In this case, as the delay of the Kern Motor Spray, Sammy who was Bosco’s customer had to terminate the rental contract with Bosco. As a result, Bosco lost a good profit of $30,000 from that contract which the normal profit for such a contract would only be $10,000.
To determine whether Bosco can recover the full $30,000 as damages from Kern Motor Spray, we should, firstly, consider the recovery of the remoteness of damages. There are two cases we could consider. The first case is Hadley v Baxendale and the second case is Victoria Laundry (Windsor) Ltd v Newman Industries Ltd.
In Hadley1 lays down two rules which give us guidelines in determining whether normal profit or abnormal profit is recoverable. Damages are recoverable when the innocent parties may fairly and reasonably be considered as arising naturally; i.e. according to the usual course of things, from the breach, and the innocent parties may reasonably be supposed to have been in the contemplation of both parties when the contract was made.
In Hadley1, there had been a delay in a carriage contract. The mill owner sued for damages but the defendant was held not liable for profits lost due to his failure to deliver a mill shaft promptly. The court found that he could not be taken to have known of the special circumstance that until the shaft was delivered, the mill could not operate.
In Victoria Laundry, it reformulated the test of remoteness of liability laid down in Hadley. This case involved the late delivery of a boiler to the plaintiffs who were dyers. The dyers claimed loss of profits arising in the ordinary course of business, and loss of exceptional profits on especially advantageous government contract.
However, it was held that only the ordinary loss of profits was recoverable. The exceptional profits on government contracts were not recoverable as the defendant had no knowledge that the boiler was required to fulfill unusually profitable contracts. Moreover, the court summarized the substance of the test in the following 3 propositions:
Firstly, 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 foreseeable as liable to result from the breach.
Secondly, what was at that time reasonable so foreseeable depends on the knowledge possessed by the parties or by the party who later commits the breach.
Thirdly, for this purpose, knowledge “possessed” is of two kinds; imputed and 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. Where the breaching party actually possessed actual knowledge of special circumstances at the time the contract was concluded, s/he will be responsible to pay damages for any such additional loss pursuant to the second limb of the rule in Hadley v Baxendale.
Back to our scenarios 1, Kern Motor Spray knew that Bosco needed the car by 6 pm as Bosco had specifically told them that he needed the cars by 6 pm. Therefore, according to the usual course of things, this loss of normal profit of $10,000 was reasonably foreseeable. Bosco ought to receive the damage of such breach of contract.
However, the exceptional profits ($20,000) were not recoverable as the special circumstances were not communicated by both parties based on Victoria Laundry. Kern Motor Spray had no knowledge that there was an unusually profitable contract.
Therefore, Bosco cannot recover the full $30,000 as damages from Kern Motor Spray. Instead, he can only recover the normal profit of $10,000. The exceptional profit of $20,000 was not recoverable as it was too remote. Scenario 2
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