Certainty, Causation, and Foreseeability Flashcards
What are the limits on money damages?
Rule for uncertainty as a limitation on damages
Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty. While damages must be certain and not speculative, the amount need not be established with total accuracy. Mathematical precision is not required, and courts resolve doubts against the party who breached.
Certainty of lost profits is normally established by looking at past records to predict future earnings. If the enterprise is new or one subject to instability because of market conditions, then establishing certainty is more difficult. Economists, financial analysts, and accountants are often able to build a credible model that reasonably predicts what profits would have been based on surveys, news reports, and market data and by analogizing to similar businesses. If the type of business is well established, then using market data to make projections gains more credibility.
If expectation damages cannot be established with reasonable certainty, a plaintiff usually must resort to reliance damages rather than receiving his expectation. Reliance damages would necessarily exclude lost profits and limit the award to out-of-pocket costs.
Rule for causation as a limitation on damages
In order for damages to be recoverable, the loss must have been proximately caused by the breach. Analyzing causation in contracts is not nearly as well developed or nuanced as it is in torts. Courts acknowledge the need for proximate (or legal) causation, but the analysis is sometimes nothing more than a “but-for” causation test.
More typically, courts wrestle with the causation issue in contracts cases when there are multiple potential causes. If there is more than one potential cause of the damage, courts require the plaintiff to show that the breach was at minimum a substantial factor in causing the damage.
Rule for unforeseeability as a limitation on damages
To be recoverable, the damages must have been foreseeable at contract formation. Foreseeability is present if the loss arises either:
- (a) in the ordinary course of events, or
- (b) as a result of special circumstances that the party in breach had reason to know.
Whether a loss arises in the ordinary course of events is judged objectively from the reasonable person standard according to the facts and circumstances.
If the loss occurs because of special circumstances, then the breaching party had to know (or have reason to know) of the potential loss for it to be foreseeable. A primary issue in such cases is whether the breaching party knew (or should have known) of the potential loss at contract formation.
Similar to the certainty requirement, the lack of foreseeability as to a damage may restrict the plaintiff to reliance damages.
