Hadley v. Baxendale

From: Alice S. Denton

Facts:

Plaintiffs were the owners of a mill whose operation was stopped due to the breakage of a crank shaft. Plaintiffs engaged the services of Defendants (a modern day FED EX type of transport company) to transport the broken shaft to Messrs. Joyce & Co., an engineering business, in Greenwich, who needed the old shaft to use a pattern for a new one. Plaintiffs' servant supposedly told the clerk that the mill was stopped and the shaft must be sent immediately. When asked when the shaft would be sent, Plaintiffs' servant was told that it would be delivered at Greenwich the following day, upon which Defendant was paid the sum of 2£. 4s. for its delivery. Due to some neglect on the part of Defendants, Plaintiffs did not receive the new shaft for several days after they would otherwise have done. As a result, Plaintiffs' mill could not operate until the new shaft was received and Plaintiffs lost profits for the days it was not in operation. Defendants objected to Plaintiffs' allegations because the damages sought were too remote and therefore they could not be liable for them.

Jury found for Plaintiffs and rendered a verdict of 25£ damages plus the amount paid into Court. Appellate court reverses and orders a new trial.

Rule:

The amount which a party would have received if the contract had been kept , is the measure of damages if the contract is broken. However, when two parties enter into a contract, and one of the parties breaches, the damages which the other party ought to receive should be such as may fairly and reasonably be considered either arising naturally from such breach of the contract, or such as may reasonably be supposed to have been in the contemplation of both parties. If at the time the contract was made, the Plaintiffs communicated the special circumstances to Defendants, and Defendants acknowledged the special circumstances, the damages resulting from a breach, which they could reasonably contemplate, would be the amount of damages injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated. However, if the special circumstances were unknown to Defendants, Defendants could only be supposed to have had in their contemplation the amount of injury that would arise generally, in an ordinary case, from a breach of contract. Since the Court found that the special circumstances were never communicated to Defendants, the loss of profits caused by the mill's stoppage cannot be considered such a consequence of breach of contract as they were not fairly and reasonably contemplated by both the parties when they made the contract.

In summary, indirect or consequential damages are only recoverable if reasonably foreseeable by both of the parties at the time of the contract and arising naturally from such breach.