Hadley v. Baxendale – Case Brief Summary
Summary of Hadley v. Baxendale, 9 Exch. 341, 156 Eng. Rep. 145 (1854).
A shaft in Hadley’s (P) mill broke rendering the mill inoperable. Hadley hired Baxendale (D) to transport the broken mill shaft to an engineer in Greenwich so that he could make a duplicate. Hadley told Baxendale that the shaft must be sent immediately and Baxendale promised to deliver it the next day. Baxendale did not know that the mill would be inoperable until the new shaft arrived.
Baxendale was negligent and did not transport the shaft as promised, causing the mill to remain shut down for an additional five days. Hadley had paid 2 pounds four shillings to ship the shaft and sued for 300 pounds in damages due to lost profits and wages. The jury awarded Hadley 25 pounds beyond the amount already paid to the court and Baxendale appealed.
- What is the amount of damages to which an injured party is entitled for breach of contract?
Holding and Rule
- An injured party may recover those damages reasonably considered to arise naturally from a breach of contract, or those damages within the reasonable contemplation of the parties at the time of contracting.
The court held that the usual rule was that the claimant is entitled to the amount he or she would have received if the breaching party had performed; i.e. the plaintiff is placed in the same position she would have been in had the breaching party performed. Under this rule, Hadley would have been entitled to recover lost profits from the five extra days the mill was inoperable.
The court held that in this case however the rule should be that the damages were those fairly and reasonably considered to have arisen naturally from the breach itself, or such as may be reasonably supposed to have been in the contemplation of both parties at the time the contract was made.
The court held that if there were special circumstances under which the contract had been made, and these circumstances were known to both parties at the time they made the contract, then any breach of the contract would result in damages that would naturally flow from those special circumstances.
Damages for special circumstances are assessed against a party only when they were reasonably within the contemplation of both parties as a probable consequence of a breach. The court held that in this case Baxendale did not know that the mill was shut down and would remain closed until the new shaft arrived. Loss of profits could not fairly or reasonably have been contemplated by both parties in case of a breach of this contract without Hadley having communicated the special circumstances to Baxendale. The court ruled that the jury should not have taken the loss of profits into consideration.
Vacated and remanded for new trial.
Consequential damages are linked to knowledge and foreseeability at the time of contracting and deal with the recovery of damages for loss other than those arising naturally. Modern courts do not look at the implied tacit agreement discussed in this case, and instead use foreseeability as the cornerstone to determine consequential damages. The object of damages as a remedy in a contract is to make the parties finish in a position they would have been in had the contract been properly performed. What is reasonably foreseeable at the time of contracting requires evidence of the circumstances under which the parties entered into the contract and the knowledge that they possess. Such knowledge can be imputed to the parties from customary trade practice and other sources.
See Peevyhouse v. Garland Coal & Mining Co. for a law school contracts case brief in which the court held that diminution in value is the proper remedy for breach of contract where breach pertains only to an incidental matter and performance would be disproportionately costly.