Hadley v. Baxendale

Filed Under: Contract Law; Remedies

A decision of the English Court of Exchequer that established the rules on remoteness of damages ((1854), 9 Exch. 341, 156 E.R. 145). The plaintiff was a miller. His mill had stopped because of a breakage of the mill’s crankshaft. The plaintiff had contracted with the defendant, a common carrier, to take his broken crankshaft to a manufacturer to be used as a template to cast a new crankshaft. The defendant had delayed in shipping the crankshaft. As a result the plaintiff had lost profits caused by the delay in having his mill made operational. The defendant argued that the plaintiff’s losses were too remote in that at the time of entering the contract the lost profits could not have been contemplated by the parties. The court held that the damages were too remote. In doing so the court established two rules for the determination of remoteness of damages in contract:

[1] A defendant will be liable for damages that may reasonably be supposed to have been in the contemplation of the parties arising in the normal course of events.

[2] Where special circumstances are communicated, a defendant will be liable for damages that may have been reasonably contemplated by the parties acquainted with that special knowledge.

These principles are widely known throughout the common law world. For an excellent article explaining the history and consequences of this case see F. Faust, “Hadley v. Baxendale – an Understandable Miscarriage of Justice,” (1994) 15 J. of Legal History 41.

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