A mining company contracted with a railroad to transport 10,000 tons of coal for $100,000. The railroad stated it would not be liable for late shipments. The railroad knew the coal was to be delivered to a power company on June 1, and industry custom tied late delivery to a $1 per ton per day reduction in price to the power company. The coal arrived June 11, causing $100,000 in lost revenue. The company sues for breach of contract. Should the mining company prevail?

• A. Yes, because late delivery caused damages not addressed by the clause.
• B. No, because the contract protected the railroad from losses due to a late shipment.
• C. Yes, if the railroad's delay was due to negligence.
• D. No, because the price to the power company decreased.

Answer: (B)

A key concept here is how contracts allocate risk through limitation of liability clauses. When a contract explicitly states that one party will not be liable for late performance, that provision generally governs the remedy for a breach of that term. The railroad’s promise not to be liable for late shipments is a valid risk-shifting device, so the mining company cannot recover damages for the late delivery despite the downstream impact on the power company. The lost revenue tied to the price reduction to the power company is a consequence the contract already contemplated and priced for by virtue of the no-liability clause.

Only if there were a carve-out or fault outside the clause—such as willful misconduct, fraud, or unconscionability—would the result differ. But with the information given, the express limitation on liability protects the railroad, so the mining company does not prevail.