Hadley v. Baxendale
Encyclopedia
Hadley v Baxendale [1854] EWHC J70 is a leading English contract law
case. It set the basic rule for how to determine the scope of consequential damages
arising from a breach of contract
, that one is liable for all losses that ought to have been in the contemplation of the contracting parties.
s and mealmen and worked together in a partnership
as proprietors of the City Steam-Mills in Gloucester
. They cleaned grain, ground it into meal and dressed it into flour, sharps, and bran. A crankshaft
of a steam engine at the mill had broken and Hadley arranged to have a new one made by W. Joyce & Co. in Greenwich
. Before the new crankshaft could be made, W. Joyce & Co. required that the broken crankshaft be sent to them in order to 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 sterling and 4 shillings. Baxendale failed to deliver on the date in question, causing Hadley to lose business. Hadley sued for the profits he lost due to Baxendale's late delivery, and the jury awarded Hadley damages of £25. Baxendale appealed, contending that he did not know that Hadley would suffer any particular damage by reason of the late delivery.
The question raised by the appeal in this case was whether a defendant in a breach of contract case could be held liable for damages that the defendant was not aware would be incurred from a breach of the contract.
, led by Baron Sir Edward Hall Alderson
, declined to allow Hadley to recover lost profits in this case, holding that Baxendale could only be held liable for losses that were generally foreseeable, or if Hadley had mentioned his special circumstances in advance. The mere fact that a party is sending something to be repaired does not indicate that they would lose profits if it were 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. Alderson B said the following.
and WR Perdue evaluated the idea of reducing contractual remoteness to a foreseeability test in this way:
As early as 1894, the U.S. Supreme Court recognized the influence of Hadley upon American law
:
In Satef-Huttenes Albertus SpA v Paloma Tercera Shipping Co SA (The Pegase) [1981] 1 Lloyd’s Rep 175, Robert Goff J
stated,
English contract law
English contract law is a body of law regulating contracts in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the industrial revolution, it shares a heritage with countries across the Commonwealth , and the United States...
case. It set the basic rule for how to determine the scope of consequential damages
Consequential damages
Consequential damages, otherwise known as special damages, is one of the damages, the other being direct damages, that may be awarded to plaintiff in a civil action who claims that terms of an agreement were not honored....
arising from a breach of contract
Breach of contract
Breach of contract is a legal cause of action in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance....
, that one is liable for all losses that ought to have been in the contemplation of the contracting parties.
Facts
The claimants, Mr Hadley and another, were millerMiller
A miller usually refers to a person who operates a mill, a machine to grind a cereal crop to make flour. Milling is among the oldest of human occupations. "Miller", "Milne" and other variants are common surnames, as are their equivalents in other languages around the world...
s and mealmen and worked together in a partnership
Partnership
A partnership is an arrangement where parties agree to cooperate to advance their mutual interests.Since humans are social beings, partnerships between individuals, businesses, interest-based organizations, schools, governments, and varied combinations thereof, have always been and remain commonplace...
as proprietors of the City Steam-Mills in Gloucester
Gloucester
Gloucester is a city, district and county town of Gloucestershire in the South West region of England. Gloucester lies close to the Welsh border, and on the River Severn, approximately north-east of Bristol, and south-southwest of Birmingham....
. They cleaned grain, ground it into meal and dressed it into flour, sharps, and bran. A crankshaft
Crankshaft
The crankshaft, sometimes casually abbreviated to crank, is the part of an engine which translates reciprocating linear piston motion into rotation...
of a steam engine at the mill had broken and Hadley arranged to have a new one made by W. Joyce & Co. in Greenwich
Greenwich
Greenwich is a district of south London, England, located in the London Borough of Greenwich.Greenwich is best known for its maritime history and for giving its name to the Greenwich Meridian and Greenwich Mean Time...
. Before the new crankshaft could be made, W. Joyce & Co. required that the broken crankshaft be sent to them in order to 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 sterling and 4 shillings. Baxendale failed to deliver on the date in question, causing Hadley to lose business. Hadley sued for the profits he lost due to Baxendale's late delivery, and the jury awarded Hadley damages of £25. Baxendale appealed, contending that he did not know that Hadley would suffer any particular damage by reason of the late delivery.
The question raised by the appeal in this case was whether a defendant in a breach of contract case could be held liable for damages that the defendant was not aware would be incurred from a breach of the contract.
Judgment
The Court of Exchequer ChamberCourt of Exchequer Chamber
The Court of Exchequer Chamber was an English appellate court for common law civil actions, prior to the reforms of the Judicature Acts of 1873-1875....
, led by Baron Sir Edward Hall Alderson
Edward Hall Alderson
Sir Edward Hall Alderson was an English lawyer and judge whose many judgments on commercial law helped to shape the emerging British capitalism of the Victorian era....
, declined to allow Hadley to recover lost profits in this case, holding that Baxendale could only be held liable for losses that were generally foreseeable, or if Hadley had mentioned his special circumstances in advance. The mere fact that a party is sending something to be repaired does not indicate that they would lose profits if it were 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. Alderson B said the following.
Significance
Lon L. FullerLon L. Fuller
-Selected secondary bibliography:* Robert S Summers .* W. J. Witteveen and Wibren van der Burg .-External links:* from Harvard University Library*...
and WR Perdue evaluated the idea of reducing contractual remoteness to a foreseeability test in this way:
"In its second aspect Hadley v Baxendale may be regarded as giving a grossly simplified answer to the question which its first aspect presents. To the question, how far shall we go in charging to the defaulting promisor the consequences of his breach, it answers with what purports to be a single test, that of foreseeability. The simplicity and comprehensiveness of this test are largely a matter of illusion. In the first place, it is openly branded as inappropriate in certain situations where the line is drawn much more closely in favor of the defaulting promisor than the test of foreseeability as normally understood would draw it.' There are, therefore, exceptions to the test, to say nothing of authorities which reject it altogether as too burdensome to the defaulter. In the second place, it is clear that the test of foreseeability is less a definite test itself than a cover for a developing set of tests. As in the case of all "reasonable man" standards there is an element of circularity about the test of foreseeability. "For what items of damage should the court hold the defaulting promisor? Those which he should as a reasonable man have foreseen. But what should he have foreseen as a reasonable man? Those items of damage for which the court feels he ought to pay." The test of foreseeability is therefore subject to manipulation by the simple device of defining the characteristics of the hypothetical man who is doing the foreseeing. By a gradual process of judicial inclusion and exclusion this "man" acquires a complex personality; we begin to know just what "he" can "foresee" in this and that situation, and we end, not with one test but with a whole set of tests. This has obviously happened in the law of negligence, and it is happening, although less obviously, to the reasonable man postulated by Hadley v. Baxendale."
As early as 1894, the U.S. Supreme Court recognized the influence of Hadley upon American law
Law of the United States
The law of the United States consists of many levels of codified and uncodified forms of law, of which the most important is the United States Constitution, the foundation of the federal government of the United States...
:
In Satef-Huttenes Albertus SpA v Paloma Tercera Shipping Co SA (The Pegase) [1981] 1 Lloyd’s Rep 175, Robert Goff J
Robert Goff, Baron Goff of Chieveley
Robert Lionel Archibald Goff, Baron Goff of Chieveley PC DCL FBA is a retired British Judge.Lord Goff, High Steward of the University of Oxford, retired in 1998 as Senior Law Lord after more than a decade as a Lord of Appeal in Ordinary in the House of Lords...
stated,
"Although the principle stated in Hadley v Baxendale remains the fons et origoFons et origoFons et origo is a latin term meaning "source and origin". Typical usage of the term describes Athens as the fons et origo of democracy, or Italy as the fons et origo of classical music. Lancelot Ware , the founder of Mensa, was awarded the honorary title Fons et Origo by the society in 1987....
of the modern law, the principle itself has been analysed and developed, and its application broadened, in the 20th century... The general result of the two cases is that the principle in Hadley v Baxendale is now no longer stated in terms of two rules, but rather in terms of a single principle—though it is recognised that the application of the principle may depend on the degree of relevant knowledge held by the defendant at the time of the contract in the particular case. This approach accords very much to what actually happens in practice; the courts have not been over-ready to pigeon-hole the cases under one or other of the so-called rules in Hadley v Baxendale, but rather to decide each case on the basis of the relevant knowledge of the defendant."
See also
- English contract lawEnglish contract lawEnglish contract law is a body of law regulating contracts in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the industrial revolution, it shares a heritage with countries across the Commonwealth , and the United States...
- Victoria Laundry (Windsor) Ltd v Newman Industries LtdVictoria Laundry (Windsor) Ltd v Newman Industries LtdVictoria Laundry Ltd v Newman Industries Ltd [1949] 2 KB 528 is an English contract law case on the remoteness of damage principle.-Facts:...
[1948] 2 KB 528 - Koufos v Czarnikow Ltd or The Heron II [1969] 1 AC 350
- Parsons (Livestock) Ltd v Uttley Ingham & Co LtdParsons (Livestock) Ltd v Uttley Ingham & Co LtdParsons Ltd v Uttley Ingham & Co Ltd [1978] QB 791 is an English contract law case, concerning remoteness of damage. In it, the majority held that losses for breach of contract are recoverable if the type or kind of loss is a likely result of the breach of contract...
[1978] 1 QB 791 - South Australia Asset Management Co v York Montague [1996] 3 All ER 365
- Jackson v Royal Bank of ScotlandJackson v Royal Bank of ScotlandJackson v Royal Bank of Scotland [2005] is an English contract law case, which concerns remoteness of damage.-Facts:Mr James Jackson was a partner with Barrie Stewart Davies , trading under the name "Samson Lancastrian". They imported dog chews from Thailand and sold them to a firm called "Economy...
[2005] 2 All ER 71 - The Achilleas [2008] UKHL 48
External links
- Judgment of Alderson B pdf file hosted by mtsu.eduMiddle Tennessee State UniversityMiddle Tennessee State University, commonly abbreviated as MTSU, is a public university located in Murfreesboro, Tennessee, United States....
- Judgment available via Bailii (abridged)
- Historical background of case
- Picture of Hadley's mill