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 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 cannot recover damages for either the lost profits or the lost customer because the harm is indirect.
The factory owner can recover damages for the lost customer, but not lost profits from reduced capacity.
Damages are limited to losses that are a natural consequence of the breach and that were foreseeable to the breaching party when the contract was formed. Lost profits from reduced capacity are ordinarily foreseeable because a delay in supplying essential machinery naturally impairs production and earnings. By contrast, the loss of a particular customer is a consequential loss that is recoverable only if the supplier had reason to know, at the time of contracting, that the customer order depended on timely delivery. Absent such knowledge, those damages are too remote.
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