Halliburton Co. v. Eastern Cement Corp.
672 So. 2d 844, 1996 WL 93682 (1996)
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Rule of Law:
Under the Uniform Commercial Code, a buyer cannot recover consequential damages for lost profits from a prospective new business venture if the claim is based on speculative, collateral, and future events. The causal link between the defendant's breach of contract for a single item and the failure of a larger, un-commenced business dependent on future purchases is too remote to be legally cognizable.
Facts:
- Halliburton Company sold a single pneumatic cement pumping system to Eastern Cement Corporation.
- The system sold by Halliburton did not perform as warranted and was defective.
- Eastern Cement claimed that if the single system had worked properly, it would have purchased four additional systems from Halliburton.
- Eastern Cement intended to use the five total systems to enter into a new, unestablished containerized cargo business.
- Eastern Cement had no prior experience in the containerized cargo business.
- The plan for the new venture was not formalized with specific budgets, site plans, a new legal entity, or any other concrete preparations.
- There was no proposed contract or even a discussion of terms for the purchase of the four additional systems.
Procedural Posture:
- In a prior proceeding, the trial court entered a directed verdict in favor of Halliburton (seller).
- Eastern Cement (buyer) appealed, and the District Court of Appeal reversed the directed verdict, remanding the case for a new trial on the grounds that statutory warranties were implied in the contract.
- On remand, a jury found in favor of Eastern Cement and awarded damages, including millions in lost profits from the prospective containerized cargo business.
- Halliburton, as appellant, appealed the jury's damage award to the District Court of Appeal.
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Issue:
Are lost profits from a new, hypothetical business venture, which the buyer claims it would have started if the seller's product had not been defective, recoverable as consequential damages for breach of warranty?
Opinions:
Majority - Farmer, J.
No. Lost profits from a new, hypothetical business venture are not recoverable as consequential damages when the causal connection is too remote and speculative. The court distinguished between proving the amount of lost profits for a new business, which is permissible with a proper 'yardstick,' and proving legal causation. Here, the causation fails because the claim for lost profits is not based on the single defective system but on a hypothetical future business involving four additional systems that were never contracted for. This new business was collateral to the contract at issue, and the buyer's plans were merely aspirational, constituting 'a hope of commercial fortune hanging from a thin thread of `what-ifs`.' Such damages are too remote to satisfy the UCC's requirement that consequential damages result from needs 'of which the seller at the time of contracting had reason to know.'
Analysis:
This decision places a significant limitation on the recovery of lost profits for new businesses, clarifying the principle established in cases like W.W. Gay. While a new business is not categorically barred from recovering lost profits, this case emphasizes that legal causation must be established before the court even considers the amount of damages. The court's use of the 'for-want-of-a-nail' analogy creates a strong precedent for rejecting damages that rely on a long and speculative chain of contingent events. It protects sellers from liability for vast, unforeseen consequences that are collateral to the actual contract, thereby reinforcing the principle of foreseeability in contract damages.
