No. The electric company doesn't have to pay for the burned-down building. The court said it wasn't fair to blame the company for such an unexpected and indirect result. When the company agreed to provide electricity, it couldn't have predicted that turning off the power would lead to a fire destroying the whole facility. The company didn't know the farm had no backup water or that it was at high risk for a fire. That chain of events was too much of a freak accident to be considered a likely result of cutting the power.

No, CNMEC does not owe Sunnyland for all the fire losses just because it broke the electricity contract. When CNMEC signed the contract, it didn't know that cutting off power would likely lead to Sunnyland being unable to stop a fire. The contract only makes CNMEC responsible for predictable losses, not every possible loss. CNMEC does have to pay some money it cost Sunnyland in expected tomato profits, but not extra punishment money, because CNMEC wasn't intentionally doing anything wrong. It also can't pay less money just because Sunnyland had insurance.

No. The utility company is not liable for consequential damages because the total destruction of the facility by fire was not an objectively foreseeable result of the breach at the time of contracting. In New Mexico, liability for consequential damages for breach of contract is governed by the foreseeability test articulated in Hadley v. Baxendale and the Restatement (Second) of Contracts § 351, which replaces the state's previous, stricter 'tacit agreement' test. Under this standard, a breaching party is liable for damages that were foreseeable as a probable, not merely possible, result of the breach. For damages arising from special circumstances, the breaching party must have had reason to know of those circumstances at the time of contracting. Here, while CNMEC knew Sunnyland was a business dependent on electricity, there were no findings that CNMEC had reason to know Sunnyland lacked a backup power or water source for firefighting or had a particular vulnerability to fire. The chain of events—from power disconnection to lack of water to an inability to fight a negligently started fire—was too attenuated to be considered a probable result of the breach. Therefore, the award of consequential damages in contract was improper.

No, the defendant is not liable for consequential damages in contract because there were no special circumstances that were objectively foreseeable as a probable result of the breach when the contract was made. The proper test is the Hadley v. Baxendale standard, which requires more than mere knowledge that the plaintiff is a business that will suffer some harm from a breach. There must be reason to foresee the specific damages that occurred as a probable result. Here, CNMEC had no reason to know that shutting off electricity would probably lead to a fire that Sunnyland could not contain due to lack of water. The lost profit damages in tort were supported by substantial evidence in the expert testimony. The punitive damages award was not supported by substantial evidence of the requisite culpable mental state by CNMEC. Equitable principles do not allow CNMEC to offset the damages by acquiring Sunnyland's insurer's subrogation lien. The Court of Appeals is affirmed on the contract and punitive damages issues, reversed on the lost profits issue, and the case is remanded.

Sunnyland Farms, Inc. v. Central New Mexico Electrical Cooperative, Inc.

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