Hadley v. Baxendale
Rule established
Damages for breach of contract are limited to those: (1) arising naturally from the breach in the usual course of things (first limb), or (2) those which were in the reasonable contemplation of both parties at the time of contracting as the probable result of breach (second limb, special damages requiring notice).
Facts
- Hadley operated a mill in Gloucester; the crankshaft broke, halting production
- Hadley engaged Baxendale's carrier company (Pickfords) to deliver the broken shaft to engineers in Greenwich as a pattern for a new one
- Delivery was delayed by several days due to carrier's neglect
- The mill remained shut for the additional days because the new shaft could not be made without the old one as a pattern
- Hadley sued for lost profits during the delay period
- Baxendale's staff were not told the mill was standing idle and could only restart once the new shaft arrived
Issue
- What damages are recoverable for breach of a contract of carriage; specifically, can the claimant recover lost profits when the carrier did not know of the special circumstances that made those profits dependent on timely delivery?
Held
- Hadley could NOT recover lost profits
- Alderson B laid down the two-limb rule for damages:
- First limb: Damages arising naturally (i.e., according to the usual course of things) from the breach itself
- Second limb: Damages which 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
- The lost profits were not within the first limb: it is not the natural result of late delivery that a mill would be entirely shut (the owner might have had a spare shaft)
Ratio Decidendi
Damages for breach of contract are recoverable only if they satisfy the remoteness test: they must either (1) arise naturally from the breach in the ordinary course of things, or (2) have been within the reasonable contemplation of both parties at the time of contracting as the probable consequence of breach. Special/consequential losses are not recoverable unless the defendant had notice of the special circumstances at the time of contracting.
How to use it in an exam
- Part A: THE foundational authority on remoteness of damages in contract. Always cite first, then develop with Victoria Laundry and The Heron II.
- Indian equivalent: Section 73 ICA mirrors the two-limb rule almost verbatim: "loss or damage caused... which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it."
- Problem questions: Identify whether the loss was (a) natural/ordinary, or (b) special but communicated → determines recoverability.
- Contrast with tort: Reasonable foreseeability under The Wagon Mound; contract uses "contemplation at time of contracting."
Source
Source: (1854) 9 Exch 341; 156 ER 145
This is an educational summary, not the judgment itself. Cite the reported version in professional or academic work.