| For the sale of goods, the Uniform Commercial | | | | contract and later tell the seller "You gotta get |
| Code defines consequential damages as follows: | | | | me the grinding machine by June 8th or I'll have |
| "Consequential damages resulting from the seller's | | | | to close down my factory", you won't be entitled |
| breach include | | | | to consequential damages if he doesn't (note that |
| (a) any loss resulting from general or particular | | | | you may well be entitled to expectation damages |
| requirements and needs of which the seller at the | | | | if he breaches the contract, but they're likely to |
| time of contracting had reason to know and | | | | be a lot less than consequential damages would |
| which could not reasonably be prevented by | | | | be). |
| cover or otherwise; and | | | | (iii) The loss must not have been reasonably |
| (b) injury to person or property proximately | | | | avoidable - if the seller told you he couldn't get |
| resulting from any breach of warranty." | | | | the grinding machine to you on time, and you |
| Keep in mind that paying consequential damages | | | | could have bought another, somewhat more |
| (for example, paying your losses for closing your | | | | expensive one by June 8 but failed to do so, the |
| factory for a month because the seller was late | | | | seller won't be responsible for your closure of |
| delivering critical machinery) might very well put | | | | your factory because you failed to mitigate your |
| the seller out of business. That's why courts are | | | | damages - in other words, you didn't do |
| very careful about awarding consequential | | | | everything you could to minimize your losses. The |
| damages because if they weren't, people would | | | | seller may very well be responsible for the extra |
| be very hesitant to enter into contracts with each | | | | money you paid for the more expensive grinding |
| other because of the huge liability involved. | | | | machine. |
| There are inherent limitations on consequential | | | | A later article will discuss clause (b) of the Uniform |
| damages: | | | | Commercial Code section cited above. |
| (i) The seller must have had reason to know of | | | | As a practical matter, though, when writing a |
| the "requirements and needs" - for example, that | | | | sales contract it is always a good idea for a seller |
| you need a grinding machine by June 8th or you'll | | | | to add a disclaimer (in all caps) stating that he is |
| have to close down your factory. He doesn't | | | | not responsible for any consequential damages. |
| have to actually know, but only have reason to | | | | Courts will honor these clauses in most cases. |
| know. | | | | DISCLAIMER: The foregoing is intended for |
| (ii) The seller must have had reason to know at | | | | reference only and not as legal advice. |
| the time of contracting - so if you make a | | | | |