Hadley v. Baxendale


Court: Court of the Exchequer

Facts: The crankshaft running Hadley's (plaintiff's) mill broke, and had to be sent back to the manufacturers as a pattern so that a new one could be made. One of Hadley's people went to Baxendale's (defendant's) shipping offices and inquired about the cost and time involved in sending the shaft. The fact that the mill was stopped was made known; Baxendale's clerk stated the cost of shipping, and also said that the shaft must be brought in prior to noon for delivery the next day. This was done, but the delivery was neglected, resulting in several days' delay in the arrival of the replacement shaft. Hadley sought consequential damages (i.e., compensation for profits lost during the period of the delay), and was awarded these at trial.

Posture: Initially tried (by J. Crompton) at the last Gloucester Assizes. Appealed by defendant; B. Alderson granted, via decree of nisi, a new trial at the last Michelmas Term. [Note: new trial will be governed by the preposterous guidance that lost profits cannot be taken into account]

Issue: Should a jury be instructed about whether a defendant had a clear understanding that breach of contract would precipitate damages to the plaintiff, and does absence of that knowledge excuse the defendant from damages not contemplated?

Holding: The prior court erred in allowing the jury to consider damages that were so remote from the defendant's contemplation.

Rule: Where two parties have made a contract which is later broken, consquential damages should be limited to whose that could fairly and reasonably be considered as naturally arising or reasonably contemplated by both parties.

Reasoning: If we hold defendants accountable for consequences they might not have known about, we impose on them the risk of failing to investigate all aspects of the deals in which they're involved. It would be unjust to penalize defendants for the effects of special circumstances wholly unknown to them. [Note: should the absence of some indemnification clause really be taken as proof that the defendant didn't contemplate it?]

Dicta: Leaving juries without rules to guide them produces great injustice.