court granted the Cooperative's petition for review.
View caseShareholders of Parklane Hosiery sued the company and its officers for misleading proxy statements. A prior SEC action had already established the falsity of the statements. The court permitted the shareholders to use offensive collateral estoppel on the falsity issue but only after confirming that the defendants had foreseen the possibility of private follow-on litigation when they litigated the SEC case.
Parklane Hosiery Company, Inc., and eleven of its officers and directors issued a proxy statement in connection with a merger between Parklane and another corporation. Leo Shore, a stockholder of Parklane, filed a class action on behalf of stockholders in the United States District Court for the Eastern District of New York against Parklane and the individual defendants. The complaint alleged that the proxy statement was false and misleading in violation of sections 14(a), 10(b), and 20(a) of the Securities Exchange Act of 1934 and related SEC rules. The complaint sought damages for the class, rescission of the merger, and recovery of costs. Before Shore’s action came to trial, the Securities and Exchange Commission filed a separate suit against the same defendants in the United States District Court for the Southern District of New York. The SEC complaint alleged that the proxy statement that had been issued by Parklane was materially false and misleading in essentially the same respects as those that had been alleged in the respondent's complaint. After a four-day trial, the District Court found that the proxy statement was materially false and misleading in the respects alleged, and entered a declaratory judgment to that effect. The court permanently enjoined the defendants from further violations of the securities laws and ordered them to offer rescission to shareholders who had tendered shares. The defendants did not appeal this judgment. Shore then moved for partial summary judgment in the Eastern District of New York action, asserting that the defendants were collaterally estopped from relitigating the issues resolved against them in the SEC action. The District Court denied the motion on the ground that application of collateral estoppel would deny the defendants their Seventh Amendment right to a jury trial. The Court of Appeals for the Second Circuit reversed, holding that a party who has had issues of fact determined against him after a full and fair opportunity to litigate in a nonjury trial is collaterally estopped from obtaining a subsequent jury trial of these same issues of fact. Because of an intercircuit conflict with the Fifth Circuit’s decision in Rachal v. Hill, the Supreme Court granted certiorari.
View caseForeseeability asks whether the breaching party had reason to know the loss would probably result at the time of contracting. Certainty concerns whether the amount of that loss can be established with enough evidence to avoid speculation. A loss may be foreseeable yet still unrecoverable if its amount cannot be proved with reasonable certainty.
Yes. When a buyer explains during contract talks that timely performance is needed to secure a particular opportunity, the seller has reason to know that loss of that opportunity is a probable result of breach. The disclosure need not quantify the exact amount of potential loss.
The doctrine limits compensatory damages in both contract and tort. In tort it prevents liability for harms too remote from the defendant's conduct. In contract it prevents recovery for losses the breaching party did not have reason to anticipate when the contract was made.
…in this case. First, in light of the serious allegations made in the SEC's complaint against the petitioners, as well as the foreseeability of subsequent private suits that typically follow a successful Government judgment, the petitioners had every incentive to litigate the SEC lawsuit fully and vigorously. Second,…