Citation. 156 Eng. Rep. 145 (1854)
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This case involves a mill that lost profits due to the delay in delivery of a new crank shaft.
Synopsis of Rule of Law.
Unless special circumstances are clearly communicated, damages resulting from a breach of contract should be only those that may be fairly and reasonably considered at the time the contract was made.
Facts.
The Plaintiff in this case was a miller. On May 11, Plaintiff’s mill stopped due to a broken crank shaft. On May 12, Plaintiff found that the shaft had been fractured. The mill did not possess any other crank shafts; therefore, it was necessary to obtain a new one so that the mill could resume work. In order to obtain a new shaft, Plaintiff had to send the broken shaft to the manufacturer in Greenwich so that it could be used as a model for a new shaft. On May 13, Plaintiff’s servant went to a well-known carrier to inquire about shipping the shaft to Greenwich. The servant requested that the broken shaft be sent immediately because the mill was stopped. The carrier informed the servant that if they received the crank shaft before noon, it could deliver it to Greenwich the following day. The servant brought the crank shaft to the carrier before noon and paid for the shipment. However, the delivery was delayed due to the carrier’s neglect. This delay caused the Plaintiff to lose profits because it did not receive a new crank shaft for several days and could not resume work until it received the new shaft. Plaintiff then sued for lost profits.
Issue.
Are lost profits recoverable when they are not contemplated by the parties at the time a contract is made?
Held.
No. Judgment reversed.
Discussion.
First, the court examined general rules of contract law to find that “the amount which would have been received if the contract had been kept, is the measure of damages if the contract is broken.” Damages that may be properly awarded are those that the parties may “fairly and reasonably” consider as arising from a breach at the time the contract is made. The court then recognized that there are times where special circumstances are involved and these circumstances could result in damages beyond those that the parties could reasonably contemplate when forming the contract. However, where such special circumstances are present, they must be made known and clearly communicated to the other party so that they are within the parties’ contemplation when they enter into the contract. In the instant case, such special circumstances were present. Specifically, the special circumstances in this case are the fact that the mill owned only one crank shaft and therefore would not be able to work until th
e carrier delivered the new crank. These special circumstances were not clearly communicated to the Defendant and lost profits are not the type of damages that one would reasonably expect to flow from a delay in delivery of a crank shaft to a third party. Therefore, the lost profits could not be said to have been fairly and reasonably contemplated by the parties as damages that would result from a breach of the delivery contract.
