## Facts

- Linc Equipment Services, Inc., a merchant lessor of medical equipment, leased a mobile MRI to Signal Medical Services, Inc., another merchant lessor, for a net monthly rental of about $30,000, with Signal responsible for expenses such as insurance and taxes.
- Signal agreed to return the MRI at lease end in good condition, ordinary wear and tear excepted.
- Signal subleased the MRI to a hospital, which returned the machine directly to Linc.
- During return shipment, the MRI was left powered on in transit, damaging the magnet and taking the MRI out of service for about 10 months while repairs were completed.
- Repairs cost about $130,000 and were paid by insurance.
- Linc sought an additional recovery for 10 months of lost rental value (about $300,000) as consequential damages for loss of use.
- The lease contained an asymmetric consequential-damages provision: it barred consequential damages in actions brought by Signal but did not similarly bar consequential damages in actions brought by Linc.
- After removal to federal court and resolution of other disputes, the only remaining claim was Linc’s claim against Signal for lost rental value.

## Issues

1. Under Illinois law, may a commercial lessor recover consequential damages for lost rental value when the parties did not subjectively discuss consequential damages and the lease does not expressly list them?
2. Does Illinois’s “contemplation” requirement for consequential damages turn on subjective “express” contemplation, or on an objective foreseeability inquiry?
3. What effect does a one-sided consequential-damages clause (limiting only the lessee’s recovery) have on the lessor’s ability to recover lost-use damages?

## Decision

- The Seventh Circuit reversed the judgment for Signal and remanded.
- The court held the district court applied an incorrect legal standard by requiring proof that consequential damages were “expressly contemplated” in a subjective sense.
- Applying an objective commercial-foreseeability approach, the court concluded that lost rental value from extended downtime of a leased MRI was the type of loss reasonable merchants would anticipate.
- The asymmetric consequential-damages clause was treated as evidence that the parties accounted for consequential damages and allocated that risk, rather than as proof that such damages were outside the parties’ contemplation.

## Legal Principles

- Consequential damages under Illinois law are recoverable when the type of loss was reasonably foreseeable and objectively within the parties’ contemplation at contracting, not when the parties can prove they subjectively discussed or “expressly” considered the loss.
- In commercial equipment leasing, loss of rental income during repair downtime is a foreseeable consequential loss when the equipment is an income-producing asset and damage removes it from service.
- Contract terms addressing consequential damages are interpreted as risk-allocation devices; an exclusion limited to one party may support, rather than defeat, the inference that the other party retained a right to consequential damages.
- A trial court commits reversible error by conditioning consequential-damages recovery on testimonial proof that the parties actually discussed consequential damages.

## Conclusion

The Seventh Circuit held that Illinois evaluates consequential damages by objective foreseeability in the commercial context, not by whether the parties actually discussed the subject, and it remanded for reconsideration of Linc’s lost-rental claim under that standard in light of the lease’s risk-allocation language.


Linc Equip. Servs., Inc. v. Signal Med. Servs., Inc., 319 F.3d 288 (7th Cir. 2003)