Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally ... from such breach of contract itself or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract, as the probable result of the breach of it.
Contracts II, Pages 1087–1089
Hadley v. Baxendale
Court of Exchequer, 1854
Facts:
Plaintiffs' mill stopped working when its crankshaft broke. They bought a new one, and defendants told plaintiffs that it would be delivered the next day after plaintiffs' servant told the clerk that the mill was stopped for want of it. Plaintiffs paid for its carriage, but it was delayed for several days due to to defendants' neglect. Plaintiffs therefore could not run their mill for these days.
Defendant's Argument:
The damages of the lost profits were too remote, and defendant is not liable for them.
Procedural History:
Jury awarded plaintiffs damages beyond what was paid into court.
Issue:
Whether plaintiffs' lost profits are recoverable from defendant.
Rule:
Page 1088, Paragraph 2
Reasoning:
If the special circumstances under which the contract was made were communicated to defendants, so that they could have reasonably contemplated such losses resulting from their failure, then such losses should be included in the damages; but if defendants were not aware of the special circumstances, then they could not be held liable for such losses, as there are many circumstances one may need a replacement crankshaft without the operation of the mill depending on it.
Since plaintiffs did not tell defendants that whether the mill could be operated depended upon their delivery thereof, it was not a reasonable and natural consequence.
Holding:
Plaintiffs' lost profits are not recoverable and should not have been considered by the jury. New trial ordered.