Hadley v. Baxendale

Facts

Hadley's flour mill at Gloucester stopped when its crankshaft broke. The shaft was handed to carriers (Pickford & Co., represented by Baxendale) to be taken to engineers at Greenwich as a pattern for a new one, but delivery was delayed about a week. Hadley claimed loss of profits for the period the mill stayed shut. The only fact communicated to the carrier was that the article was a broken mill shaft and that the plaintiffs were the millers of that mill.

Issues

• Whether loss of profits caused by delayed delivery is recoverable as damages for breach of contract.
• What is the proper test for the remoteness of damages recoverable on breach?

Arguments

Hadley contended the lost mill profits flowed from the carrier's delay and should be compensated. Baxendale contended such loss was not a natural or contemplated consequence, as the carrier did not know the mill would remain idle (e.g. it might have had a spare shaft).

Held

The court denied loss of profits. Damages must be such as may fairly and reasonably be considered either as arising naturally, in the usual course of things, from the breach, or such as may reasonably be supposed to have been in the contemplation of both parties at the time of contracting as the probable result of breach. Loss of profits did not arise naturally in the great multitude of cases of millers sending broken shafts, and the special circumstances were never communicated to the carrier. There had to be a new trial.

Ratio decidendi

Damages for breach are limited to losses that arise naturally in the usual course of things, or that were within the reasonable contemplation of both parties at the time of contracting because of special circumstances communicated to the party in breach.

Significance

The foundational authority on remoteness of damage in contract. Its two-limb rule is codified in Section 73 of the Indian Contract Act and has been applied to virtually all contract-damages cases since. The Indian Supreme Court has expressly recognised that Section 73 codifies Hadley v. Baxendale (Pannalal Jankidas v. Mohanlal, AIR 1951 SC 144). Briefly deviated from in Victoria Laundry v. Newman Industries (1949), but the original principle was restored in The Heron II.

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