- Mr Hadley and another (identity now unknown) were millers and mealmen. They were partners in proprietorship of City Steam Steam-Mills in the city of Gloucester. They owned a steam engine.
- A crankshaft of a steam engine at the mill had broken. Hadley arranged to have a new one made by W. Joyce & Co. in Greenwich in the county of Kent.
- Before the new crankshaft could be made, W. Joyce & Co. required that the broken crankshaft be sent to them so that they could ensure that the new crankshaft would fit together properly with the other parts of the steam engine.
- Hadley contracted with defendants Baxendale and Ors, who were operating together as common carriers under the name Pickford & Co., to deliver the crankshaft to engineers for repair by a certain date at a cost of £2 and 4 shillings.
- Baxendale did not deliver on the required date. This causEd Hadley to lose business. Hadley sued for the profits he lost due to Baxendale’s late delivery. Hadley was awarded £25 in damages.
- Baxendale appealed, arguing that he did not know that Hadley would suffer any particular damage by late delivery.
- Whether a defendant in a breach of contract can be held liable for damages that the defendant was not aware would be incurred from a breach of the contract.
- The Court of Exchequer allowed Baxendale’s appeal and did not permit Hadley to recover lost profits.
- The Court held that Baxendale could only be held liable for losses that were generally foreseeable, or if Hadley had mentioned his special circumstances in advance.
- The fact that a party is delivering something to be repaired does not indicate by itself that the party will lose profits if it is not delivered on time.
“…Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.“
The decision of Hadley v Baxendale has been an influential case in many common law jurisdictions. It has been applied subsequently in the English, US and Australian jurisdictions.
The full text is available here: http://www.bailii.org/ew/cases/EWHC/Exch/1854/J70.html
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