Hadley v Baxendale

Facts: Plaintiffs operated a flour mill. Due to a break of the crack shaft of the steam engine that ran the plant, they needed a replacement.

Issue: How much damages should be awarded?

Holding: The amount of injury which would ordinarily follow from a breach of contract under the special circumstances known and communicated to the other party. The loss of profits were a special circumstance that couldn't be known by the defendant, so they can't be considered in determining damages.

Reasons: Defendant should be liable for damages that are foreseen at the time of the creation of the contract. If the potential damages are unforeseen, the defendant cannot be liable for them.

Judgment: New trial is ordered.