Can a plaintiff recover lost profits caused by a carrier's delay in delivering goods when the carrier was not told that the delay would stop the plaintiff's business entirely?

Hadley operated a flour mill in Gloucester. The crank shaft of the mill's steam engine broke, and the mill had to shut down until a replacement could be made. Hadley's clerk took the broken shaft to Baxendale, a common carrier, to be sent to an engineering firm in Greenwich that would use it as a pattern to manufacture a new one. The clerk told Baxendale's clerk only that the item was a broken shaft from a mill and that it needed to be sent immediately; he did not say the mill was completely idle without it, nor that Hadley had no spare shaft on hand.

Baxendale promised delivery the next day for a fee, but through neglect the shaft was not delivered to Greenwich for several days, delaying the mill's reopening well beyond what a prompt delivery would have caused. Hadley sued for the profits lost during the extra days the mill was shut down, a sum considerably larger than the shipping fee itself.

Hadley sued Baxendale in the Court of Exchequer. A jury awarded Hadley damages that included the lost profits from the mill's extended shutdown. Baxendale appealed, arguing the jury had been misdirected on the proper measure of damages and that lost profits were too remote and speculative to be recoverable.

(Alderson, B.)

No, not on these facts. The court ordered a new trial, holding that the jury had been given an improper instruction on damages.

Where a party breaches a contract, the damages the other party ought to receive are those that may fairly and reasonably be considered either arising naturally, that is, according to the usual course of things, from the breach 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. If special circumstances were actually communicated by the plaintiff to the defendant, 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. But if the special circumstances were wholly unknown to the party breaking the contract, he could only be supposed to have had in his contemplation the amount of injury which would arise generally from such a breach.

Applying that standard, the court held that a carrier who merely knows he is shipping a broken mill shaft cannot be assumed to know that the mill has no spare shaft and will stand completely idle until the replacement arrives. Mills do not, as a matter of ordinary course, grind to a total halt every time a single part is sent out for repair; a prudent mill owner might have a spare on hand. Because Baxendale was never told that the mill's whole operation depended on the shaft's prompt return, lost profits were not a loss he could reasonably have contemplated when he agreed to carry the package, and they were not recoverable.