IN THE COURTS OF EXCHEQUER

The first count of the declaration stated, that, before and at the time of the making by the defendants of the promises hereinafter mentioned, the plaintiffs carried on the business of millers and mealmen in copartnership, and were proprietors and occupiers of the City Steam-Mills, in the city of Gloucester, and were possessed of a steam-engine, by means of which they worked the said mills, and therein cleaned corn, and ground the same into meal, and dressed the same into flour, sharps, and bran, and a certain portion of the said steam-engine, to wit, the crank shaft of the said steam-engine, was broken and out of repair, whereby the said steam-engine was prevented from working, and the plaintiffs were desirous of having a new crank shaft made for the said mill, and had ordered the same of certain persons trading under the name of W. Joyce & Co., at Greenwich, in the country of Kent, who had contracted to make the said new shaft for the plaintiffs; but before they could complete the said new shaft it was necessary that the said broken shaft should be forwarded to their works at Greenwich, in order that the said new shaft might be made so as to fit the other parts of the said engine which were not injured, and so that it might be substituted for the said broken shaft; and the plaintiffs were desirous of sending the said broken shaft to the said W. Joyce & Co. for the purpose aforesaid; and the defendants, before and at the time of the making of the said promises, were common carriers of business of common carriers, under the name of "Pickford & Co."; and the plaintiffs, at the request of the defendants, delivered to them as such carriers the said broken shaft, to be conveyed by the defendants as such carriers from Gloucester to the said W. Joyce & Co., at Greenwich, and there to be delivered for the plaintiffs on the second day after the day of such delivery, for reward to the defendants; and in consideration thereof the defendants then promised the plaintiffs to convey the said broken shaft from Gloucester to Greenwich, and there on the said second day to deliver the same to the said W. Joyce & Co. for the plaintiffs. And although such second day elapsed before the commencement of this suit, yet the defendants did not nor would deliver the said broken shaft at Greenwich on the said second day, but wholly neglected and refused so to do for the space of seven days after the said shaft was so delivered to them as aforesaid.

The second count stated, that, the defendants being such carriers as aforesaid, the plaintiffs, at the request of the defendants, caused to be delivered to them as such carriers the said broken shaft, to be conveyed by the defendants from Gloucester aforesaid to the said W. Joyce & Co., at Greenwich, and there to be delivered by the defendants for the plaintiffs, within a reasonable time in that behalf, for reward to the defendants; and in consideration of the premises in this count mentioned, the defendants promised the plaintiffs to use due and proper care and diligence in and about the carrying and conveying the said broken shaft from Gloucester aforesaid to the said W. Joyce & Co., at Greenwich, and there delivering the same for the plaintiffs in a reasonable time then following for the carriage, conveyance, and delivery of the said broken shaft as aforesaid; and although such reasonable time elapsed long before the commencement of this suit, yet the defendants did not nor would use due or proper care or diligence in or about the carrying or conveying or delivering the said broken shaft as aforesaid, within such reasonable time as aforesaid, but wholly neglected and refused so to do; and by reason of the carelessness, negligence, and improper conduct of the defendants, the said broken shaft was not delivered for the plaintiffs to the said W. Joyce & Co., or at Greenwich, until the expiration of a long and unreasonable time after the defendants received the same as aforesaid, and after the time when the same should have been delivered for the plaintiffs; and by reason of the several premises, the completing of the said new shaft was delayed for five days, and the plaintiffs were prevented form working their said steam-mills, and from cleaning corn, and grinding the same into meal, and dressing the meal into flour, sharps, or bran, and from carrying on their said business as millers and mealmen for the space of five days beyond the time that they otherwise would have been prevented from so doing, and they thereby were unable to supply many of their customers with flour, sharps, and bran during that period, and were obliged to buy flour to supply some of their other customers, and lost the mans and opportunity of selling flour, sharps, and bran, and were deprived of gains and profits which otherwise would have accrued to them, and were unable to employ their workmen, to whom they were compelled to pay wages during that period, and were otherwise injured, and the plaintiffs claim 300l.

The defendants pleaded non assumpserunt to the first count; and to the second payment of 25l. into Court in satisfaction of the plaintiffs' claim under that count. The plaintiffs entered a nolle prosequi as to the first count; and as to the second plea, they replied that the sum paid into the Court was not enough to satisfy the plaintiffs' claim in respect thereof; upon which replication issue was joined.

At the trial before Crompton, J., at the last Gloucester Assizes, it appeared that the plaintiffs carried on an extensive business as millers at Gloucester; and that, on the 11^th of May, their mill was stopped by a breakage of the crank shaft by which the mill was worked. The steam-engine was manufactured by Messrs. Joyce & Co., the engineers, at Greenwich, and it became necessary to send the shaft as a pattern for a new one to Greenwich. The fracture was discovered on the 12^th, and on the 13^ththe plaintiffs sent one of their servants to the office of the defendants, who are the well-known carriers trading under the name of Pickford & Co., for the purpose of having the shaft carried to Greenwich. The plaintiffs' servant told the clerk that the mill was stopped, and that the shaft must be sent immediately; and in answer to the inquiry when the shaft would be taken, the answer was, that if it was sent up by twelve o'clock an day, it would be delivered at Greenwich on the following day. On the following day the shaft was taken by the defendants, before noon, for the purpose of being conveyed to Greenwich, and the sum of 2l. 4s. was paid for its carriage for the whole distance; at the same time the defendants' clerk was told that a special entry, if required, should e made to hasten its delivery. The delivery of the shaft at Greenwich was delayed by some neglect; and the consequence was, that the plaintiffs did not receive the new shaft for several days after they would otherwise have done, and the working of their mill was thereby delayed, and they thereby lost the profits they would otherwise have received.

On the part of the defendants, it was objected that these damages were too remote, and that the defendants were not liable with respect to them. The learned Judge left the case generally to the jury, who found a verdict with 25l. damages beyond the amount paid into Court.

Whateley, in last Michaelmas Term, obtained a rule nisi for a new trial, on the ground of misdirection.

Keating and Dowdeswell (Feb. 1) shewed cause. The plaintiffs are entitled to the amount awarded by the jury as damages. These damages are not too remote, for they are not only the natural and necessary consequence of the defendants' default, but they are the only loss which the plaintiffs have actually sustained. The principle upon which damages are assessed is founded upon that of rendering compensation to the injured party. The important subject is ably treated in Sedgwick on the Measure of Damages. And this particular branch of it is discussed in the third chapter, where, after pointing out the distinction between the civil and the French law, he says (page 64), "It is sometimes said, in regard to contracts, that the defendant shall be held liable for those damages only which both parties may fairly be supposed to have at the time contemplated as likely to result from the nature of the agreement, and this appears to be the rule adopted by the writers upon the civil law." In a subsequent passage he says, "In cases of fraud the civil law made a broad distinction" (page 66); and he adds, that "in such cases the debtor was liable for all consequences." It is difficult, however, to see what the ground of such principle is, and how the ingredient of fraud can affect the question. For instance, if the defendants had maliciously and fraudulently kept the shaft, it is not easy to see why they should have been liable for these damages, if they are not to be held so where the delay is occasioned by their negligence only. In speaking of the rule respecting the breach of a contract to transport goods to a particular place, and in actions brought on agreements for the sale and delivery of chattels, the learned author lays it down, that, "In the former case, the difference in value between the price at the point where the goods are and the place where they were to be delivered, is taken as the measure of damages, which, in fact, amounts to an allowance of profits; and in the latter case, a similar result is had by the application of the rule, which gives the vendee the benefit of the rise of the market price" (page 80). The several cases, English as well as American, are there collected and reviewed. If that rule is to be adopted, there was ample evidence in the present case of the defendants' knowledge of such a state of things as would necessarily result in the damage the plaintiffs suffered through the defendants' default. The authorities are in the plaintiffs' favour upon the general ground. In Nurse v. Barns (1 Sir T. Raym. 77) which was an action for breach of an agreement for the letting of certain iron mills, the plaintiff was held entitled to a sum of 500l., awarded by reason of loss of stock laid in, although he had only paid 10l. by way of consideration. InBorradaile v. Brunton (8 Taunt. 535, 2 B. Moo. 582), which was an action for the breach of the warranty of a chain cable that it should last two years as a substitute for a rope cable of sixteen inches, the plaintiff was held entitled to recover for the loss of the anchor, which was occasioned by the breaking of the cable within the specified time. These extreme cases, and the difficulty which consequently exists in the estimation of the true amount of damages, supports the view for which the plaintiffs contend, that the question is properly for the decision of a jury, and therefore that this matter could not properly have been withdrawn from their consideration. In Ingram v. Lawson (6 Bing. N.C. 212) the true principle was acted upon. That was an action for a libel upon the plaintiff, who was the owner and master of a ship, which he advertised to take passengers to the East Indies; and the libel imputed that the vessel was not seaworthy, and that Jews had purchased her to take out convicts. The Court held, that evidence shewing that the plaintiff's profits after the publication of the libel were 1500l below the usual average, was admissible, to enable the jury to form an opinion as to the nature of the plaintiff's business, and of his general rate of profit. Here, also, the plaintiffs have not sustained any loss beyond that which was submitted to the jury. Bodley v. Reynolds (8 Q. B. 779) and Kettle v. Hunt (Bull. N. P. 77) are similar in principle. In the latter, it was held that the loss of the benefit of trade, which a man suffers by the detention of his tools, is recoverable as special damage. The loss they had sustained during the time they were so deprived of their shaft, or until they could have obtained a new one. In Black v. Baxendale (1 Exch. 410), by reason of the defendant's omission to deliver the goods within a reasonable time at Bedford, the plaintiff's agent, who had been sent there to meet the goods, was put to certain additional expenses, and this Court held that such expenses might be given by the jury as damages. In Brandt v. Bowlby (2 B. & Ald. 932), which was an action of assumpsit against the defendants, as owners of a certain vessel, for not delivering a cargo of wheat shipped to the plaintiffs, the cargo reached the port of destination was held to be the true rule of damages." As between the parties in this cause," said Parke, J., "the plaintiffs are entitled to be put in the same situation as they would have been in, if the cargo had been delivered to their order at the time when it was delivered to the wrong party; and the sum it would have fetched at the time is the amount of the loss sustained by the non-performance of the defendants' contract." The recent decision of this Court, in Waters v. Towers (8 Ex. 401), seems to be strongly in the plaintiffs' favour. The defendants there had agreed to fit up the plaintiffs' mill within a reasonable time, but had not completed their contract within such time; and it was held that the plaintiffs were entitled to recover, by way of damages, the loss of profit upon a contract they had entered into with third parties, and which they were unable to fulfil by reason of the defendants' breach of contract. There was ample evidence that the defendants knew the purpose for which this shaft was sent, and that the result of its nondelivery in due time would be the stoppage of the mill; for the defendants' agent, at their place of business, was told that the mill was then stopped, that the shaft must be delivered immediately, and that if a special entry was necessary and natural result of their wrongful act. They also cited Ward v. Smith (11 Price, 19); and Parke, B., referred to Levy v. Langridge (4 M. & W. 337).

Whateley, Willes, and Phipson, in support of the rule (Feb. 2). It has been contended, on the part of the plaintiffs, that the damages found by the jury are a matter fit for their consideration; but still the question remains, in what way ought the jury to have been directed? It has been also urged, that, in awarding damages, the law gives compensation to the injured individual. But it is clear that complete compensation is not to be awarded; for instance, the non-payment of a bill of exchange might lead to the utter ruin of the holder, and yet such damage could not be considered as necessarily resulting from the breach of contract, so as to entitle the party aggrieved to recover in respect of it. Take the case of the breach of a contract to supply a rick-cloth, whereby and in consequence of bad weather the hay, being unprotected, is spoiled, that damage could not be recoverable. Many similar cases might be added. The true principle to be deduced form the authorities upon this subject is that which is embodied in the maxim: "In jure non remota cause sed proxima spectatur." Sedgwick says (page 38), "In regard to the quantum of damages, instead of adhering to the term compensation, it would be far more accurate to say, in the language of Domat, which we have cited above, 'that the object is discriminate between that portion of the loss which must be borne by the offending party and that which must be borne by the sufferer'. The law in fact aims not at the satisfaction but at a division of the loss." And the learned author also cites the following passage from Broom's Legal Maxims: "Every defendant," says Mr. Broom, "against whom an action is brought experiences some injury or inconvenience beyond what the costs will compensate him for."^[1] Again, at page 78, after referring to the case of Flureau v. Thornhill (2 W. Blac. 1078), he says, "Both the English and American Courts have generally adhered to this denial of profits as any part of the damages to be compensated and that whether in cases of contract or of tort. So, in a case of illegal capture, Mr. Justice Story rejected the item of profits on the voyage, and held this general language: 'Independent, however, of all authority, I am satisfied upon principle, that an allowance of damages upon the basis of a calculation of profits is inadmissible. The rule would be in the highest degree unfavourable to the interests of the community. The subject would be involved in utter uncertainty. The calculation would proceed upon contingencies, and would require acknowledge of foreign markets to an exactness, in point of time and value, which would sometimes present embarrassing obstacles; much would depend upon the length of the voyage, and the season of arrival, much upon the vigilance and activity of the master, and much upon the momentary demand. After all, it would be a calculation upon conjectures, and not upon facts; such a rule therefore has been rejected by Courts of law in ordinary cases, and instead of deciding upon the gains or losses of parties in particular cases, a uniform interest has been applied as the measure of damages for the detention of property." There is much force in that admirably constructed passage. We ought to pay all due homage in this country to the decisions of the American Courts upon this important subject, to which they appear to have given much careful consideration. The damages here are too remote. Several of the cases which were principally relied upon by the plaintiffs are distinguishable. In Waters v. Towers (1 Exch. 401) there was a special contract to do the work in a particular time, and the damage occasioned by the non-completion of the contract was that to which the plaintiffs were held to be entitled. In Borradale v. Brunton (8 Taunt. 535) there was a direct engagement that the cable should hold the anchor. So, in the case of taking away a workman's tools, the natural and necessary consequence is the loss of employment: Bodley v. Reynolds (8 Q. B. 779). The following cases may be referred to as decisions upon the principle within which the defendants contend that the present case falls: Jones v. Gooday (8 M. & W. 146), Walton v. Fothergill (7 Car. & P. 392), Boyce v. Bayliffe (1 Camp. 58) and Archer v. Williams (2. C. & K. 26). The rule, therefore, that the immediate cause is to be regarded in considering the loss, is applicable here. There was no special contract between these parties. A carrier has a certain duty cast upon him by law, and that duty is not to be enlarged to an indefinite extent in the absence of a special contract, or of fraud or malice. The maxim "dolus circuitu non purgatur", does not apply. The question as to how far liability may be affected by reason of malice forming one of the elements to be taken into consideration, was treated of by the Court of Queen's Bench in Lumley v. Gye (2 E. & B. 216). Here the declaration is founded upon the defendants' duty as common carriers, and indeed there is no pretence for saying that they entered into a special contract to bear all the consequences of the non-delivery of the article in question. They were merely bound to carry it safely, and to deliver it within a reasonable time. The duty of the clerk, who was in attendance at the defendants' office, was to enter the article, and to take the amount of the carriage; but a mere notice to him, such as was here given, could not make the defendants, as carriers, liable as upon a special contract. Such matters, therefore, must be rejected from the consideration of the question. If carriers are to be liable in such a case as this, the exercise of a sound judgment would not suffice, but they ought to be gifted also with a spirit of prophecy. "I have always understood," said Patterson, J., in Kelly v. Partington (5 B. & Ad. 651), "that the special damage must be the natural result of the thing done." That sentence presents the true test. The Court of Queen's Bench acted upon that rule in Foxall v. Barnett (2 E. & B. 928). This therefore is a question of law, and the jury ought to have been told that these damages were too remote; and that, in the absence of the proof of any other damage, the plaintiffs were entitled to nominal damages only: Tindall v. Bell (11 M. & W. 232). Siordet v. Hall (4 Bing. 607) and De Vaux v. Salvador (4 A. & E. 420) are instances of cases where the Courts appear to have gone into the opposite extremes: in the one case of unduly favouring the carrier, in the other of holding them liable for results which would appear too remote. If the defendants should be held responsible for the damages awarded by the jury, they would be in a better position if they confined their business to the conveyance of gold. They cannot be responsible for results which, at the time the goods are delivered for carriage, and beyond all human foresight. Suppose a manufacturer were to contract with a coal merchant or min owner for the delivery of a boat load of coals, no intimation being given that the coals were required for immediate use, the vendor in that case would not be liable for the stoppage of the vendee's business for want of the article which he had failed to deliver: for the vendor has no knowledge that the goods are not to go to the vendee's general stock. Where the contracting party is shewn to be acquainted with all the consequences that must of necessity follow from a breach on his part of the contract, it may be reasonable to say that he takes the risk of such consequences. If, as between vendor and vendee, this species of liability has no existence, a fortiori, the carrier is not to be burthened with it. In cases of personal injury to passengers, the damage to which the sufferer has been held entitled is the direct and immediate consequence of the wrongful act.

Cur. adv. vult.

The judgment of the Court was now delivered by

ALDERSON, B. We think that there ought to be a new trial in this case; but, in so doing, we deem it to be expedient and necessary to state explicitly the rule which the Judge, at the next trial, ought, in our opinion, to direct the jury to be governed by when they estimate the damages.

It is. Indeed, of the last importance that we should do this; for, if the jury are left without any definite rule to guide them, it will, in such cases as these, manifestly lead to the greatest injustice. The Courts have done this on several occasions; and in Blake v. Midland Railway Company (18 Q. B. 93), the Court granted a new trial on this very ground, that the rule had not been definitely laid down to the jury by the learned Judge at Nisi Prius.

"There are certain establishing rules", this Court says, in Alder v. Keighley (15 M. & W. 117), "according to which the jury ought to find". And the Court, in that case, adds: "and here there is a clear rule, that the amount which would have been received if the contract had been kept, is the measure of damages if the contract is broken."

Now we think the proper rule in such a case as the present is this:-- Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract 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. Now, if the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants, 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 so known and communicated. But, on the other hand, if these special circumstances were wholly unknown to the party breaking the contract, he, at the most, could only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract.  For, had the special circumstances been known, the parties might have specially provided for the breach of contract by special terms as to the damages in that case; and of this advantage it would be very unjust to deprive them. Now the above principles are those by which we think the jury ought to be guided in estimating the damages arising out of any breach of contract. It is said, that other cases such as breaches of contract in the nonpayment of money, or in the not making a good title of land, are to be treated as exceptions from this, and as governed by a conventional rule. But as, in such cases, both parties must be supposed to be cognizant of that well-known rule, these cases may, we think, be more properly classed under the rule above enunciated as to cases under known special circumstances, because there both parties may reasonably be presumed to contemplate the estimation of the amount of damages according to the conventional rule. Now, in the present case, if we are to apply the principles above laid down, we find that the only circumstances here communicated by the plaintiffs to the defendants at the time of the contract was made, were, that the article to be carried was the broken shaft of a mill, and that the plaintiffs were the millers of the mill.

But how do these circumstances shew reasonably that the profits of the mill must be stopped by an unreasonable delay in the delivery of the broken shaft by the carrier to the third person? Suppose the plaintiffs had another shaft in their possession put up or putting up at the time, and that they only wished to send back the broken shaft to the engineer who made it; it is clear that this would be quite consistent with the above circumstances, and yet the unreasonable delay in the delivery would have no effect upon the intermediate profits of the mill. Or, again, suppose that, at the time of the delivery to the carrier, the machinery of the mill had been in other respects defective, then, also, the same results would follow. Here it is true that the shaft was actually sent back to serve as a model for the new one, and that the want of a new one was the only cause of the stoppage of the mill, and that the loss of profits really arose from not sending down the new shaft in proper time, and that this arose from the delay in delivering the broken one to serve as a model. 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. For such loss would neither have flowed naturally from the breach of this contract in the great multitude of such cases occurring under ordinary circumstances, nor were the special circumstances, which, perhaps, would have made it a reasonable and natural consequence of such breach of contract, communicated to or known by the defendants. The Judge ought, therefore, to have told the jury that upon the facts then before them they ought not to take the loss of profits into consideration at all in estimating the damages. There must therefore be a new trial in this case.

Rule absolute.

Appeal from Circuit Court, Jackson County; S. M. Bone, Judge.

Action in replevin by the International Harvester Company against Grover Lamkins to recover a tractor sold to defendant, wherein defendant filed a cross-complaint against plaintiff and Gay Lacy to recover special damages allegedly resulting from defendant's inability to use tractor at night for cultivation of crops. The trial court dismissed defendant's cross-complaint and directed a verdict against him and, from the judgment entered thereon, defendant appeals.

Judgment affirmed.

Ras Priest, of Newport, for appellant.

Kaneaster Hodges and Pickens & Pickens, all of Newport, for appellees.

The question presented by this appeal is whether in view of the special facts and circumstances connected with the sale of a tractor, the seller thereof could be held liable for special damages resulting from the loss of crops, occasioned by inability to cultivate the same because the tractor could not be used at night, the seller having failed to furnish starter and lighting equipment for the tractor within the time contemplated by contract.

On or about December 4, 1941, appellant verbally contracted with appellee, Gay Lacy, dealer for International Tractors, for the purchase of one H. Tractor, one H. M. 221 Cultivator, two cylinders, and one 9 A. Disc Harrow, for a total price of $1485. The parties agreed that buyer would deliver and seller accept a pair of horses and an old tractor for a credit of $642, and that the balance of the purchase price, $843, together with a finance charge of $53.71, a total of $896.71, should be represented by a title retaining note, payable in three installments as follows: 10/1/42 — $404.84, 4/1/43 — $162.72, and 10/1/43 — $329.15.

Because of the limited number of tractors available, it was agreed that delivery [204] of the new equipment might be postponed until about March 1, 1942, and as a matter of fact delivery was actually delayed until after May 1, 1942. In the meantime appellant had surrendered to dealer the horses and old tractor.

The new equipment was finally delivered to appellant's home at a time when he was absent therefrom, but a few days thereafter the dealer returned and requested appellant to execute the note and the sales contract. Appellant testified that he at first refused to execute the papers, because the tractor was not equipped with lights and starter, but upon the express promise by dealer that such equipment would be supplied within three weeks he finally did sign the papers. On account of governmental priority regulations this equipment was not supplied within the three weeks period. In November 1942, the dealer obtained this equipment, and requested that appellant bring the tractor to his shop so that it might be installed. Fearing that the tractor would be held for past due installment on note, appellant refused to deliver it to dealer, but insisted that equipment be installed at his home and while tractor was in his possession. This equipment was actually installed on the tractor after this action was begun.

When the equipment, without starter and lighting equipment, was delivered in May of 1942, appellant did sign the note, and, also, a document designated "Order for Farm Equipment". These instruments were introduced in evidence at the trial. No words appear in these written instruments indicating that any part of the equipment had not been delivered, nor that the dealer was charged with notice that the tractor was to be used in cultivating a crop at night, nor that the parties were contracting with respect to special damage which might accrue to appellant by reason of loss of crops resulting from his inability to use tractor at night for want of lights thereon. The note and contract each lists one article of equipment included in the sale and price thereof as follows: "Two Cylinders $20". Appellee Lacy, the dealer, in his brief says that this item "constituted the lighting equipment for this tractor".

The note was endorsed and negotiated to appellee International Harvester Company on June 4, 1942, which company began this action in replevin on January 16, 1943. Appellant filed answer and also filed cross-complaint against Lacy, the dealer, and the International Harvester Company. His cross-action was based upon the failure to deliver the starter and lighting equipment, and the resultant loss occasioned by inability to use the tractor at night. At the time the original cross-complaint was filed the equipment had not been placed on the tractor. He alleged: "That by reason of the failure of the cross-defendant, Gay Lacy, and the International Harvester Company, to equip said tractor with lights and a starter as he agreed to do, the defendant was denied the use of said tractor at nights over a period of forty-five days; and by reason of such deprivation, the defendant was unable to plant, cultivate and harvest a part of his crop, namely, twenty-five acres of land which he could and would have planted and cultivated in soy beans if he had had the lights and starter on said tractor, and by reason of such loss, the defendant has been damaged in the sum of $10 per night, for each and every night he was unable to use said tractor, or a total sum of $450, in which amount he is entitled to a set off against the indebtedness of $896.71 mentioned in the note sued on."

The prayer was for said sum of $450, and the "additional sum of $100.00, the value of the lights and starter which were not delivered".

The starter and lighting equipment was later delivered and thereafter appellant, in an amendment to his cross-complaint, stated: "Defendant further says that the starter and lights in question were in fact delivered about April 1, 1943, and installed, and, while they were second-hand, or appeared to be so, and have never been satisfactory, they have been retained by the defendant, and the demand for their value is therefore waived." His amended prayer is "for $450.00 by way of special damages as a set off against the note sued on * * * or * * * judgment * * * against Lacy for said sum."

Other facts reflected by the record, which relate directly to the question of special damages, will be stated in the course of the opinion.

Both here and in the court below, appellant limited his defense solely to his right to recover special damages. The trial court held that the facts presented by the record were not sufficient to justify submission of the question to the jury and directed a verdict against appellant.

Ordinarily when a seller fails to deliver goods within the time agreed upon [205] the buyer is entitled to recover as damages the difference between the contract price and the market price at the time of the breach. Under some circumstances, however, a buyer may recover special or consequential damages resulting from failure to deliver, or delay in delivery. The rules applicable in such cases are fully discussed in the case of Hooks Smelting Co. v. Planters' Compress Co., 72 Ark. 275, 79 S.W. 1052; which case has been consistently cited and adhered to. Long v. Chas. T. Abeles Co., 77 Ark. 150, 91 S.W. 29; Pine Bluff Iron Works v. Boling & Bro., 75 Ark. 469, 88 S.W. 306, 308; Sager v. Jung & Sons Co., 143 Ark. 506, 220 S.W. 801, Southwestern Bell Tel. Co. v. Carter, 181 Ark. 209, 25 S.W.2d 448; Interstate Grocery Co v. Namour, 201 Ark. 1095, 148 S. W.2d 175.

In Hooks Smelting Co. v. Planters' Compress Co., supra, Mr. Justice Riddick points out that the rule of law relating to special or consequential damages was first announced in the English case of Hadley v. Baxley, 9 Exch. 341.

After reviewing and criticising the interpretation given to the English case by certain text writers, the learned Justice declared what this court had determined was the correct rules of law for the assessment of special damages. A complete restatement of these rules, as set forth in that opinion, is unnecessary. For the purpose of this opinion it is necessary to point out only that in order to render a seller liable to the buyer for special or consequential damages arising from delay in delivering the article of sale it is necessary that at or before the time of the making of the contract of sale he knew of the special circumstances which would expose the buyer to special damages by reason of the delay in delivery, and that such seller at least tacitly consented to assume the particular risks arising from such delay. The seller cannot be charged with special damages, where his knowledge respecting the special circumstances which would cause such special damage is acquired after the purchase price of the article of sale is fixed. But notice of such circumstances is not alone sufficient to make the seller liable, for as was said in Hooks, etc., v. Planters', etc., supra [72 Ark. 275, 79 S.W. 1056]: "where the damages arise from special circumstances, and are so large as to be out of proportion to the consideration agreed to be paid for the services to be rendered under the contract, it raises a doubt at once as to whether the party would have assented to such a liability, had it been called to his attention at the making of the contract, unless the consideration to be paid was also raised so as to correspond in some respect to the liability assumed. To make him liable for the special damages in such a case, there must not only be knowledge of the special circumstances, but such knowledge `must be brought home to the party sought to be charged under such circumstances that he must know that the person he contracts with reasonably believes that he accepts the contract with the special condition attached to it.' In other words, the facts and circumstances in proof must be such as to make it reasonable for the judge or jury trying the case to believe that the party at the time of the contract tacitly consented to be bound to more than ordinary damages in case of default on his part."

Evidence relating to notice and, also, relating to circumstances indicating an implied agreement by seller to be liable for special damages is meager, vague and indefinite. Responding to a general question from his counsel, appellant testified in detail as to the original sales agreement made on December 4th, but failed to recount that in such agreement there was any mention of the starter or lighting equipment, the necessity therefor, or special understanding with respect thereto. Referring to the conversation had between himself and Lacy relative to these items after the tractor was delivered, he testified as follows: "I says `Mr. Lacy I can't use this tractor * * * I don't want it without a starter or lights'. And I told him that when we traded." "I had been operated on and didn't want the tractor that had no starter." Asked what reason he had given to the dealer as to why he "wanted the lights", appellant replied "so that I could operate it at night, I had nearly 200 acres of land to work." To the leading question, "Did you tell Mr. Lacy that you required the starter and lights and the reason why at the time you made the original trade with him?" appellant answered, "Yes, sir."

The above quotations reflect the entire evidence contained in the record relative to special damages. Conceding that such evidence is sufficient to show that appellant communicated notice to the dealer on or before December 4, 1941, that he desired lighting equipment so that he might [206] work at night, there is nothing in the testimony showing circumstances surrounding and connected with the transaction which were calculated to bring home to the dealer knowledge that appellant expected him to assume liability for a crop loss, which might amount to several hundreds of dollars, if he should fail to deliver a $20 lighting accessory. There was, of course, no such express contract on the dealer's part, and the facts and circumstances are not such as to make it reasonable for the trier of facts to believe that the dealer at the time tacitly consented to be bound for more than ordinary damages in case of default on his part.

Furthermore, appellant's claim for damages, asserted in his cross-complaint, is based upon allegations that he was prevented from planting and growing a twenty-five acre crop of soy beans. The measure of damages for preventing planting of a crop is the rental value of the land. Dilday v. David, 178 Ark. 898, 12 S.W.2d 899; St. Louis, I. M. & S. R. Co. v. Saunders, 85 Ark. 111, 107 S.W. 194. Proof of the rental value of this twenty-five acres is absent from the record.

We are convinced that the trial court did not err in dismissing appellant's cross-complaint and directing a verdict against him for the full amount of the note and interest. The judgment is affirmed.

[528] Sale of goods—Purchase of boiler by laundry company—Part of profit—making plant—Delay in delivery—Measure of damages—Loss of business profits.

The plaintiffs, launderers and dyers, wishing to extend their business, and having in view (inter alia) the prospect of certain profitable dyeing contracts, required a larger boiler. They therefore on April 26, 1946 concluded a contract with the defendants an [529] engineering firm, to purchase a boiler, then installed on the defendants' premises, for 2,150l., and delivery was arranged to be taken on June 5. Owing to a mishap while the boiler was being dismantled by the third parties, under contract with the defendants, it rolled over and sustained damage, and delivery to the plaintiffs was delayed until November 8, 1946. The defendants were aware of the nature of the plaintiffs' business, and by letter had been informed that the plaintiffs intended to put the boiler in use in the shortest possible space of time. In an action for breach of contract the plaintiffs claimed to include in their damages their loss of business profits. The trial judge allowed the plaintiffs a sum for damages under certain minor heads but disallowed the claim for loss of profits on the ground that it was based on special circumstances which had not been drawn to the attention of the defendants, and therefore came within the second rule in Hadley v. Baxendale (1854) 9 Exch. 341. On appeal:-

Held, that the defendants, an engineering company, with knowledge of the nature of the plaintiffs' business, having promised delivery by a particular date of a large and expensive plant, could not reasonably contend that they could not foresee that loss of business profit would be liable to result to the purchaser from a long delay in delivery; that although the defendants had no knowledge of the dyeing contracts which the plaintiffs had in prospect, it did not follow that the plaintiffs were precluded from recovering some general, and perhaps conjectural, sum for loss of business in respect of contracts reasonably to be expected; and therefore the appeal must be allowed and the damages referred to an Official Referee for assessment in consonance with those findings of the court.

Decision of Streatfeild J. [1948] W. N. 397, reversed.

Accuracy of the headnote in Hadley v. Baxendale questioned.

APPEAL from Streatfeild J.

The plaintiffs, a limited company, carrying on a business as launderers and dyers at Windsor, were in January, 1946, minded to expand their business, and to that end required a boiler of much greater capacity than the one they then possessed, which was of a capacity of 1,500-1,600 lbs. evaporation per hour. Seeing an advertisement by the defendants on January 17, 1946, of two "vertical Cochran boilers of 8,000 lb. per hour capacity heavy steaming," the plaintiffs negotiated for the purchase of one of them, and by April 26 had concluded a contract for its purchase at a price of 2,150l., loaded free on transport at Harpenden, where it was installed in the premises of the defendants. The defendants knew that the plaintiffs were launderers and dyers, and wanted the boiler for use in their business. Also, during the negotiations [530 the plaintiffs by letter expressed their intention to "put it into use in the shortest possible space of time." Arrangements were made by the plaintiffs with the defendants to take delivery at Harpenden on June 5, and the plaintiffs on that date sent a lorry to Harpenden to take delivery, but it was then ascertained that four days earlier the third parties, who had been employed by the defendants to dismantle the boiler, had allowed it to fall on its side and sustain damage. The plaintiffs refused to take delivery unless the damage was made good and ultimately the defendants agreed to arrange for the necessary repairs. The plaintiffs did not receive delivery of the boiler until November 8, 1946, and in the present action they claimed damages for breach of contract and sought to include in the damages loss of business profits during the period from June 5 to November 8, 1946.

Streatfeild J. gave judgment for the plaintiffs against the defendants for 110l. damages under certain minor heads, but held that they were not entitled to include in their measure of damages loss of business profits during the period of delay. The boiler, he said, was not a whole plant capable of being used by itself as a profit-making machine. Only the entire plant, including the vats, was a profit-making machine. The defendants were supplying the plaintiffs with only a part, the function of which they did not know, of that plant. The case fell, in his opinion, within the second rule in Hadley v. Baxendale ^[1] and the defendants were not liable for the loss of profits because the special object for which the plaintiffs were acquiring the boiler had not been drawn to the defendants' attention.

The plaintiffs appealed.

Beney K.C. and John Davidson for plaintiffs: The learned judge it is submitted came to a wrong decision. The speeches of their Lordships in A/B. Karlshamns Oljefabriker v. Monarch Steamship Co. Ld. ^[2] contain the latest pronouncement on the meaning of the rules in Hadley v. Baxendale ^[3]. Lord Wright said: "The ruling of Baron Alderson has consistently been followed, and the only difficulty, as Lord Sankey observed in Banco de Portugal v. Waterlow & Sons ^[4], has been in applying it. The distinction there drawn is between damages arising naturally (which means in the normal course of things) [531] and cases where there are special and extraordinary circumstances beyond the reasonable prevision of the parties. The distinction between these types is usually described in English law as that between general and special damages; the latter are such that if they are not communicated it would not be fair or reasonable to hold the defendant responsible for losses which he could not be taken to contemplate as likely to result from the breach of contract." He continued: "It appears that if the respondents had been claiming special and peculiar loss due to interference with their business such damages might, prima facie, be too remote and not proper to be recovered in the absence of notice when the contract was entered into .... But the respondents are claiming only for their loss directly due to the failure of the appellants to fulfil their promise to deliver the beans at Karlshamn. Their claim is not based on any extraordinary or peculiar matter, but is only what might be claimed by any party which suffers injury in the general circumstances of that business and at that time and place." If the defendants in this case had considered in April, 1946, the probable effects of a delay of five months, with due regard to what might reasonably be expected to occur, they could not have failed to foresee that some financial loss to the plaintiffs was a serious possibility. That, however, is not the test which the learned judge below appears to have applied. The defendants describe themselves as electrical engineers and manufacturers, and from the fact that they were asked if they would do the erection and fitting of the boiler they must have known that the boiler was to be put into operation and was not being purchased merely as a spare. Also the fact that by letter the plaintiffs had intimated their intention to put the boiler into use as speedily as possible justified the inference being drawn that speed was necessary. It must have been reasonably conveyed to the defendants that the boiler was wanted for use promptly. Although the facts in Cory v. Thames Ironworks Co. ^[5] were different from those in the present case, the test laid down to see into what category the case fell is of assistance in this case. The dividing line is not between a whole profit-earning plant and a part. It is a matter of degree. The test is what a reasonable hypothetical man would contemplate was the profitable use to which the article was to be put. It does not depend on actual knowledge, [532] but on what a reasonable person would contemplate. The appeal should be allowed and the matter referred to an official referee for the assessment of damages.

Paull K.C. and A. J. Hodgson for defendants. The measure of damages recoverable in any case of breach of contract must depend upon the inferences which the court is entitled to draw from the facts. The defendants here were selling a secondhand boiler. They had no special knowledge of the use of boilers generally and no knowledge of how laundries were run. There may be a great difference between a sale such as this and the sale of a chattel by manufacturers of and experts in the use of a particular chattel. The seller having no special knowledge or information that this part of machinery was essential for immediate profit-making, he is not liable for that loss of profit: Hadley v. Baxendale ^[6]. To saddle the defendant with liability where the loss of profit is due to special circumstances the court must be able to draw the inference that those circumstances have been brought to the notice of the defendant. The authorities draw a distinction between the supply of part of a profit-making machine and the supply of the machine itself: see Portman v. Middleton ^[7]. The fact that what is being supplied is only part of a plant negatives the idea that it is wanted for immediate use. Gee v. Lancashire and Yorkshire Railway ^[8] and British Columbia Sawmills v. Nettleship ^[9] are decisions strongly in favour of the present defendants. In the latter case it was expressly held that it was not sufficient that the defendant knew the thing supplied was going to be used in the plaintiffs' business. It must be found that the defendant had that knowledge at the time he entered into the contract and expressly or impliedly accepted liability for a breach. Special circumstances must have been brought to the knowledge of the other contracting party or else the claim comes under the second rule in Hadley v. Baxendale ^[10]. The defendants did not know that the boiler they were supplying was a bigger boiler than the one already possessed by the plaintiffs and therefore they must not be assumed to know that delay in delivery would cause loss of profits. They did not know that everything was ready for putting the boiler in place. So far as they knew it might be required as a spare. Mere knowledge that the boiler was to be [533] used in the plaintiffs' business is not sufficient to fix the defendants with liability.

Caplan for third parties.

Cur. adv. vult.

This is an appeal by the plaintiffs against a judgment of Streatfeild J. in so far as that judgment limited the damages to 110l. in respect of an alleged breach of contract by the defendants, which is now uncontested. The breach of contract consisted in the delivery of a boiler sold by the defendants to the plaintiffs some twenty odd weeks after the time fixed by the contract for delivery. The short point is whether, in addition to the 110l. awarded, the plaintiffs were entitled to claim in respect of loss of profits which they say they would have made if the boiler had been delivered punctually. Seeing that the issue is as to the measure of recoverable damage and the application of the rules in Hadley v. Baxendale ^[11], it is important to inquire what information the defendants possessed at the time when the contract was made, as to such matters as the time at which, and the purpose for which, the plaintiffs required the boiler. The defendants knew before, and at the time of the contract, that the plaintiffs were laundrymen and dyers, and required the boiler for purposes of their business as such. They also knew that the plaintiffs wanted the boiler for immediate use. On the latter point the correspondence is important. The contract was concluded by, and is contained in, a series of letters. In the earliest phases of the correspondence - that is, in letters of January 31 and February 1, 1946 - (which letters, as appears from their terms, followed a telephone call on the earlier date) - the defendants undertook to make the earliest possible arrangements for the dismantling and removal of the boiler. The natural inference from this is that in the telephone conversation referred to the plaintiffs had conveyed to the defendants that they required the boiler urgently. Again, on February 7 the plaintiffs write to the defendants: "We should appreciate your letting us know how quickly your people can dismantle it"; and finally, on April 26, in the concluding letter of the series by which the contract was made: "We are most anxious that this" (that is, the boiler) "should be put into use in the shortest possible space of time." Hence, up to and at the very moment [534] when a concluded contract emerged, the plaintiffs were pressing upon the defendants the need for expedition; and the last letter was a plain intimation that the boiler was wanted for immediate use. This is none the less so because when, later, the plaintiffs encountered delays in getting the necessary permits and licences, the exhortations to speed come from the other side, who wanted their money, which in fact they were paid in advance of delivery. The defendants knew the plaintiffs needed the boiler as soon as the delays should be overcome, and they knew by the beginning of June that such delays had by then in fact been overcome. The defendants did not know at the material time the precise role for which the boiler was cast in the plaintiffs' economy, e.g. whether (as the fact was) it was to function in substitution for an existing boiler of inferior capacity, or in replacement of an existing boiler of equal capacity, or as an extra unit to be operated side by side with and in addition to any existing boiler. It has indeed been argued strenuously that, for all they knew, it might have been wanted as a "spare" or "standby," provided in advance to replace an existing boiler when, perhaps some time hence, the latter should wear out; but such an intention to reserve it for future use seems quite inconsistent with the intention expressed in the letter of April 26, to "put it into use in the shortest possible space of time."

In this connexion, certain admissions made in the course of the hearing are of vital importance. The defendants formally admitted what in their defence they had originally traversed, namely, the facts alleged in para. 2 of the statement of claim. That paragraph reads as follows: "At the date of the contract hereinafter mentioned the defendants well knew as the fact was that the plaintiffs were launderers and dyers carrying on business at Windsor and required the said boiler for use in their said business and the said contract was made upon the basis that the said boiler was required for the said purpose."

On June 5 the plaintiffs, having heard that the boiler was ready, sent a lorry to Harpenden to take delivery. Mr. Lennard, a director of the plaintiff company, preceded the lorry in a car. He discovered on arrival that four days earlier the contractors employed by the defendants to dismantle the boiler had allowed it to fall on its side, sustaining injuries. Mr. Lennard declined to take delivery of the damaged [535] boiler in its existing condition and insisted that the damage must be made good. He was, we think, justified in this attitude, since no similar article could be bought in the market. After a long wrangle, the defendants agreed to perform the necessary repairs and, after further delay through the difficulty of finding a contractor who was free and able to perform them, completed the repairs by October 28. Delivery was taken by the plaintiffs on November 8 and the boiler was erected and working by early December. The plaintiffs claim, as part - the disputed part - of the damages, loss of the profits they would have earned if the machine had been delivered in early June instead of November. Evidence was led for the plaintiffs with the object of establishing that if the boiler had been punctually delivered, then, during the twenty odd weeks between then and the time of actual delivery, (1.) they could have taken on a very large number of new customers in the course of their laundry business, the demand for laundry services at that time being insatiable - they did in fact take on extra staff in the expectation of its delivery - and (2.) that they could and would have accepted a number of highly lucrative dyeing contracts for the Ministry of Supply. In the statement of claim, para. 10, the loss of profits under the first of these heads was quantified at 16l. a week and under the second at 262l. a week.

The evidence, however, which promised to be voluminous, had not gone very far when Mr. Paull, for the defendants, submitted that in law no loss of profits was recoverable at all, and that to continue to hear evidence as to its quantum was merely waste of time. He suggested that the question of remoteness of damage under this head should be decided on the existing materials, including the admissions to which we have referred. The learned judge accepted Mr. Paull's submission, and on that basis awarded 110l. damages under certain minor heads, but nothing in respect of loss of profits, which he held to be too remote. It is from that decision that the plaintiffs now appeal. It was a necessary consequence of the course which the case took that no evidence was given on behalf of the defendants, and only part of the evidence available to the plaintiffs. It should be observed parenthetically that the defendants had added as third parties the contractors who, by dropping the boiler, and causing the injuries to it, prevented its delivery in early June and caused the defendants to break their contract. Those third-party proceedings have been [536] adjourned pending the hearing of the present appeal as between the plaintiffs and the defendants. The third parties, nevertheless, were served with notice of appeal by the defendants and argument was heard for them at the hearing of the appeal.

The ground of the learned judge's decision, which we consider more fully later, may be summarized as follows: He took the view that the loss of profit claimed was due to special circumstances and therefore recoverable, if at all, only under the second rule in Hadley v. Baxendale and not recoverable in this case because such special circumstances were not at the time of the contract communicated to the defendants. He also attached much significance to the fact that the object supplied was not a self-sufficient profit-making article, but part of a larger profit-making whole, and cited in this connexion the cases of Portman v. Middleton ^[12] and British Columbia Sawmills v. Nettleship ^[13]. Before commenting on the learned judge's reasoning, we must refer to some of the authorities.

The authorities on recovery of loss of profits as a head of damage are not easy to reconcile. At one end of the scale stand cases where there has been non-delivery or delayed delivery of what is on the face of it obviously a profit-earning chattel; for instance, a merchant or passenger ship: see Fletcher v. Tayleur ^[14], In re Trent and Humber Company, ex parte Cambrian Steam Packet Company ^[15]; or some essential part of such a ship; for instance, a propeller, in Wilson v. General Ironscrew Company ^[16], or engines, Saint Line v. Richardson ^[17]. In such cases loss of profit has rarely been refused. A second and intermediate class of case in which loss of profit has often been awarded is where ordinary mercantile goods have been sold to a merchant with knowledge by the vendor that the purchaser wanted them for resale; at all events, where there was no market in which the purchaser could buy similar goods against the contract on the seller's default, see, for instance, Borries v. Hutchinson ^[18]. At the other end of the scale are cases where the defendant is not a vendor of the goods, but a carrier, see, for instance, Hadley v. Baxendale ^[19] and Gee v. Lancashire and Yorkshire Railway ^[20]. In such cases the courts have been slow to allow loss of [537] profit as an item of damage. This was not, it would seem, because a different principle applies in such cases, but because the application of the same principle leads to different results. A carrier commonly knows less than a seller about the purposes for which the buyer or consignee needs the goods, or about other "special circumstances" which may cause exceptional loss if due delivery is withheld.

Three of the authorities call for more detailed examination. First comes Hadley v. Baxendale ^[21] itself. Familiar though it is, we should first recall the memorable sentence in which the main principles laid down in this case are enshrined: "Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered as either arising naturally, i.e. according to the usual course of things, from such breach of contract 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." The limb of this sentence prefaced by "either" embodies the so-called "first" rule; that prefaced by "or" the "second." In considering the meaning and application of these rules, it is essential to bear clearly in mind the facts on which Hadley v. Baxendale ^[22] proceeded. The head-note is definitely misleading in so far as it says that the defendant's clerk, who attended at the office, was told that the mill was stopped and that the shaft must be delivered immediately. The same allegation figures in the statement of facts which are said on page 344 to have "appeared" at the trial before Crompton J. If the Court of Exchequer had accepted these facts as established, the court must, one would suppose, have decided the case the other way round; must, that is, have held the damage claimed was recoverable under the second rule. But it is reasonably plain from Alderson B's judgment that the court rejected this evidence, for on page 355 he says: "We find that the only circumstances here communicated by the plaintiffs to the defendants at the time when the contract was made were that the article to be carried was the broken shaft of a mill and that the plaintiffs were the millers of that mill," and it is on this basis of fact that he proceeds to ask, "How do these circumstances show reasonably that the profits of the mill [538] must be stopped by an unreasonable delay in the delivery of the broken shaft by the carrier to the third person?"

British Columbia Sawmills v. Nettleship ^[23] annexes to the principle laid down in Hadley v. Baxendale ^[24] a rider to the effect that where knowledge of special circumstances is relied on as enhancing the damage recoverable that knowledge must have been brought home to the defendant at the time of the contract and in such circumstances that the defendant impliedly undertook to bear any special loss referable to a breach in those special circumstances. The knowledge which was lacking in that case on the part of the defendant was knowledge that the particular box of machinery negligently lost by the defendants was one without which the rest of the machinery could not be put together and would therefore be useless.

Cory v. Thames Ironworks Company ^[25]- a case strongly relied on by the plaintiffs - presented the peculiarity that the parties contemplated respectively different profit-making uses of the chattel sold by the defendant to the plaintiff. It was the hull of a boom derrick, and was delivered late. The plaintiffs were coal merchants, and the obvious use, and that to which the defendants believed it was to be put, was that of a coal store. The plaintiffs, on the other hand, the buyers, in fact intended to use it for transhipping coals from colliers to barges, a quite unprecedented use for a chattel of this kind, one quite unsuspected by the sellers and one calculated to yield much higher profits. The case accordingly decides, inter alia, what is the measure of damage recoverable when the parties are not ad idem in their contemplation of the use for which the article is needed. It was decided that in such a case no loss was recoverable beyond what would have resulted if the intended use had been that reasonably within the contemplation of the defendants, which in that case was the "obvious" use. This special complicating factor, the divergence between the knowledge and contemplation of the parties respectively, has somewhat obscured the general importance of the decision, which is in effect that the facts of the case brought it within the first rule of Hadley v. Baxendale ^[26] and enabled the plaintiff to recover loss of such profits as would have arisen from the normal and obvious use of the article. The "natural consequence," said Blackburn J., of not delivering the derrick was that 420l. representing those [539] normal profits was lost. Cockburn C.J., interposing during the argument, made the significant observation: "No doubt in order to recover damage arising from a special purpose the buyer must have communicated the special purpose to the seller; but there is one thing which must always be in the knowledge of both parties, which is that the thing is bought for the purpose of being in some way or other profitably applied." This observation is apposite to the present case. These three cases have on many occasions been approved by the House of Lords without any material qualification.

What propositions applicable to the present case emerge from the authorities as a whole, including those analysed above? We think they include the following:-

(1.) It is well settled that the governing purpose of damages is to put the party whose rights have been violated in the same position, so far as money can do so, as if his rights had been observed: (Sally Wertheim v. Chicoutimi Pulp Company ^[27]). This purpose, if relentlessly pursued, would provide him with a complete indemnity for all loss de facto resulting from a particular breach, however improbable, however unpredictable. This, in contract at least, is recognized as too harsh a rule. Hence,

(2.) In cases of breach of contract the aggrieved party is only entitled to recover such part of the loss actually resulting as was at the time of the contract reasonably forseeable as liable to result from the breach.

(3.) What was at that time reasonably so foreseeable depends on the knowledge then possessed by the parties or, at all events, by the party who later commits the breach.

(4.) For this purpose, knowledge "possessed" is of two kinds; one imputed, the other actual. Everyone, as a reasonable person, is taken to know the "ordinary course of things" and consequently what loss is liable to result from a breach of contract in that ordinary course. This is the subject matter of the "first rule" in Hadley v. Baxendale ^[28]. But to this knowledge, which a contract-breaker is assumed to possess whether he actually possesses it or not, there may have to be added in a particular case knowledge which he actually possesses, of special circumstances outside the "ordinary course of things," of such a kind that a breach in those special circumstances would be liable to cause more loss. Such a case attracts the operation of the "second rule" so as to make additional loss also recoverable.

[540] (5.) In order to make the contract-breaker liable under either rule it is not necessary that he should actually have asked himself what loss is liable to result from a breach. As has often been pointed out, parties at the time of contracting contemplate not the breach of the contract, but its performance. It suffices that, if he had considered the question, he would as a reasonable man have concluded that the loss in question was liable to result (see certain observations of Lord du Parcq in the recent case of A/B Karlshamns Oljefabriker v. Monarch Steamship Company Limited ^[29].)

(6.) Nor, finally, to make a particular loss recoverable, need it be proved that upon a given state of knowledge the defendant could, as a reasonable man, foresee that a breach must necessarily result in that loss. It is enough if he could foresee it was likely so to result. It is indeed enough, to borrow from the language of Lord du Parcq in the same case, at page 158, if the loss (or some factor without which it would not have occurred) is a "serious possibility" or a "real danger." For short, we have used the word "liable" to result. Possibly the colloquialism "on the cards" indicates the shade of meaning with some approach to accuracy.

If these, indeed, are the principles applicable, what is the effect of their application to the facts of this case? We have, at the beginning of this judgment, summarized the main relevant facts. The defendants were an engineering company supplying a boiler to a laundry. We reject the submission for the defendants that an engineering company knows no more than the plain man about boilers or the purposes to which they are commonly put by different classes of purchasers, including laundries. The defendant company were not, it is true, manufacturers of this boiler or dealers in boilers, but they gave a highly technical and comprehensive description of this boiler to the plaintiffs by letter of January 19, 1946, and offered both to dismantle the boiler at Harpenden and to re-erect it on the plaintiffs' premises. Of the uses or purposes to which boilers are put, they would clearly know more than the uninstructed layman. Again, they knew they were supplying the boiler to a company carrying on the business of laundrymen and dyers, for use in that business. The obvious use of a boiler, in such a business, is surely to boil water for the purpose of washing or dyeing. A laundry might conceivably buy a boiler for some other purpose; for instance, to [541] work radiators or warm bath water for the comfort of its employees or directors, or to use for research, or to exhibit in a museum. All these purposes are possible, but the first is the obvious purpose which, in the case of a laundry, leaps to the average eye. If the purpose then be to wash or dye, why does the company want to wash or dye, unless for purposes of business advantage, in which term we, for the purposes of the rest of this judgment, include maintenance or increase of profit, or reduction of loss? (We shall speak henceforward not of loss of profit, but of "loss of business.") No commercial concern commonly purchases for the purposes of its business a very large and expensive structure like this - a boiler 19 feet high and costing over 2,000l. - with any other motive, and no supplier, let alone an engineering company, which has promised delivery of such an article by a particular date, with knowledge that it was to be put into use immediately on delivery, can reasonably contend that it could not foresee that loss of business (in the sense indicated above) would be liable to result to the purchaser from a long delay in the delivery thereof. The suggestion that, for all the supplier knew, the boiler might have been needed simply as a "standby," to be used in a possibly distant future, is gratuitous and was plainly negatived by the terms of the letter of April 26, 1946.

Since we are differing from a carefully reasoned judgment, we think it due to the learned judge to indicate the grounds of our dissent. In that judgment, after stressing the fact that the defendants were not manufacturers of this boiler or of any boilers (a fact which is indisputable), nor (what is disputable) people possessing any special knowledge not common to the general public of boilers or laundries as possible users thereof, he goes on to say: "That is the general principle and I think that the principle running through the cases is this - and to this extent I agree with Mr. Beney - that if there is nothing unusual, if it is a normal user of the plant, then it may well be that the parties must be taken to contemplate that the loss of profits may result from non-delivery, or the delay in delivery, of the particular article. On the other hand, if there are, as I think there are here, special circumstances, I do not think that the defendants are liable for loss of profits unless these special circumstances were drawn to their notice. In looking at the cases, I think there is a distinction as Mr. Paull has pointed out and insists upon, between the [542] supply of the part of the profit-making machine, as against the profit-making machine itself." Then, after referring to Portman v. Middleton ^[30], he continues: "It is to be observed that not only must the circumstances be known to the supplier, but they must be such that the object must be taken to have been within the contemplation of both parties. I do not think that on the facts of the case as I have heard them, and upon the admissions, it can be said that it was within the contemplation of the supplier, namely, the defendants, that any delay in the delivery of this boiler was going to lead necessarily to loss of profits. There was nothing that I know of in the evidence to indicate how it was to be used or whether delivery of it by a particular day would necessarily be vital to the earning of these profits. I agree with the propositions of Mr. Paull that it was no part of the contract, and it cannot be taken to have been the basis of the contract, that the laundry would be unable to work if there was a delay in the delivery of the boiler, or that the laundry was extending its business, or that it had any special contracts which they could fulfil only by getting delivery of this boiler. In my view, therefore, this case falls within the second rule of Hadley v. Baxendale ^[31] under which they are not liable for the payment of damages for loss of profits unless there is evidence before the court - which there is not - that the special object of this boiler was drawn to their attention and that they contracted upon the basis that delay in the delivery of the boiler would make them liable to payment of loss of profits."

The answer to this reasoning has largely been anticipated in what has been said above, but we would wish to add: First, that the learned judge appears to infer that because certain "special circumstances" were, in his view, not "drawn to the notice of" the defendants and therefore, in his view, the operation of the "second rule" was excluded, ergo nothing in respect of loss of business can be recovered under the "first rule." This inference is, in our view, no more justified in the present case than it was in the case of Cory v. Thames Ironworks Company ^[32]. Secondly, that while it is not wholly clear what were the "special circumstances" on the non-communication of which the learned judge relied, it would seem that they were, or included, the following:- (a) the [543] "circumstance" that delay in delivering the boiler was going to lead "necessarily" to loss of profits. But the true criterion is surely not what was bound "necessarily" to result, but what was likely or liable to do so, and we think that it was amply conveyed to the defendants by what was communicated to them (plus what was patent without express communication) that delay in delivery was likely to lead to "loss of business"; (b) the "circumstance" that the plaintiffs needed the boiler "to extend their business." It was surely not necessary for the defendants to be specifically informed of this, as a precondition of being liable for loss of business. Reasonable, persons in the shoes of the defendants must be taken to foresee without any express intimation, that a laundry which, at a time when there was a famine of laundry facilities, was paying 2,000l. odd for plant and intended at such a time to put such plant "into use" immediately, would be likely to suffer in pocket from five months' delay in delivery of the plant in question, whether they intended by means of it to extend their business, or merely to maintain it, or to reduce a loss; (c) the "circumstance" that the plaintiffs had the assured expectation of special contracts, which they could only fulfil by securing punctual delivery of the boiler. Here, no doubt, the learned judge had in mind the particularly lucrative dyeing contracts to which the plaintiffs looked forward and which they mention in para. 10 of the statement of claim. We agree that in order that the plaintiffs should recover specifically and as such the profits expected on these contracts, the defendants would have had to know, at the time of their agreement with the plaintiffs, of the prospect and terms of such contracts. We also agree that they did not in fact know these things. It does not, however, follow that the plaintiffs are precluded from recovering some general (and perhaps conjectural) sum for loss of business in respect of dyeing contracts to be reasonably expected, any more than in respect of laundering contracts to be reasonably expected.

Thirdly, the other point on which Streatfeild J. largely based his judgment was that there is a critical difference between the measure of damages applicable when the defendant defaults in supplying a self-contained profit-earning whole and when he defaults in supplying a part of that whole. In our view, there is no intrinsic magic, in this connexion, in the whole as against a part. The fact that a part only is involved is only significant in so far as it bears on the capacity of the [544] supplier to foresee the consequences of non-delivery. If it is clear from the nature of the part (or the supplier of it is informed) that its non-delivery will have the same effect as non-delivery of the whole, his liability will be the same as if he had defaulted in delivering the whole. The cases of Hadley v. Baxendale ^[33], British Columbia Sawmills v. Nettleship ^[34] and Portman v. Middleton ^[35], which were so strongly relied on for the defence and by the learned judge, were all cases in which, through want of a part, catastrophic results ensued, in that a whole concern was paralysed or sterilized; a mill stopped, a complex of machinery unable to be assembled, a threshing machine unable to be delivered in time for the harvest and therefore useless. In all three cases the defendants were absolved from liability to compensate the plaintiffs for the resulting loss of business, not because what they had failed to deliver was a part, but because there had been nothing to convey to them that want of that part would stultify the whole business of the person for whose benefit the part was contracted for. There is no resemblance between these cases and the present, in which, while there was no question of a total stoppage resulting from non-delivery, yet there was ample means of knowledge on the part of the defendants that business loss of some sort would be likely to result to the plaintiffs from the defendants' default in performing their contract.

We are therefore of opinion that the appeal should be allowed and the issue referred to an official referee as to what damage, if any, is recoverable in addition to the 110l. awarded by the learned trial judge. The official referee would assess those damages in consonance with the findings in this judgment as to what the defendants knew or must be taken to have known at the material time, either party to be at liberty to call evidence as to the quantum of the damage in dispute.

Appeal allowed.

Solicitors for plaintiffs: Kenneth Brown, Baker, Baker.

Solicitors for defendants: Braikenridge & Edwards for Veale & Co., Bristol.

Solicitors for third parties: Bosman, Robinson & Co.

A. W. G.

[1] (1854) 9 Exch. 341.

[2] [1948] A. C. 196.

[3] (1854) 9 Exch. 341.

[4] [1932] A. C. 452.

[5] (1868) L. R. 3 Q. B. 181.

[6] 9 Exch. 341.

[7] (1858) 4 C. B. (N. S.) 322.

[8] (1860) 6 H. &. N. 211.

[9] (1868) L. R. 3 C. P. 499.

[10] 9 Exch. 341.

[11] 9 Exch. 341.

[12] 4 C. B. (N. S.) 322.

[13] L. R. 3 C. P. 499.

[14] (1855) 17 C. B. 21.

[15] (1868) L. R. 6 Eq. 396.

[16] (1878) 47 L. J. (Q. B.) 23.

[17] [1940] 2 K. B. 99.

[18] (1865) 18 C. B. (N. S.) 445.

[19] 9 Exch. 341.

[20] 6 H. & N. 211.

[21] 9 Exch. 341.

[22] 9 Exch. 341.

[23] L. R. 3 C. P. 409.

[24] 9 Exch. 341.

[25] L. R. 3 Q. B. 181, 187.

[26] 9 Exch. 341.

[27] [1911] A. C. 301.

[28] 9 Exch. 341.

[29] [1949] A. C. 196.

[30] 4 C. B. (N. S.) 322.

[31] 9 Exch. 341.

[32] L. R. 3 Q. B. 181.

[33] 9 Exch. 341.

[34] L. R. 3 C. P. 499.

[35] 4 C. B. (N. S.) 322.

[107] Paul J. Chitwood, Dallas, Tex., for plaintiff-appellant.

Howard P. Newton, San Antonio, Tex., for defendant-appellee.

Before WISDOM, HILL and VANCE, Circuit Judges.

Rehearing and Rehearing En Banc Denied December 20, 1979.

Martinez appeals the trial court's dismissal of his claim under 49 U.S.C. § 20(11) (Carmack Amendment to the Interstate Commerce Act) for losses resulting from delay and damage in transportation by carrier Southern Pacific. The district court granted Southern Pacific's motion under Rule 12(b)(6) to dismiss the claim for delay damages. It held that such damages are special and Martinez failed to allege that the carrier had any notice of the possibility that such damages would accrue upon a breach of the contract between the parties. We reverse and remand for trial on the claim for some but not all of the damages sought.

Martinez's agent delivered a 2400 Lima Dragline, Model 66, to the Penn Central Railroad, the origin carrier, on February 11, 1974, for shipment from New Philadelphia, Ohio to Eagle Pass, Texas. The dragline was loaded onto five separate railroad cars. A single uniform bill of lading, which described the dragline as "used strip mining machinery and parts," was issued by Penn Central, listing Martinez's agent in Eagle Pass as the consignee.

The last of the five cars, which were shipped separately, arrived in Eagle Pass on April 2, 1974. Martinez had to make reasonable repairs in the amount of $14,467.00 because the dragline was damaged in transit. These repairs were not completed until June 20, 1974. Martinez also alleges delay damages in the amount of $117,600.00 because the dragline could not be used from March 1, when he contends that the last of the cars should have arrived, until June 20. The claimed sum represents the dragline's fair rental value during this period.

After filing a claim as prescribed by the bill of lading, Martinez sued Southern Pacific, which as delivering carrier is liable for all recoverable damages. Martinez framed his original complaint to allege three separate claims under the Carmack Amendment. First, Martinez sought recovery of the cost of repairing the damage to the [108] dragline. Second, he sought the refund of certain demurrage or storage charges assessed by Southern Pacific and paid at the time of delivery. Third, Martinez sought compensation for wrongful deprivation of the dragline's use during the periods of delay in transit and of repair.

Martinez and Southern Pacific had already settled the first two of these claims, when Southern Pacific filed its Rule 12(b)(6) motion to dismiss the third claim for loss of use. Southern Pacific argues that, because such damages are special, they are not recoverable under the Carmack Amendment absent notice of the possibility of such damages. The trial court denied this motion upon condition that Martinez amend his complaint to allege such notice. When Martinez refused, the district court granted Southern Pacific's motion under Rule 12(b)(6). This ruling, which had the effect of dismissing all that remained of Martinez's suit, is the basis of this appeal.

Martinez's delay claim involves two very different items. Lost use during the period of March 1 until April 2 resulted from a delay in transit. Lost use from April 2 until June 20 resulted from repair of the damaged goods. Neither the parties nor the district court have focused on the full import of this distinction. Martinez's claimed loss during repair is not severable from the physical damage to the dragline but is a part of the same legal claim. Thus Martinez necessarily settled his claim regarding damages for the repair period when he settled his first claim for damages to the dragline. The surviving issue is the appropriate measure of damages for the claimed loss resulting from Southern Pacific's unreasonable delay in transportation.

The Carmack Amendment^[1] governs Martinez's claim for damages resulting from the delay in transit. That amendment incorporates common law principles for damages. F. J. McCarty Co. v. Southern Pacific Co., 428 F.2d 690, 693 (9th Cir. 1970); L. E. Whitlock Truck Service, Inc. v. Regal Drilling Co., 333 F.2d 488, 491 (10th Cir. 1964); J & H Flyer Inc. v. Pennsylvania Rr., 316 F.2d 203, 205 (2d Cir. 1963). In applying that statute, we first examine the extent to which the innocent party actually has been injured by the alleged breach. This inquiry assists in determining how the innocent party can be restored to the position in which he would have been had the contract been fully performed. See Liberty Navigation & Trading Co. v. Kinoshita & Co., 285 F.2d 343, 350 (2d Cir. 1960) (Lumbard, C. J., concurring in relevant part), cert. denied, 366 U.S. 949, 81 S.Ct. 1904, 6 L.Ed.2d 1242 (1961); 11 Williston on Contracts § 1338, at 198 (3d ed. W. Jaeger 1968).

Normally, the remedy is an award of money damages to the aggrieved party as compensation for his economic injury.^[2] This rule in effect protects the innocent party's expectation interest, giving him the "benefit of the bargain."^[3] Martinez's alleged injury in this case was deprivation of the dragline's use between March 1, when it should have been delivered, and April 2. [109] Besides compensating the injured plaintiff, the common law also seeks to protect the defendant from unforeseeable large losses to the plaintiff.^[4] This limitation makes good sense. An award of full compensation for all of the plaintiff's losses due to the breach, no matter how unforeseeable or bizarre these losses are, would simply be unfair to the defendant as well as possibly paralyzing to commerce.

We next assess the reasonable foreseeability of the plaintiff's actual injury at the time of entry into the contract—here the bill of lading. Globe Refining Co. v. Landa Cotton Oil Co., 190 U.S. 540, 544, 23 S.Ct. 754, 47 L.Ed. 1171 (1903); De Fore v. United States, 145 F.Supp. 484, 491 (M.D. Ga.1956), aff'd sub nom. Georgia Kaolin Co. v. United States, 249 F.2d 148 (5th Cir. 1957). Our analysis on this point begins with Hadley v. Baxendale, 9 Ex. 341, 156 Eng.Rep. 145 (1854). There, mill operators were forced to close operations to ship a broken shaft for repairs, and the carrier negligently delayed shipment. The carrier, however, had not been informed of the situation at the mill. The court refused to award profits lost during the period of delay because such damages were not in the contemplation of the parties. The court articulated the rules, still almost universally followed,^[5] that general damages are awarded only if injury were foreseeable to a reasonable man and that special damages are awarded only if actual notice were given the carrier of the possibility of injury.^[6] Damage is foreseeable by the carrier if it is the proximate and usual consequence of the carrier's action. 11 Williston on Contracts, supra § 1344, at 226.

Martinez asserts that his loss resulting from the delay in shipment was reasonably foreseeable when he entered the contract to transport his dragline. Hadley held that the damages arising from an inoperative mill were not foreseeable results of delayed shipment of a shaft, without specific notice. It was not obvious that the shaft in Hadley was an indispensable element of a mill. In the instant case, however, it was obvious that the dragline is a machine which of itself has a use value. Some cases after Hadley have suggested that the injury resulting from loss of a machine's use are not foreseeable results of delayed transport, because it is not a usual consequence although it is a proximate consequence. See 11 Williston on Contracts, supra § 1344, at 226-27. These decisions are unwarranted extensions of Hadley and employ arbitrary and inflexible definitions of foreseeability. Capital goods such as machinery have a use value, which may equal the rental value of the equipment or may be an interest value. The latter is ordinarily interest at the market rate on the value of the machine. It might be quite foreseeable that deprivation of the machine's use because of a carriage delay will cause a loss of rental value or interest value during the delay period.^[7] [110] See generally F. Kessler & G. Gilmore, Contracts 1042 (2d ed. 1970). We must not lose sight of the basic common law rule, enunciated in Hadley, of damages for foreseeable loss. The amount of damages that was reasonably foreseeable involves a fact question that Martinez is entitled to present to a jury.

Southern Pacific replies that it was as foreseeable that the goods were to be sold as that they were to be used. This contention proves too much because Hadley allows recovery for harms that should have been foreseen. The general rule does not require the plaintiff to show that the actual harm suffered was the most foreseeable of possible harms. He need only demonstrate that his harm was not so remote as to make it unforeseeable to a reasonable man at the time of contracting. Even if the dragline were being shipped for sale it does not follow that delay in shipment would cause no recoverable loss.

Southern Pacific argues that, because only market value damages are foreseeable under common law, damages for lost rental value must be special and therefore require notice by Martinez. This argument confuses one common law method for computing damages with the underlying common law rule of awarding reasonable compensation for foreseeable injury from a contract's breach.

The common law employs a number of methods for computing damages recoverable for unreasonable delay in shipment. One of these is the market value test that measures damages by the diminution in the goods' value between the time of dispatch and the time of actual delivery. See 11 Williston on Contracts, supra § 1342, at 223. That test, however, "is merely a method," and it "is not applied in cases where . . . another rule will better compute actual damages." Great Atlantic & Pacific Tea Co. v. Atchison, T. & Ste. F. Ry., 333 F.2d 705, 708 (7th Cir. 1964), cert. denied, 379 U.S. 967, 85 S.Ct. 661, 13 L.Ed.2d 560 (1965). Accord, Olsen v. Railway Express Agency, Inc., 295 F.2d 358, 359 (10th Cir. 1961). Cf. Illinois Cent. Ry. v. Crail, 281 U.S. 57, 64-65, 50 S.Ct. 180, 74 L.Ed. 699 (1930) (Cummins Amendment). Lost rental value is frequently an appropriate measure of damages from a delay in shipment of machinery.^[8] See Resolute Ins. Co. v. Percy Jones, Inc., 198 F.2d 309, 312 (10th Cir. 1952). E. g., Burlington Northern Inc. v. United States, 462 F.2d 526, 529-30, 199 Ct.Cl. 143 (1972); New Orleans & N. E. R. v. J. H. Miner Saw Mfg. Co., 117 Miss. 646, 78 So. 577, 578 (1918). In deciding which measure of damage to apply, courts look to the actual loss suffered by the plaintiff and the common law rule of compensating that loss.

There is only one rule, of universal application, . . . and that is to give compensation for the loss suffered. Frequently, this ideal is found impossible of complete attainment; perhaps generally the market value rule is found to be the nearest approach to reaching the actual loss. But the market value rule is inapplicable when, on the facts, it is not the nearest practicable approach to an ascertainment of the actual loss. Each case must be governed by its own facts. [111] United States v. Palmer & Parker Co., 61 F.2d 455, 459 (1st Cir. 1932). The Carmack Amendment, in compensating the aggrieved party's "full actual loss," does not restrict the measure of damages solely to the diminution in value of the goods involved. Great Atlantic & Pacific Tea Co. v. Atchison, T. & Ste. F. Ry., 333 F.2d at 708-09.^[9]

Martinez has stated a claim for damages resulting from the delay in shipment. We reverse the district court's order of dismissal on this point, and remand for trial. We affirm, however, the district court's decision to dismiss Martinez's claim for damages resulting from the delay during repair.

[1] The Carmack Amendment, 49 U.S.C. § 20(11), provides that any common carrier subject to the provisions of the Interstate Commerce Act, such as Southern Pacific, who receives property for transportation in interstate commerce shall be liable for damages it causes in the amount of "the full actual loss, damage or injury" suffered. Federal law controls our determination of liability and the measure of damages, Dublin Co. v. Ryder Truck Lines, Inc., 417 F.2d 777, 778 (5th Cir. 1969), although it adopts common law principles.

[2] In some situations in which money damages cannot adequately compensate the innocent party, the court may order specific performance of the contract.

[3] Damages may be awarded for the expectation interest, the reliance interest, or the restitution interest of the aggrieved party. Fuller & Perdue, The Reliance Interest in Contract Damages (pts. 1-2), 46 Yale L.J. 52, 373 (1936-1937); J. Calamari & J. Perillo, Contracts § 205, at 328-29 (1970). If it is impossible to calculate a plaintiff's expectation interest, courts award damages to protect his reliance interest, to restore him to his position before the contract was entered. If reliance damages do not represent a fair measure of recovery, courts calculate damages on the basis of the restitution interest, to restore the benefit received from the plaintiff's performance.

[4] In addition to the foreseeability limitation, damages may also be limited because of uncertainty, e. g., United States v. Huff, 175 F.2d 678, 680 (5th Cir. 1949), or because of failure to mitigate damages, e. g., De Fore v. United States, 145 F.Supp. 484, 493 (M.D.Ga.1956), aff'd sub nom. Georgia Kaolin Co. v. United States, 249 F.2d 148 (5th Cir. 1957).

[5] J. Calamari & J. Perillo, supra note 3, at 329. As Professor Gilmore admonished, Hadley "has meant all things to all men." G. Gilmore, The Death of Contract 50 (1974).

[6] There are two tests for determining special damages. The more restrictive test requires proof both that notice was given of special circumstances and that the defendant impliedly or expressly assented to bearing the risk of these damages. Globe Refining Co. v. Landa Cotton Oil Co., 190 U.S. 540, 23 S.Ct. 754, 47 L.Ed. 1171 (1903). The more common test rejects the added showing of a tacit agreement for special damages. E. g., L. E. Whitlock Truck Svc., Inc. v. Regal Drilling Co., 333 F.2d at 492; U.C.C. § 2-715, Comment 2.

[7] Unlike loss of use, Martinez would have had to plead notice had he sought to recover for a variety of damages that could not have been foreseeable here such as lost profits, the cost of idle labor hired to operate the dragline, the cost of idle equipment that had been rented to be used with the dragline, or the daily royalties Martinez was paying for the land on which he planned to run his dragline. Cf. Texas Instruments, Inc. v. Branch Motor Express Co., 308 F.Supp. 1228, 1230 (D.Mass.), aff'd, 432 F.2d 564 (1st Cir. 1970) (unforeseeable consequences of delay due to total destruction of machinery in transit). Thus Martinez may recover for lost use of the machine but not for the costs of the mining operations in which the machine was to be involved. Similarly, Hadley held that one cannot equate a shaft with the operation of an entire mill unless notice of the shaft's use had been given to the carrier. The result in Hadley might have been different had the plaintiff sought to recover solely for the loss of use of the shaft.

[8] Diminution in market value is a proper measure of damages from a delay in carriage of food and other non-rentable goods. E. g., Gulf, C., & Ste. F. Ry. v. Texas Packing Co., 244 U.S. 31, 37, 37 S.Ct. 487, 61 L.Ed. 970 (1917) (poultry); Fort Worth & D. Ry. v. United States, 242 F.2d 702, 705 (5th Cir. 1957) (livestock feed); Reider v. Thompson, 197 F.2d 158, 160 (5th Cir. 1952) (sheepskins). However, this test is generally not as accurate a measure of injury from a delay in transport of capital goods, with an ascertainable rental value for the machinery or interest value of the invested sum. Otherwise, a carrier could breach its contractual duties with impunity as long as the market value of the equipment did not drop, even though the shipper might lose a substantial use value or pay high installment purchase costs.

[9] This holding should hardly surprise Southern Pacific. F. J. McCarty Co. v. Southern Pacific Co., 428 F.2d 690 (9th Cir. 1970) (rejecting Southern Pacific's arguments for market value test and against "special damages").

Law Offices of Joseph A. Golden (by Joseph A. Golden and Patricia A. Stamler) for the plaintiff.

Garan, Lucow, Miller, Seward, Cooper & Becker, P.C. (by Milton Lucow), and Gromek, Bendure & Thomas (by Daniel J. Wright), of counsel, for the defendant.

Amici Curiae:

The Fishman Group (by Steven J. Fishman and Malcolm D. Brown) for Michigan State Chamber of Commerce.

Stark & Gordon (by Sheldon J. Stark) for Michigan Trial Lawyers Association.

Sharon Valentine seeks to recover mental distress damages arising out of the alleged breach of an employment contract. Valentine claims that, under the contract, she was entitled to [258] job security and the peace of mind that is associated with job security. Because an employment contract providing for job security has a personal element, and breach of such a contract can be expected to result in mental distress, Valentine argues that she should be able to recover mental distress damages. She also asks for exemplary damages.

The Court of Appeals affirmed the decision of the trial court dismissing the claims for mental distress and exemplary damages.^[1] We affirm.

In Toussaint v Blue Cross & Blue Shield of Michigan, 408 Mich 579; 292 NW2d 880 (1980), this Court held that an employment contract providing that an employee would not be terminated except for cause was enforceable although no definite term of employment was stated.

Toussaint makes employment contracts which provide that an employee will not be dismissed except for cause enforceable in the same manner as other contracts. It did not recognize employment as a fundamental right or create a new "special" right. The only right held in Toussaint to be enforceable was the right that arose out of the promise not to terminate except for cause.

Employers and employees remain free to provide, or not to provide, for job security. Absent a contractual provision for job security, either the employer or the employee may ordinarily terminate [259] an employment contract at any time for any, or no, reason.^[2] The obligation which gave rise to this action is based on the agreement of the parties;^[3] it is not an obligation imposed on the employer by law. This is an action for breach of contract and not a tort action.

Valentine may not recover mental distress damages for breach of the employment contract, although such damages may have been foreseeable and she might not be "made whole" absent an award of mental distress damages.

Valentine relies on the rule of Hadley v Baxendale, 9 Exch 341; 156 Eng Rep 145 (1854), which provides that damages recoverable for a breach of contract are those that "may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract 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."^[4]

Although courts frequently begin analysis with a reference to the rule stated in Hadley v Baxendale,^[5] that rule has not been applied scrupulously. As stated by Professor Dobbs in his treatise on [260] remedies, a "difficulty in the Hadley type case is that the test of foreseeability [i.e., whether damages `arise naturally'^[6]] has little or no meaning. The idea is so readily subject to expansion or contraction that it becomes in fact merely a technical way in which the judges can state their conclusion."^[7]

Under the rule of Hadley v Baxendale, literally applied, damages for mental distress would be recoverable for virtually every breach of contract. Professor Dobbs said:

"When a defendant breaches a contract, this may and often does cause pecuniary loss to the other party, at least temporarily. It is a common experience of mankind that pecuniary loss almost invariably causes some form and degree of mental distress."^[8]

In Stewart v Rudner, 349 Mich 459, 470; 84 NW2d 816 (1957), this Court said that "all breaches of contract do more or less" cause "vexation and annoyance"; similarly, see Kewin v Massachusetts Mutual Life Ins Co, 409 Mich 401, 417; 295 NW2d 50 (1980).^[9]

Yet the general rule, with few exceptions, is to "uniformly den[y]" recovery for mental distress damages although they are "foreseeable within the rule of Hadley v Baxendale."^[10] The rule barring recovery of mental distress damages — a gloss on the generality of the rule stated in Hadley v [261] Baxendale — is fully applicable to an action for breach of an employment contract.^[11]

The denial of mental distress damages, although the result is to leave the plaintiff with less than a full recovery, has analogy in the law. The law does not generally compensate for all losses suffered.^[12] Recovery is denied for attorney's fees,^[13] for mental anguish not accompanied by physical manifestation,^[14] and "make-whole" or full recovery has been denied where the cost of performance exceeds the value to the promisee.^[15] The courts have not, despite "make whole" generalizations regarding the damages recoverable,^[16] attempted to provide compensation for all losses. Instead, specific rules have been established that provide for the calculation of the damages recoverable in particular kinds of actions.^[17] In contract actions, the market price is the general standard.^[18]

In determining what damages are recoverable, the courts of this state have qualified the general [262] rule, pursuant to which mental distress damages for breach of contract are not recoverable, with a narrow exception. Rather than look to the foreseeability of loss to determine the applicability of the exception, the courts have considered whether the contract "has elements of personality"^[19] and whether the "damage suffered upon the breach of the agreement is capable of adequate compensation by reference to the terms of the contract."^[20]

The narrow scope of those verbal formulas appears on consideration of the limited situations in which this Court has allowed the recovery of mental distress damages for breach of contract. In Vanderpool v Richardson, 52 Mich 336; 17 NW 936 (1883), recovery was allowed for breach of a promise to marry. In Stewart v Rudner, 349 Mich 459; 84 NW2d 816 (1957), a doctor who failed to fulfill his promise to deliver a child by caesarean section was required to pay mental distress damages. In Miholevich v Mid-West Mutual Auto Ins Co, 261 Mich 495; 246 NW 202 (1933), the plaintiff, who was jailed for failure to pay a liability judgment, recovered mental distress damages from an insurer who had failed to pay the judgment.^[21]

Loss of a job is not comparable to the loss of a marriage or a child and generally results in estimable monetary damages. In Miholevich, the breach resulted in a deprivation of personal liberty.^[22]

[263] An employment contract will indeed often have a personal element. Employment is an important aspect of most persons' lives, and the breach of an employment contract may result in emotional distress. The primary purpose in forming such contracts, however, is economic and not to secure the protection of personal interests. The psychic satisfaction of the employment is secondary.

Mental distress damages for breach of contract have not been awarded where there is a market standard by which damages can be adequately determined. Valentine's monetary loss can be estimated with reasonable certainty according to the terms of the contract and the market for, or the market value of, her service. Mental distress damages are not awarded an employee found to have been wrongfully discharged in violation of a collective-bargaining agreement.^[23]

We conclude, because an employment contract is not entered into primarily to secure the protection of personal interests and pecuniary damages can be estimated with reasonable certainty, that a person discharged in breach of an employment contract may not recover mental distress damages.

Valentine has not separately argued her exemplary damage claim. In Kewin, supra, pp 420-421, this Court said that "absent allegation and proof of tortious conduct existing independent of the breach, * * * exemplary damages may not be awarded in common-law actions brought for breach of a commercial contract." Valentine failed to plead the requisite purposeful tortious conduct, [264] and therefore she may not recover exemplary damages.

Affirmed.

[1] On April 11, 1980, Valentine filed an action alleging breach of a contract of employment and intentional infliction of mental distress. She sought mental distress damages and exemplary damages. On June 1, 1981, the trial court granted defendant General American Credit's motion for partial summary judgment on the issues of mental distress damages and exemplary damages. The Court of Appeals, dividing two-to-one, affirmed. Valentine v General American Credit, Inc, 123 Mich App 521; 332 NW2d 591 (1983).

[2] See Suchodolski v Michigan Consolidated Gas Co, 412 Mich 692, 694-695; 316 NW2d 710 (1982), and Clifford v Cactus Drilling Corp, 419 Mich 356, 360; 353 NW2d 469 (1984).

[3] McIntosh v Groomes, 227 Mich 215, 218; 198 NW 954 (1924); Lichnovsky v Ziebart Int'l Corp, 414 Mich 228, 241, fn 23; 324 NW2d 732 (1982); Prosser & Keeton, Torts (5th ed), § 92, pp 655-656; 17 Am Jur 2d, Contracts, § 1, p 333.

[4] Hadley, supra, p 354.

[5] See Frederick v Hillebrand, 199 Mich 333, 341; 165 NW 810 (1917); 1 Restatement Contracts, § 330, p 509; 3 Restatement Contracts, 2d, § 351, p 135; 5 Corbin, Contracts, § 1007, p 70; Grismore, Contracts (rev ed), § 196, p 302.

[6] See 5 Corbin, Contracts, § 1007, p 70.

[7] Dobbs, Remedies, § 12.3, p 814. See also Dobbs, § 12.3, p 804; 5 Corbin, Contracts, § 1007, pp 70-71.

[8] Dobbs, Remedies, § 12.4, p 819.

[9] In Kewin, supra, p 417, this Court said that the breach of "almost any agreement, results in some annoyance and vexation."

[10] Grismore, Contracts (rev ed), § 203, p 320. See also Kewin, supra, p 414; Dobbs, Remedies, § 12.4, p 819.

[11] McCormick, Damages, § 163, pp 637-638, and cases cited therein. See also Paxson v Cass County Road Comm, 325 Mich 276, 278-279; 38 NW2d 315 (1949) (Court noted that the trial court had ordered a remittitur of mental distress damages, but did not address the question); Fisher v General Telephone Co of the Northwest, Inc, 510 F Supp 347 (ED Mich, 1980); Isagholian v Carnegie Institute of Detroit, Inc, 51 Mich App 220; 214 NW2d 864 (1974).

[12] See Dobbs, Remedies, § 1.1, pp 1, 5 and § 3.2, p 146.

[13] Bullock v Taylor, 39 Mich 137, 140 (1878); Dobbs, Remedies, § 3.8, p 194; 5 Corbin, Contracts, § 1037, pp 225-227. Cf. Friedman v Dozorc, 412 Mich 1, 32, 42; 312 NW2d 585 (1981).

[14] Manie v Matson Oldsmobile-Cadillac Co, 378 Mich 650, 658; 148 NW2d 779 (1967) (tort action); 1 Restatement Contracts, § 341, p 559; 5 Corbin, Contracts, § 1076, p 427.

[15] Grismore, Contracts (rev ed), § 195, p 299, citing Sandy Valley & Elkhorn R Co v Hughes, 175 Ky 320; 194 SW 344 (1917).

[16] See, e.g., Hammond v Hannin, 21 Mich 374, 384 (1870); Grismore, Contracts (rev ed), § 195, pp 298-300.

[17] See McCormick, Damages, and the separate chapters stating the damages recoverable for breach of employment contracts (ch 25), construction contracts (ch 26), sales of personal property (ch 27), and land sale contracts (ch 28).

[18] Id.

[19] Stewart, supra, p 471. In Stewart, supra, p 471, the Court also said that mental distress damages are recoverable in cases "where a contract is made to secure relief from a particular inconvenience or annoyance, or to confer a particular enjoyment." (Emphasis supplied.) See also Kewin, supra, p 416, in which the Court emphasized that, for mental distress damages to be recoverable, the parties must have formed "a contract meant to secure [the] protection" of personal interests. (Emphasis supplied.)

[20] Kewin, supra, p 417. See also Stewart, supra, p 470.

[21] Humphrey v Michigan United R Co, 166 Mich 645; 132 NW 447 (1911), concerned the duty of a common carrier to a passenger. This duty is imposed by law without regard to contract.

[22] See Friedman, fn 13 supra, pp 32, 42.

[23] See 2 Morris, The Developing Labor Law (2d ed), ch 33, pp 1658-1659; Gorman, Labor Law, pp 138-139.