Hadley v. Baxendale
Court of Exchequer, 1854.
9 Exch. 341.
Facts: The plaintiff’s crank shaft broke. It was the only one they had, and without it they could not run their mill. They contracted with the defendant to send it to the engineers. The delivery was delayed, and the plaintiff sued for lost profits. The jury awarded damages of £25. The defendant appealed.
Issue: Is the plaintiff entitled to damages for lost profits?
Rule: NEW RULE! The defendant will only be held liable for the plaintiff’s losses if they are generally foreseeable or if the plaintiff tells the defendant about any special circumstances in advance.
Analysis: The court goes makes an argument that from the evidence that a client wants to ship a broken item fast, it does not necessarily follow that they are necessarily going to lose profits if it is not delivered on time. The court goes through a series of hypotheticals showing that there are other circumstances under which the plaintiff could have sought out the transaction they did, so that the defendant need not have assumed the situation was as dire as it was.
The court further argues that if special circumstances exist, special provisions can be made in the contract voluntarily by both parties to impose extra damages if there is a breach. The court doesn’t wish to take that power away from the parties.
Conclusion: The court finds that lost profits should not have been awarded at trial; therefore, the court orders a new trial with a statement of the jury instructions to be used.