Principle: Under the rule in Hadley v. Baxendale, damages for breach of contract are recoverable only for losses that arise naturally in the usual course of things, or special losses that were in the reasonable contemplation of both parties at the time of contracting.
Facts: A logistics firm delays delivering a replacement boiler part to a commercial flour mill by 4 days due to simple negligence. Unknown to the logistics firm, the mill lost an extraordinarily lucrative government defense contract worth ₹5 crores because of the delay. Can the mill recover the ₹5 crores lost profit?

Answer and explanation

Correct answer: C. No, remote or uncommunicated extraordinary profits cannot be recovered

  1. Step 1: Under Section 73 of the Indian Contract Act 1872 and the rule in Hadley v. Baxendale, damages for breach are limited to ordinary losses arising naturally, or special damages that were within the contemplation of both parties when entering into the contract.
  2. Step 2: The loss of a ₹5 crore defense contract was an extraordinary, remote consequence of a 4-day delivery delay. Because the mill never communicated this special circumstance to the logistics firm, the carrier could not have reasonably contemplated such a loss.
  3. Step 3: The mill cannot recover compensation for the remote loss of profits.
Answer
No, because remote or extraordinary profits not communicated to or contemplated by the carrier at the time of contract cannot be recovered.

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