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Hadley v. Baxendale (1854) – All time classic contract case

Hadley v. Baxendale is a classic and a famous contract case that all law students go through during their law school studies. The key to this case is that damages have to be reasonably foreseeable at the time of contracting (not in the hindsight).

Some Facts: Hadley owns a mill. The crank shaft broke and they urgently needed a new one because the mill was stopped otherwise. Hadley hired Baxendale to take the broken shaft to the engineer so that a new one could be made. Baxendale promised next-day delivery. However, they delayed in sending the shaft, and so the mill was shut down for several days. Hadley sued for lost profits. Baxendale claimed the damages were too remote. The trial court found for Hadley.

What was the Nature of the Risk? Hadley risked that he could lose less money if he chose a different carrier. Baxendale risked that he could make more money if he carried a different customers package instead.

At Issue: Is a breaching party liable for the others lost profits?

Court Holding: The damages to be awarded are the damages resulting from the breach which the parties could reasonably contemplate at the time of contract formation.

Key Reasoning: The court reasoned that Hadley would be entitled to lost profits if he had clearly communicated that to Baxendale. Then the parties could have negotiated a contract based on this special circumstance. Baxendale had no reason to believe that the mill would be down during the time that the crank shaft was in their hands. This was not the normal course of business. Thus, Baxendale should not be liable for lost profits. [Because it was not part of the consideration.]

 

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