Commentary for Bava Kamma 7:16

Since [one] contracts and extends [his limbs] while sleeping, it is his [typical] manner [to damage]. The Gemara is saying that it is the norm for a sleeping person to damage others because he bends and stretches as he sleeps. It is only logical that his liability is limited to the area in which he bends and stretches. As long as he is careful that there is nothing to damage in his immediate area, he will not be liable for damage that occurs as the result of someone else’s behavior.
In Yerushalmi it is stated, that a sleeping person is only liable when he laid himself down next to the vessels that he broke, but if he was asleep and others brought vessels and placed them next to him, and he broke them, he is exempt because they caused him to break the vessels by placing them next to him.
And so too, if he was asleep and his neighbor went to sleep next to him, and they damaged each other while asleep, the first one is exempt and the last one is liable.