Hector Martinez and Co. v. Southern Pacific Transportation Co. (a.k.a., where's that darn dragline)

Hector Martinez and Co. v. Southern Pacific Transportation Co.
United States Court of Appeals, Fifth Circuit,
606 F.2d 106 (1979)

Justice Vance delivered opinion

Facts:

• District ct granted Southern Pacific's motion for dismissal under Rule 12(b)(6) for delay damages
  
• held that such damages are special and that Martinez failed to allege carrier had any notice of the possibility of such damages should there be a breach of the contract
  
• Martinez appeals trial court's dismissal of his claim for losses resulting from delay and damage in transportation by carrier (def.)
• Feb. 11,1974, Martinez's agent delivered 2400 Lima Dragline Model 66 to Penn Central RR for shipment from New Philadelphia, Ohio to Eagle Pass, TX
• Dragline loaded onto 5 RR cars and single uniform bill of lading, describing dragline as "used strip mining machinery and parts" was issued by Penn Central, listing Martinez's agent in Eagle Pass as consignee
• Dragline delivered in Eagle Pass on 4/2/74; Martinez pays $14,467 to make "reasonable repairs" because dragline was damaged in transit (not completed until June 1974)
• Martinez alleges delay damages in amount of $117,600 bec. dragline out of service from March 1 to June 20 (when cars should have arrived to when repairs were finished); sum includes dragline's fair rental value during this period
• Martinez filed claim per the bill of lading and then sues Southern Pacific for damages
  
• sought recovery for cost of repairs
• refund of certain demurrage or storage charges assessed by S.P. and paid at the time of delivery
• sought compensation for wrongful deprivation of the dragline's use during periods of delay in transit and repairs

• Martinez and S.P.RR settled first two when S.P.RR filed motion to dismiss on third claim
• S.P.RR files Rule 12(b)(6) motion to dismiss the third claim for loss of use, arguing bec. damages are special, they are not recoverable absent notice of the possibility of such damages
• Trial ct denies motion on condition Martinez amend complaint, Martinez doesn't amend complaint, district ct grants S.P.'s motion to dismiss
  

Issue:
Can the plain. recover delay damages for the dragline's fair rental value (i.e., for loss of use)?

Holding: Yes, special notice is only required when it is not obvious the delayed item has value

Reasoning:

• Two types of delay loss, delay in transit and delay that resulted from damage during transit (while dragline was being repaired)
• When Martinez settled his claim for damage to the dragline, he also settled part of the third claim that had to do with the duration of time the dragline was being repaired
  

Court says:

• Common law seeks to protect def. from unforeseeable large losses to plain., which could be "paralyzing to commerce"
  
• Looks to Hadley v. Baxendale to assess the reasonable foreseeability of the plain.'s injury when the contract was entered into
  
• general damages are awarded only if injury were foreseeable to a reasonable man and that special damages were awarded only if actual notice were given the carrier of the possibility of injury
  
• in Hadley, wasn't obvious that part was instrumental in having an operable machine; in this case, the entire machine is out of commission
• the machine has "use value"
  
• use value may equal the rental value of the equipment or may be an interest value (usually interest at the market rate on the value of the machine)
• Martinez is entitled to present claim to a jury
• general rule doesn't require plain. to show the harm suffered was the MOST foreseeable of possible harms

Judgment: Reversed, and remanded for trial on claim for damages resulting from delay in shipment; Ct affirms district ct's decision to dismiss claim for damages resulting from the delay during repair

RESTATEMENT (SECOND) OF CONTRACTS
§UNFORESEEABILITY AND RELATED LIMITATIONS ON DAMAGES

(1) Damages are not recoverable for loss that the party in breach did not have reason to foresee has a probably result of the breach when the contract was made.
(2) Loss may be foreseeable as a probable result of a breach because it follows from the breach
(a)in the ordinary course of events, or
(b) as a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know
(3) A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in circumstances justice so requires in order to avoid disproportionate compensation.