156 Eng. Rep 145
In Hadley v. Baxendale (1854), the Court of Exchequer, England's leading common law court, ruled on a case involving a late delivery of a damaged crankshaft for repair. The case centered on determining the appropriate damages for the defendant's breach of contract.
Hadley operated a milling business in Gloucester, England. A crank shaft at the mill broke, bringing the operation to a halt. Hadley needed to ship the broken shaft to Greenwich so that the engineers there could use it as a pattern to manufacture a new one. Hadley went to a shipping company owned by Baxendale and was told that, if the shaft was sent by noon any day, it would make it to Greenwich the following day. The next day, Hadley took the shaft to the Baxendale shipper before noon and shipped it. However, shipping was delayed due to neglect by the shipper. As a result, Hadley did not receive the new shaft until several days after they should have, causing lost profits.
Hadley brought suit against Baxendale, and the jury returned a verdict for the plaintiff for £25 in damages, including lost profits. Baxendale appealed.
The court decided that the plaintiff could only recover damages that were reasonably foreseeable by both parties during the contract signing, not damages resulting from unknown special circumstances. The reasoning behind this was that the defendant shouldn't be held responsible for losses he couldn't have predicted or prevented. If the plaintiff desired higher damages, he should have informed the defendant of these special circumstances.
Hadley v. Baxendale is significant as it established the rule of remoteness in contract law, which limits the liability of a breaching party to reasonably foreseeable losses connected to the breach itself. Furthermore, this case illustrates that courts may include terms or conditions into a contract based on parties' intentions, expectations, and the contract's purpose. Lastly, it highlights that courts assess the fairness and justice of enforcing contracts, especially when uncontrollable circumstances have impacted both parties.
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