Introduction
Consequential Damages in Contract Breaches: An Overview
When a contract is broken, the responsible party must pay for the resulting damages. Here’s a straightforward breakdown:
- Definition: Contractual damages are losses that result directly from a breach of contract.
- Scope of Responsibility: The party at fault is required to cover losses that were predictable at the time the contract was made.
- Limitations: They are not liable for any unforeseen losses that arise beyond those expectations.
Facts
Case Overview:
- Plaintiff: The owner of a mill.
- Defendant: The transportation service provider.
- Issue: The plaintiff’s crankshaft, essential for mill operations, required repairs. The defendant was tasked with transporting the crankshaft to and from the repair facility.
Incident Description:
- Due to an oversight by the defendant, the crankshaft was returned one week late. This delay prevented the mill from operating for that week.
Consequences:
- The mill’s inability to operate resulted in financial losses for the plaintiff.
Legal Action:
- The plaintiff has filed a lawsuit against the defendant, seeking compensation for the losses incurred due to the delayed delivery.
Issues Involved
Key Issues in Dispute
Liability for Breach of Contract:
- Is the defendant responsible for breaking the contract?
Claim for Lost Profits:
- Should the plaintiff receive money for profits lost due to the defendant’s delayed delivery?
Key Points from the Court of Exchequer, England: Contract Breaches
Losses Considered: The court decides that only losses that are natural and reasonable are considered in breach of contract cases.
Profit Loss: If the loss of profits was not something both parties could foresee, it can’t be claimed.
Foreseeability of Losses: A party can successfully claim compensation for losses if they were reasonably predictable by both parties at the time the contract was made.
Conclusion
The court ruled in favor of the defendant for the following reasons:
- The defendant was unaware of the losses incurred.
- The damages claimed were not a direct outcome of the contract.
Thus, the defendant is not responsible for breaching the contract.