A private port authority contracted with a crane company to help load and unload containers. A defect in a crane caused a container to drop, injuring someone. The port authority sues for breach of contract seeking to recover its settlement cost from the crane company. Is the port authority likely to prevail on a consequential-damages theory?

• A. No, because personal injury damages cannot be recovered in a breach-of-contract action.
• B. No, because the port authority settled the lawsuit rather than litigating the matter to a final judgment.
• C. Yes, because the breach caused direct economic losses only.
• D. Yes, because consequential damages were reasonably foreseeable and the breaching party could foresee the harm.

Answer: (D)

The key idea is that contract damages can extend to consequences that flow from a breach if they were reasonably foreseeable when the contract was made. These are the consequential damages. The port authority’s settlement costs aren’t the direct price of failing to perform the crane work; they’re losses that arise because the breach (the crane defect) caused an injury to a third party. If the crane company could foresee that such a defect might lead to injuries and a resulting settlement, those damages fall within the realm of consequential damages and are recoverable.

This differs from simply saying you can’t recover personal-injury damages in a contract action. What matters is foreseeability and causation from the breach. It also isn’t defeated merely because the port authority settled the third-party claim instead of litigating to judgment; settlement, if the damages were foreseeable, doesn’t bar recovery.

So the correct reasoning is that consequential damages were reasonably foreseeable and the harm could have been foreseen by the breaching party, making the settlement costs recoverable as damages.