Also known as: Restatement (Second) of Contracts §351 · §351 · foreseeability · unforeseeable damages
Written by attorneys · grounded in primary & secondary sources — see below
A rule providing that contract damages are recoverable only if the loss was foreseeable to the breaching party at the time of contracting. Foreseeability exists when the loss arises naturally in the ordinary course of events or when the breaching party had reason to know of special circumstances that would make the loss a probable result of breach.
Riverfront Developments contracted with Regina Robinson to supply custom windows for a project in State A. During negotiations Robinson disclosed that late delivery would cause her to lose a major client contract in State B. When Riverfront delivered late Robinson lost the client contract. The disclosure during contracting made the loss foreseeable under the rule so Robinson recovers the consequential damages.
Rajesh Rao purchased turbines from Riverstone Manufacturing for use in chartered vessels. The turbines failed causing Rao to lose charter income. Rao had informed Riverstone at contracting that the turbines were for charter service. The special circumstances were known so the lost charter profits were foreseeable and recoverable.
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Ravi Reddy contracted with Rising Sun Electronics to ship goods via a specific route. When the route closed Reddy incurred extra shipping costs. Reddy had not informed the seller of any special need for the original route. The extra costs were not foreseeable in the ordinary course so they are not recoverable.
Renata Russo hired Ronald Reed to draft a will leaving property to Rowan Russell. Reed negligently omitted required formalities. The will failed and Russell lost the inheritance. Reed knew Russell was the intended beneficiary at the time of contracting. The loss was therefore foreseeable and Russell recovers damages.
Royal Crest Hotels contracted with Eastern Air Lines, Inc. for jet fuel at a fixed price. When prices rose dramatically Eastern refused to perform. Royal Crest had disclosed its need for stable pricing to fulfill airline contracts. The loss of those contracts was foreseeable so Royal Crest recovers consequential damages.
Aluminum Company of America contracted with Essex Group, Inc. to supply aluminum at a price tied to a trade journal index. New regulations altered the index and raised costs. Essex had no reason to know of the regulatory change at contracting. The increased costs were not foreseeable so Essex cannot recover them as damages.
A loss arises in the ordinary course when it is a natural and probable consequence of the breach that a reasonable person in the breaching party's position would expect. Holiday shipping contracts lost because of late delivery of refrigerated trailers fall within this category because spoilage and termination are predictable results.
Yes. Information given during negotiations counts as knowledge at the time of contracting. When a buyer explains that trailers are needed to secure a specific national contract the seller has reason to know the loss of that contract is a probable result of late or defective performance.
Even when a loss is foreseeable the injured party must still prove the amount of damages with reasonable certainty. Projected profits from a new national venture may be foreseeable yet unrecoverable if the plaintiff lacks an established track record and relies only on competitor data.
…result of the breach. In a warranty action where the loss is purely economic, the limitation derives from the requirements of foreseeability and of privity, which is still generally enforced for such claims in a commercial setting. In products-liability law, where there is a duty to the public generally, foreseeability is an…