In Hadley v. Baxendale, 8 Exch. 341, 156 Eng. Rep. 145 (1854), the Court of Exchequer held that a miller’s lost profits, arising from the late delivery of a replacement shaft for a steam engine in the mill, were not recoverable as consequential damages in a suit for breach of contract: “But it is obvious that, in the great multitude of cases of millers sending off broken shafts to third persons by a carrier under ordinary circumstances, such consequences would not, in all probability, have occurred, and these special circumstances were here never communicated by the plaintiffs to the defendants. It follows, therefore, that the loss of profits here cannot reasonably be considered such a consequence of the breach of contract as could have been fairly and reasonably contemplated by both the parties when they made this contract.”
The long shadow of that broken shaft was most recently seen in Signature Indus. Services, LLC v. Int’l Paper Co., which held: “The law does not charge contracting parties with a duty to understand how their actions will affect the counterparty’s market valuation. … As a general rule, neither the counterparty’s market value nor the impact of breach on that value will be reasonably foreseeable at the time of contracting. SIS … attempted to show that IP was intimately familiar with SIS’s business because of the companies’ close relationship. But again, knowledge of a business is not the same as knowledge of the market for buying and selling that business.” No. 20-0396 (Jan. 14, 2022).
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