Hadley v. Baxendale
Court of Exchequer England - 1854
- P had a milling business. P's mill suffered a broken crank shaft and needed to send the broken shaft to an engineer so a new one could be made. In the meantime, the mill could not operate.
- P asked D to carry the shaft to the engineer. D agreed and told P that it would be delivered the next day if it received the shaft before noon.
- The delivery of the shaft was delayed by the negligence of D, so P did not receive the new shaft as early as they should have. They lost profits as a result.
- P sued D for breach and lost profits.
- Lower court jury found for P, awarded 25 pounds.
- Court of Exchequer reversed, ordered new trial, award should not include lost profits.
- Under what circumstances should a breaching party be held liable for consequential damages?
- After a breach, the injured party may recover damages reasonably considered to arise naturally from a breach of contract or damages within the reasonable contemplation of the parties at the time of contracting.
- The debtor is only liable for the damages foreseen, or which might have been foreseen, at the time of the execution of the contract.
- If the special circumstances are wholly unknown to the party breaking the contract, he, at the most, could only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract.
- It is obvious that in the great multitude of cases of millers sending off broken shafts to third parties by a carrier, such consequences would not, in all probability, have occurred. These special circumstances were never communicated by the P to the D.
- Thus, the loss of profits cannot reasonably be considered such a consequence of the breach of contract as could have been fairly and reasonably contemplated by both parties when they made this contract.