Spang Industries, Inc., Fort Pitt Bridge Division v. The Aetna Casualty and Surety Co.

United States Court of Appeals, Second Circuit
512 F.2d 365 (1975)

ELI5:

Rule of Law:

When a contract provides that the time for performance will be mutually agreed upon at a later date, the foreseeability of consequential damages for a breach of that performance is assessed based on the knowledge the breaching party had at the time the performance date was set, not at the time of the initial contract formation.

Facts:

Torrington Construction Co. (Torrington) was the general contractor for a highway and bridge reconstruction project in northern New York.
In September 1969, Torrington contracted with Spang Industries, Inc., Fort Pitt Bridge Division (Fort Pitt) for the fabrication and erection of structural steel for the bridge, with the contract stating, "Delivery to be mutually agreed upon."
In November 1969, at Fort Pitt's request, the parties mutually agreed on a delivery and erection date of late June 1970.
In January 1970, Fort Pitt informed Torrington that due to internal expansion programs and other delays, it could not meet the June 1970 delivery date.
After Torrington threatened to cancel the contract, Fort Pitt promised in May 1970 that the steel would be shipped in early August 1970.
Fort Pitt failed to meet the revised August date, with the first major steel shipments not arriving until late August and early September 1970.
This delay pushed the project schedule into the autumn, forcing Torrington to pour the bridge's concrete deck on October 28, 1970, in freezing temperatures.
To complete the work in the cold, Torrington had to perform the concrete pour on a crash basis, incurring extra costs for overtime, additional equipment, and measures to protect the concrete from freezing.

Procedural Posture:

Fort Pitt sued Torrington's surety, Aetna Casualty and Surety Co., in the U.S. District Court for the Western District of Pennsylvania to recover the unpaid contract balance.
Torrington sued Fort Pitt in New York Supreme Court, Washington County, for damages caused by the delivery delay.
Fort Pitt removed Torrington's state lawsuit to the U.S. District Court for the Northern District of New York.
Fort Pitt's lawsuit against Aetna was also transferred to the U.S. District Court for the Northern District of New York, where the two cases were consolidated.
In the consolidated action, Fort Pitt filed a counterclaim against Torrington for the unpaid balance of the subcontract.
Following a bench trial, the district court found that Fort Pitt had breached the contract and awarded Torrington $7,653.57 in damages.
The court offset this award against the balance Torrington owed Fort Pitt, resulting in a net judgment for Fort Pitt.
Fort Pitt, as appellant, appealed the district court's award of damages to Torrington to the U.S. Court of Appeals for the Second Circuit.

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Issue:

Are consequential damages resulting from a delayed delivery foreseeable and thus recoverable by a general contractor, when the specific delivery date was mutually agreed upon after the initial contract was formed, and the supplier was an experienced professional aware of the project's location and the general sequence of construction?

Opinions:

Majority - Mulligan, Circuit Judge

Yes, the consequential damages are recoverable because they were foreseeable at the time the delivery date was set. The court applied the rule from Hadley v. Baxendale, which limits damages to those reasonably within the contemplation of the parties at the time of contracting. Fort Pitt argued that foreseeability should be measured from the initial contract in September 1969, when no date was fixed. The court rejected this, holding that when parties leave a material term like the delivery date to be agreed upon later, the knowledge of the consequences of a breach is imputed to the defaulting party as of the time that date is fixed. When the parties agreed to a June 1970 delivery, Fort Pitt, as an experienced bridge fabricator, knew or should have known the construction sequence and the risks of delaying a concrete pour into the cold autumn weather of northern New York. Therefore, the extra costs Torrington incurred to mitigate what could have been catastrophic damages (delaying the project until the next spring) were a foreseeable consequence of Fort Pitt's breach.

Analysis:

This decision refines the application of the classic foreseeability test from Hadley v. Baxendale to contracts with open performance terms. It establishes that the critical moment for assessing foreseeability of damages is not necessarily the initial formation of the contract, but the point at which material terms like a performance date are finalized by the parties. This prevents a party from avoiding liability for consequential damages by claiming ignorance based on the contract's initial, indefinite state. The ruling incentivizes parties to fully consider the implications of performance deadlines when they are set and holds experienced commercial actors to a standard of knowledge consistent with their expertise and the known facts of the project.

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