National Drilling Company ships its only pump to American Hydraulics Corporation, the manufacturer, for repair. National hires Overland Transport, Inc., to take the pump to American Hydraulics and to return it to National as soon as the repair is complete. National is forced to suspend operations without a pump, but Overland does not know this. National expects to be without the pump for five days and to lose profits of $5,000. When the pump is not returned by the end of the fifth day, National rents a pump at a cost of $100 per day. Overland delays five more days before returning the pump. National files a suit against Overland, asking for compensatory, consequential, and punitive damages. Will National recover?

Question

What will be an ideal response?

Answer 1

Yes and no. National will succeed in recovering damages, but not all of the damages that it seeks. Overland's failure to perform promptly is a breach of contract for which National can recover damages. Because of Overland's late delivery of the pump, National is entitled to recover the cost of renting the pump for the five days that Overland delayed. Expenses that are caused directly by a breach of contract¾such as the cost to rent the replacement pump after Overland breached the contract¾are recoverable as compensatory damages. These expenses were foreseeable. Consequential damages¾damages caused by special circumstances beyond the contract¾are recoverable only if the breaching party knew or should have known at the time of contracting of their possibility. In this problem, National's shutdown of its operations is a special circumstance, but Overland did not know of these circumstances so National's consequent loss of profits is not recoverable. Also, National cannot recover punitive damages, which are not usually recoverable in breach of contract suits. Punitive damages are intended to punish wrongdoing. The purpose of damages in a breach of contract suit is to place the nonbreaching party in the position he or she would have occupied if the contract had been performed, not to punish the breaching party.