A factory owner entered into a contract with a supplier for the delivery of specialized machinery required for the factory’s operations. The supplier breached the contract, causing a delay in delivery by three months. During those three months, the factory operated at reduced capacity, resulting in lost profits. Additionally, a long-term potential customer decided to source from a competitor because the factory could not meet their timeline due to the delay. Is the factory owner entitled to recover damages for both the lost profits and the lost customer?
The factory owner can recover damages for the lost customer, but not lost profits from reduced capacity.
The factory owner cannot recover damages for either the lost profits or the lost customer because the harm is indirect.
The factory owner can recover lost profits from reduced capacity but not damages for the lost customer.
The factory owner can recover both lost profits from reduced capacity and damages for the lost customer.
The factory owner is entitled to recover damages for losses that are a natural consequence of the breach and were foreseeable to the breaching party at the time the contract was formed. Lost profits from reduced capacity are typically recoverable since they are a direct and foreseeable consequence of the supplier's breach. However, damages for the lost customer would not be recoverable unless the supplier had specific knowledge that this customer’s order was contingent on timely delivery, making such harm foreseeable. This aligns with established principles limiting recoverability to damages that are reasonably certain and foreseeable.
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