HADLEY v BAXENDALE (1854)

The claimants, owners of a flour mill, contracted with the defendant carriers for the carriage of a crank shaft to Greenwich for use as a pattern for a new crank shaft. The carriage was delayed as a result of the negligence of the defendants, so that the new shaft was received late. The claimants claimed their loss of profits in operating the mill during the delay. The defendants argued that this loss was too remote for them to be liable for it.

Held: The loss of profits was not recoverable.

ALDERSON B: Now we think the proper rule in such a case as the present is this:—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, i.e., according to the usual course of things, 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. Now, if the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated.

But, on the other hand, if these special circumstances were 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…