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Hadley v. Baxendale

From lawbrain.com

Hadley v. Baxendale, 9 Exch. 341, 156 Eng. Rep. 145 (1854) is a classic contract law case that deals with the extent of consequential damages recoverable after a breach of contract, as related to the foreseeability of the losses.

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Contents

Summary of Case Facts

The plaintiffs (Hadley) in this case were millers from Gloucester. A shaft in their mill broke, rendering the entire mill inoperable. The plaintiffs brought the shaft to the defendant carrier (Baxendale) to have it transported to Greenwich, whereupon a replacement shaft would be fabricated to the exact same measurements and specifications as the old one. It was contracted that the shaft would be delivered to Greenwich the next day. However, the defendant failed to meet the delivery date contracted and the shaft’s delivery was delayed by several days. Due to the defendant’s delay, a replacement shaft could not be made and delivered on time, and plaintiffs' mill remained inoperable for several more days. Plaintiffs sued defendant for profits lost for the days the mill could not operate.

Issue

Can the plaintiffs recover lost profits as consequential damages arising from breach of contract?

Holding and Law

After a breach, the non-breaching party can recover only those lost profits arising naturally from the breach of the contract, or those damages reasonably contemplated (foreseeable) by the parties at the time of contract formation.

Because plaintiffs failed to inform defendant of the special circumstances surrounding the shaft and the fact that it was the sole reason for the mill’s closure, the defendant had no reason to believe that a delay in delivering the shaft would result in several days’ worth of lost profits. As a result, plaintiffs, in their original trial, should not have recovered lost profits from the defendant.

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