Reed v. Aaacon Auto Transport, Inc.

• Decision Date: 30 April 1981
• Docket Number: Nos. 78-1924,78-1959,s. 78-1924
• Citation: 637 F.2d 1302
• Parties: Thomas K. REED, Jr. Plaintiff-Appellant, Cross-Appellee, v. AAACON AUTO TRANSPORT, INC., a New York corporation, Defendant-Appellee, Cross-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1302

637 F.2d 1302

Thomas K. REED, Jr. Plaintiff-Appellant, Cross-Appellee, v. AAACON AUTO TRANSPORT, INC., a New York corporation Defendant-Appellee, Cross-Appellant.

Nos. 78-1924, 78-1959.

United States Court of Appeals Tenth Circuit.

Argued May 9, 1980.

Decided April 3, 1981.

Rehearing Denied April 30, 1981.

Richard D. Yeomans, Albuquerque, N. M., for Thomas K. Reed, Jr.

Ralph J. Zola, New York City (Richard S. Birnbaum, New York City, of counsel, with him, on brief), for Aaacon Auto Transport, Inc.

Before BARRETT, DOYLE and LOGAN, Circuit Judges.

LOGAN, Circuit Judge.

These appeals arise out of an action brought by Thomas K. Reed, Jr., against Aaacon Auto Transport, Inc., because Aaacon failed to deliver Reed's automobile pursuant to their written contract. Aaacon appeals from an order denying its motion for partial summary judgment by declaration of law, and from those portions of the final judgment awarding Reed actual, consequential, and punitive damages. Reed cross-appeals from that part of the final judgment denying him recovery of attorneys' fees.

In November 1976 Aaacon contracted in writing to transport Reed's 1974 Alfa Romeo automobile from Albuquerque, New Mexico to Terminal Island, California. The delivery was never accomplished. On December 14, 1976, Reed's attorney sent a written claim to Aaacon demanding payment equal to the fair market value of the missing automobile plus expenses incurred by Reed as a result of loss of its use. On February 4, 1977, in response to a letter received from Aaacon's claim department, Reed filed Aaacon's standard claim form in which he reasserted his previous demands.

In April 1977 Reed was informed that his Alfa Romeo had been found on the premises of a sports car dealership in San Antonio, Texas, its body battered, its interior and convertible top torn and tattered, and its engine locked up. At that time, Reed demanded that Aaacon pay for all necessary repairs; but after learning that the car's engine was virtually ruined and complete restoration was impossible, Reed demanded payment equal to the fair market value at the time of tender to Aaacon, less the present salvage value, plus incidental expenses. Although Aaacon never denied liability, it refused to consider Reed's theory of compensation, being willing to pay only for repair of the car by mechanics of its own choosing. After giving Aaacon an opportunity to purchase, Reed sold the car in June 1977 for an amount found to be $50 above its then fair market value. This litigation followed.

Actual Damages

Aaacon argues that the Carmack Amendment to the Interstate Commerce Act, 49 U.S.C. § 20(11), preempts all common law rules applicable to carrier liability and computation of damages. We rejected that argument in Litvak Meat Co. v. Baker, 446 F.2d 329 (10th Cir. 1971), and L. E. Whitlock Truck Service, Inc. v. Regal Drilling Co., 333 F.2d 488 (10th Cir. 1964), holding that common law remedies or rights of action remain available to shippers in the position of Reed.

Aaacon contends that the district court's award of $4450 in actual damages, representing the difference between the fair market value of the automobile at the time of its tender to Aaacon ($6000) and its salvage value ($1550), is not supported by the weight of evidence. Aaacon argues that Reed was obligated to mitigate damages by accepting Aaacon's offer to repair the automobile at its own expense rather than insisting on the diminution in value ultimately awarded by the trial court. As a general rule, when property is damaged in shipment, the formula for determining the amount of damages is the difference between the market value the property would have had if it had been transported safely and the market value of the property in its damaged condition. Gulf, Colo. & S.F. R.R. v. Texas Packing Co., 244 U.S. 31, 37 S.Ct. 487, 61 L.Ed. 970 (1917); Olsen v. Railway Express Agency, 295 F.2d 358, 359 (10th Cir. 1961); Illinois Central R.R. v. Zucchero, 221 F.2d 934, 937 (8th Cir. 1955). The rule that one must mitigate or minimize damages "has no application where the measure of damages is the market value of the property before and after damage." Great Am. Ins. Co. v. Railroad Furniture Salvage, 276 Ala. 394, 162 So.2d 488, 495 (1964); Birmingham Ry., Light & Power v. Long, 5 Ala.App. 510, 59 So. 382 (1912). It applies to the time during which damages are accruing, not to the election of remedies after damages have occurred. See Buhl Highway Dist. v. Allred, 41 Idaho 54, 238 P. 298, 304 (1925). The duty to mitigate damages is a concept of avoidance, not repair. National Steel Corp. v. Great Lakes Towing Co., 574 F.2d 339, 343 (6th Cir. 1978). Reed's only duty as to the car, once it was discovered, was to prevent its further deterioration.

We conclude the district court properly based its award of damages upon the difference between the fair market value of the car at the time of delivery to Aaacon and the value of the car in its damaged condition.

Special and Consequential Damages

Aaacon also contends the district court erred in awarding special damages to compensate Reed for the loss of use of his automobile and consequential damages to reimburse Reed for expenses incurred in locating and ultimately disposing of his damaged automobile. It is argued that such damages were not within the contemplation of the parties at the inception of their contract. See Hadley v. Baxendale, 9 Ex. 341, 156 Eng.Rep. 145, 5 Eng.Rul.Cas. 502 (1854); Globe Refining Co. v. Landa Cotton Oil Co., 190 U.S. 540, 544, 23 S.Ct. 754, 755, 47 L.Ed. 1171 (1903); Marquette Cement v. Louisville & Nashville R.R., 281 F.Supp. 944, 948 (E.D.Tenn.1967), aff'd per curiam, 406 F.2d 731 (6th Cir. 1969). The Restatement of Contracts articulates the rule in terms of "foreseeability":

"In awarding damages, compensation is given for only those injuries that the defendant had reason to foresee as a probable result of his breach when the contract was made. If the injury is one that follows the breach in the usual course of events, there is sufficient reason for the defendant to foresee it; otherwise, it must be shown specifically that the defendant had reason to know the facts and to foresee the injury."

Restatement of Contracts, § 330 (1932). McCormick has stated with respect to the rule of Hadley v. Baxendale:

"This standard is in the main an objective one. It takes account of what the defendant who made the contract might then have foreseen as a reasonable man, in the light of the facts known to him, and does not confine the inquiry to what he actually did foresee. If the loss claimed is unusual, then it becomes necessary to ascertain whether the defaulting party was notified of the special circumstances ...."

C. McCormick, Handbook on the Law of Damages 595 (1932) (footnote omitted). It is well settled that the Carmack Amendment does not alter the common law with respect to special damages. F. J. McCarty Co. v. Southern Pac. Co., 428 F.2d 690, 693 (9th Cir. 1970); see L. E. Whitlock Truck Service, Inc. v. Regal Drilling Co., 333 F.2d 488, 491 (10th Cir. 1964). Special damages are recoverable from a carrier when it has "notice or knowledge of the special circumstances from which such damages would flow." Conditioned Air Corp. v. Rock Island Motor Transit Co., 253 Iowa 961, 114 N.W.2d 304, cert. denied, 371 U.S. 825, 83 S.Ct. 46, 9 L.Ed.2d 64 (1962).

Aaacon argues that consequential or special damages in the instant case are precluded by language in clause 3 of the freight bill-order form, stating that "Aaacon is not responsible for car rentals or any other special damages, including nonuse of the vehicle." Clause 3 is an invalid attempt to limit liability. The Carmack Amendment, 49 U.S.C. § 20(11), expressly states that "any limitation of liability or limitation of the amount of recovery ... in any contract ... without respect to the manner or form in which it is sought to be made is declared to be unlawful and void." An exception is provided with respect to

"property ... received for transportation concerning which the carrier shall have been or shall be expressly authorized or required by order of the Interstate Commerce Commission to establish and maintain rates dependent upon the value declared in writing by the shipper or agreed upon in writing as the released value of the property, in which case such declaration or agreement shall have no other effect than to limit liability and recovery to an amount not exceeding the value so declared or released."

49 U.S.C. § 20(11). The exception is clearly inapplicable in this case; Aaacon does not establish or maintain rates for its automobile transport services that are dependent upon the automobile values declared in writing by its customers. The district court properly ignored the invalid exculpatory clause in determining whether special or consequential damages were contemplated by the parties.

We find sufficient evidence in the record to support the court's conclusion that Aaacon was aware of Reed's potential damages in the event it failed to deliver the automobile as agreed. It has been suggested with respect to contracts of carriage that

" '(i)t is not necessary always that (facts of potential special damage) should be mentioned in the negotiations, or in express terms made a part of the contract, but when they are known to the carrier under such circumstances, or they are of such character that the parties may be fairly supposed to have them in contemplation in making the contract, such special facts become relevant in determining the question of damages.' Moore on Carriers, p. 425; Hutchinson on Carriers, § 1367."

Harrill v. Seaboard Airline Ry., 181 N.C. 315, 107 S.E. 136 (1921). Generally, when a shipper loses the use of his goods as a proximate result of delay "and the carrier has notice or knowledge of facts that would apprise it that plaintiff would sustain loss in that particular, the measure of...