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Hadley v Baxendale (1854)

Facts of the case
Mr Hadley, one of the plaintiffs was a miller and worked in a partnership as a proprietors of
the City Steam-Mills in Gloucester, England. The mill went down due to broken crankshaft
that was crucial to mill operations. Plaintiffs wanted to deliver the shaft to Joyce & Co. which
can serve as a sample in order to manufacture a new one. Pickford & Co., defendants of the
case were contacted to deliver the shaft to Joyce & Co. as they specialized in large-scale
transportation. According to Pickford & Co. shaft was supposed to be sent immediately by 12
oclock any day in order to deliver it to Greenwich by the following day.
Delivery was delayed for five days "by some neglect":' Pickford routed the shipment through
London and instead of immediately forwarding the shaft from London to Greenwich by rail,
kept the shaft in London for several days and then sent it to Greenwich by canal together with
an unrelated shipment of iron goods that Pickford was transporting to Joyce. Completion of the
new shaft by Joyce was correspondingly delayed, and the mill was down five extra days.
Plaintiffs arguments: The Plaintiffs were unable to supply their customers with flour, sharps
and bran during the period of stoppage and had to buy flour to supply some of their customers.
Thus, plaintiffs were deprived of profits and thus they asked for damages of 300.
Defendants arguments: Defendants argued that the damages claimed were too remote.
Judgement: The Court of Exchequer, led by Baron Sir Edward Hall Alderson, declined Hadley
to recover lost profits in this case, holding that Baxendale could be liable for foreseeable losses.
If Hadley had mentioned his special circumstances in advance, then it would have been a
different situation. The mere fact that a party is sending something to be repaired does not
indicate that the party would lose profits if it is not delivered on time. The court suggested
various other circumstances under which Hadley could have entered into this contract that
would not have presented such dire circumstances, and noted that where special circumstances
exist, provisions can be made in the contract voluntarily entered into by the parties to impose
extra damages for a breach.
Principle of Law dealt in the case
Remoteness of damage: Remoteness can be understood as set of rules in contracts, which limits
the amount for compensation caused by damages to a party. In case of duty of care being
breached, remoteness is there to put a cap on damages to be paid by defendants in a fair and
appropriate way.
Remoteness of damage is often viewed as an additional mechanism of controlling tortious
liability. Not every loss will be recoverable in tort law. Originally a defendant was liable for
all losses which were a direct consequence of the defendant's breach of duty.
This was largely considered unfair as a defendant could be liable for damage which was not
foreseeable and therefore could not take steps to prevent it. Furthermore, remoteness can be
judged by directness or foreseeability of the situation.
UTSAV VADGAMA|IPM2014106|SECTION B
MERCANTILE LAW AND COMPANY LAW ASSIGNMENT 1

Hadley v Baxendale (1854)

General or direct damages are the damages that flow from a given type of breach without
regard to the buyer's particular circumstances. General damages are never barred by the
principle of Hadley v. Baxendale because by their very definition such damages should
"reasonably be considered... [as] arising naturally, i.e., according to the usual course of things
from the breach."
Special or consequential damages are the damages above and beyond general damages that
flow from a breach as a result of the buyer's particular circumstances. Typically,
consequential damages consist of lost profits (although other kinds of consequential damages
may occur). In particular, consequential damages typically consist of the difference between
the profits the buyer actually made in transactions with third persons and the profits he would
have made if the seller had performed. The similar case of foreseeability or consequentiality
can be noticed in the situation of Hadley v Baxendale.
Impact of the case on business
The case set precedent for assessing damages and rendering awards and compensation for
breach of contracts. It argued that liability of breach of contract should be limited to foreseeable
damage rather than mere speculations.
Limitations on the recovery of consequential damages that may be sought for breach, while not
frequently seen in charters, often find their way into sales and service contracts. They are a
major feature in the contract terms of logistics providers, and often appear in sales contracts.
Clauses of this nature are enforceable throughout the United States, and the right to exclude
consequential damages in sales contracts is codified in the Uniform Commercial Code.
Further Developments
Test of remoteness of damage were further developed to assess the foreseeable
damages. Wagon Mound no 1 (1961) the test for remoteness of damage is that damage must
be of a kind which was foreseeable. Once damage is of a kind that is foreseeable the
defendant is liable for the full extent of the damage no matter whether the extent of the
damage is foreseeable. Apart from this, several other tests were also developed to determine
the remoteness.
Similar Cases
Vosburg v Putney (1891): Putney (Defendant), kicked Vosburg (Plaintiff) without intention
of severe harm. Although the kick was slight, Plaintiff lost the use of his limb because
Defendants kick reactivated a previous injury. Court ruled that the wrongdoer is liable for all
injuries resulting directly from the wrongful act whether they could or could not have been
foreseen by him.
Neri v Retail Marine Corp (1972): Neri (plaintiff) made a contract with the defendant to buy
a boat. Neri refuted the contract when he got sick and couldnt pay. The defendant sold the
boat to someone else, but held on to the plaintiffs deposit. The plaintiff sued to recover the
deposit. The defendants countersued, claiming that if the contract had been performed, they
would have sold two boats instead of one, and therefore the plaintiffs were liable for their lost
profit. The court ordered that the plaintiffs get back their down payment less the loss of profit
by the defendant and the defendants incidental damages.

UTSAV VADGAMA|IPM2014106|SECTION B
MERCANTILE LAW AND COMPANY LAW ASSIGNMENT 1