Rardin v. T & D Mach. Handling, Inc.

• Decision Date: 21 November 1989
• Docket Number: No. 89-1271,89-1271
• Citation: 890 F.2d 24
• Parties: Jack RARDIN, doing business as Rardin Graphics, Plaintiff-Appellant, v. T & D MACHINE HANDLING, INC., Defendant-Appellee, and Whitacre Sunbelt, Inc., et al., Defendants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 24

890 F.2d 24

Jack RARDIN, doing business as Rardin Graphics, Plaintiff-Appellant, v. T & D MACHINE HANDLING, INC., Defendant-Appellee and Whitacre Sunbelt, Inc., et al., Defendants.

No. 89-1271.

United States Court of Appeals Seventh Circuit.

Argued Sept. 14, 1989.

Decided Nov. 21, 1989.

Vincenzo Chimera, Chicago, Ill., for plaintiff-appellant.

Thomas H. Fegan, William V. Johnson, Johnson, Cusack & Bell, Chicago, Ill., for defendant-appellee.

Before POSNER, COFFEY, and KANNE, Circuit Judges.

POSNER, Circuit Judge.

Jack Rardin, the plaintiff, bought for use in his printing business a used printing press from Whitacre-Sunbelt, Inc. for $47,700. The price included an allowance of $1,200 to cover the cost of dismantling the press for shipment and loading it on a truck at Whitacre's premises in Georgia for transportation to Rardin in Illinois. The contract of sale provided that the press was to be "Sold As Is, Where Is," that payment was to be made before the removal of the press from Whitacre's premises, and that Whitacre was to be responsible only for such damage to the press as might be "incurred by reason of the fault or negligence of [Whitacre's] employees, agents, contractors or representatives." To dismantle and load the press, Whitacre hired T & D Machine Handling, Inc., which performed these tasks carelessly; as a result the press was damaged. Not only did Rardin incur costs to repair the press; he also lost profits in his printing business during the time it took to put the press into operating order. He brought this suit against Whitacre, T & D, and others; settled with Whitacre; dismissed all the other defendants except T & D; and now appeals from the dismissal of his case against T & D for failure to state a claim. (The facts we recited are all taken from the complaint.) The only issue is whether Rardin stated a claim against T & D under Illinois law, which the parties agree controls this diversity suit.

The contract indemnified Rardin against physical damage to the press caused by the negligence of Whitacre's contractor, T & D, and the settlement with Whitacre extinguished Rardin's claim for the cost of repairing the damage. The damages that Rardin seeks from T & D are the profits that he lost as a result of the delay in putting the press into operation in his business, a delay caused by T & D's negligence in damaging the press. Rardin could not have sought these damages from Whitacre under the warranty, because consequential damages (of which a loss of profits that is due to delay is the classic example) are not recoverable in a breach of contract suit, with exceptions not applicable here. Rardin had no contract with T & D, and his claim against T & D is a tort claim; consequential damages are the norm in tort law.

We agree with the district judge that Illinois law does not provide a tort remedy in a case such as this. We may put a simpler version of the case, as follows: A takes his watch to a retail store, B, for repair. B sends it out to a watchmaker, C. Through negligence, C damages the watch, and when it is returned to A via B it does not tell time accurately. As a result, A misses an important meeting with his creditors. They petition him into bankruptcy. He loses everything. Can he obtain damages from C, the watchmaker, for the consequences of C's negligence? There is no issue of causation in our hypothetical case; there is none in Rardin's. We may assume that but for C's negligence A would have made the meeting and averted the bankruptcy, just as but for T & D's negligence the press would have arrived in working condition. The issue is not causation; it is duty.

The basic reason why no court (we believe) would impose liability on C in a suit by A is that C could not estimate the consequences of his carelessness, ignorant as he was of the circumstances of A, who is B's customer. In principle, it is true, merely to conclude that C was negligent is to affirm that the costs of care to him were less than the costs of his carelessness to all who might be hurt by it; that, essentially, is what negligence means, in Illinois as elsewhere. See McCarty v. Pheasant Run, Inc., 826 F.2d 1554, 1556-57 (7th Cir.1987). So in a perfect world of rational actors and complete information, and with damages set equal to the plaintiff's injury, there would be no negligence: the costs of negligence would be greater to the defendant than the costs of care and therefore it would never pay to be negligent. And if there were no negligence, the scope of liability for negligence would have no practical significance. But all this is a matter of abstract principle, and it is not realistic to assume that every responsible citizen can and will avoid ever being negligent. In fact, all that taking care does is make it less likely that one will commit a careless act. In deciding how much effort to expend on being careful--and therefore how far to reduce the probability of a careless accident--the potential injurer must have at least a rough idea of the extent of liability. C in our example could not form such an idea. He does not know the circumstances of the myriad owners of watches sent him to repair. He cannot know what costs he will impose if through momentary inattention he negligently damages one of the watches in his charge.

Two further points argue against liability. The first is that A could by his contract with B have protected himself against the consequences of C's negligence. He could have insisted that B guarantee him against all untoward consequences, however remote or difficult to foresee, of a failure to redeliver the watch in working order. The fact that B would in all likelihood refuse to give such a guaranty for a consideration acceptable to A is evidence that liability for all the consequences of every negligent act is not in fact optimal. Second, A could have protected himself not through guarantees but simply by reducing his dependence on his watch. Knowing how important the meeting was he could have left himself a margin for error or consulted another timepiece. Why impose liability for a harm that the victim could easily have prevented himself?

The present case is essentially the same as our hypothetical example. T & D is in the business of dismantling and loading printing presses. It is not privy to the circumstances of the owners of those presses. It did not deal directly with the owner, that is, with Rardin. It knew nothing about his business and could not without an inquiry that Rardin would have considered intrusive (indeed bizarre) have determined the financial consequences to Rardin if the press arrived in damaged condition.

The spirit of Hadley v. Baxendale, 9 Ex. 341, 156 Eng.Rep. 145 (1854), still the leading case on the nonrecoverability of consequential damages in breach of contract suits, broods over this case although not cited by either party or by the district court and although the present case is a tort case rather than a contract case. The plaintiffs in Hadley v. Baxendale owned a mill, and the defendants were in business as a common carrier. The defendants agreed to carry the plaintiffs' broken mill shaft to its original manufacturer, who was to make a new shaft using the broken one as a model. The defendants failed to deliver the broken shaft within the time required by the contract. Meanwhile, the plaintiffs, having no spare shaft, had been forced to shut down the mill. The plaintiffs sued the defendants for the profits lost during the additional period the mill remained closed as a result of the defendants' delay in delivering the shaft to the manufacturer. The plaintiffs lost the case. The defendants were not privy to the mill's finances and hence could not form an accurate estimate of how costly delay would be and therefore how much care to take to prevent it. The plaintiffs, however, as the court noted, could have protected themselves from the consequences of a delay by keeping a spare shaft on hand. See 9 Ex. at 355-56, 156 Eng.Rep. at 151. Indeed, simple prudence dictated such a precaution, both because a replacement shaft could not be obtained immediately in any event (it had to be manufactured), and because conditions beyond the defendants' control could easily cause delay in the delivery of a broken shaft to the manufacturer should the shaft ever break. See also EVRA Corp. v. Swiss Bank Corp., 673 F.2d 951, 957 (7th Cir.1982); Afram Export Corp. v. Metallurgiki Halyps, S.A., 772 F.2d 1358, 1368-69 (7th Cir.1985). Rardin, too, could have taken measures to protect himself against the financial consequences of unexpected delay. He could have arranged in advance to contract out some of his printing work, he could have bought business insurance, or he could have negotiated for a liquidated-damages clause in his contract with Whitacre that would have compensated him for delay in putting the press into working condition after it arrived.

As we noted in EVRA Corp. v. Swiss Bank Corp., supra, 673 F.2d at 956, Illinois follows Hadley v. Baxendale. So if this were a contract case, Rardin would lose--and this regardless of whether the breach of contract were involuntary or, as he alleges, due to the promisor's negligence. See 673 F.2d at 957; Siegel v. Western Union Tel. Co., 312 Ill.App. 86, 37 N.E.2d 868 (1941). It is a tort case, but so was EVRA, where, applying Illinois law, we concluded that the plaintiff could not recover consequential damages. The plaintiff had instructed its bank to deposit a payment in the bank account of a firm with which the plaintiff had a contract. The bank telexed its correspondent bank in Geneva--which happened to be Swiss Bank Corporation--to make the transaction. As a result of negligence by Swiss Bank, the transaction was not completed, whereupon the plaintiff lost its contract because the other party to it declared a default. The plaintiff sued Swiss Bank for the lost contract profits, and lost. We held that the...