When Lightning Strikes: Hadley V. Baxendale's Probability Standard Applied to Long-Shot Contracts

Abstract

There is a type of contract that could go virtually unenforced as a result of the rule of Hadley v. Baxendale. When a contract's principal purpose is to enable the plaintiff to obtain an opportunity for an unlikely profit or to avoid an unlikely loss (a "long-shot contract”), and the defendant's breach causes the plaintiff to lose the profit or suffer the loss, Hadley's requirement that a loss be reasonably foreseeable at the time of contract formation would preclude recovery. This is demonstrated by Offenberger v. Beulah Park Jockey Club, Inc., where the Hadley rule precluded the recovery of lost winnings when the defendant failed to issue the plaintiff what turned out to be a winning ticket at a horse race because the plaintiff's odds of winning were too small. Applying the Hadley rule to such a long-shot contract is not supported by any of the rationales for the rule and renders the contract virtually unenforceable. Accordingly, this Article proposes that the Hadley rule not apply to contracts whose principal purpose is to enable the plaintiff to obtain an opportunity for an unlikely profit or to avoid an unlikely loss, which would include not only gambling contracts, but contracts such as security-alarm contracts, contracts to prevent home damage, contracts for inspections, and promises to obtain insurance, to name just a few. In other words, when a contract's principal purpose is to provide a chance at lightning striking, or to prevent lightning from striking, the Hadley rule should not prevent the injured party from obtaining full compensation.

Keywords: Contract law, long-shot contracts, Hadley v. Baxendale, Hadley rule, breach of contract

JEL Classification: K12, K40