Name: Rishi Raj

Roll No.: 12/BBA/040

CASE COMMENT: Hadley v. Baxendale
(1843-60) All ER Rep. 461 172

1. The law as it stood before the case

The law as it stood before the case was narrow as it only stated that the plaintiff is
entitled to the amount he or she would have received if the breaching party had
properly performed the contract. There was no law related to foreseeability or
remoteness of damage before the decision given in this case. The judge, while giving
the judgement, himself says that it is necessary to explicitly state a rule which the
judge, at the next trial, direct the jury to be governed by when they estimate the
damages. This case contains the foundation of the law on the amount of damages that
an injured party is entitled to in case of a breach of contract.

2. The facts of the case

In the given case, Hadley v. Baxendale (1843-60) All ER Rep. 461 172, the plaintiffs
carried on the business of millers and meal men as co-partners and were proprietors
and occupiers of city steam mills in the city of Gloucester. They carried on their
business with the help of a single steam engine which was used in cleaning and
grounding corn and dressing it into flour, sharps and bran. The crank shaft of the said
steam engine was broken and out of repair. This prevented the steam engine from
functioning. The plaintiffs were desirous of having a new crank shaft made for the
steam engine and had contracted with certain persons trading under the name of W.
Joyce and Co. at Greenwich to make a new crank shaft for them. However, before a
new shaft could be made, the old shaft had to be sent to Greenwich so that the new
shaft could be made in such a way so that it fits the other parts of the said steam
engine. The defendants were common carriers of goods and chattels for hire from
Gloucester to Greenwich, and carried their business under the name of Pickford and
Co. The plaintiffs delivered the broken shaft to the plaintiffs and in consideration, the
defendants promised to deliver the shaft to Greenwich on the second day after it was
delivered to them. However, the defendant wholly neglected their own consideration
and refused to deliver the broken shaft for the space of seven days after the said shaft
was delivered to them due to which the completion of the new shaft was delayed for
five days and the plaintiffs were prevented from carrying on their business as millers
and meal men for five days. Thus, the plaintiffs were unable to supply many of their
customers with flour, sharps and bran during that period and were deprived of gains
and profits which otherwise would have accrued to them. At the trial before Crompton
J, the learned judge gave a verdict that a compensation of 25 pounds has to be made to
the plaintiffs beyond the amount paid into court. However, a rule nisi for a new trial
was obtained on the grounds of misdirection.

3. Issues before the court

There was only one main issue which came up before the court in the case of Hadley
v Baxendale:
What is the amount of damages to which an injured party is entitled for breach
of a contract?
Thus, the court mainly had to determine whether the plaintiff has to be compensated
for those losses which were not reasonably foreseeable as consequences of the breach
of contract.

4. Issues which were determined by the court

The main issue was to be determining the amount of damages that the plaintiff is
entitled to in this case. The court determined that the party which has breached the
contract, that is, the defendants have to only compensate for those damages suffered
by the plaintiff which are reasonably foreseeable at the time of the contract and not for
those damages which are remote consequences of the breach.

5. Issues which the court did not determine, if any

There was only one issue arising from the case of Hadley v Baxendale which was
well and truly determined by the court of law. Thus, there was no such issue which
was not determined by the court.

6. Decision of the court

After studying the facts of the case and drawing on the principle of foreseeability and
articles 1149-1151 of the French civil code which states that The damages due to the
creditor consist in general of the loss that he has sustained, and the profit which he has
been prevented from acquiring, subject to the modifications hereinafter contained.
The debtor is only liable for the damages foreseen, or which might have been
foreseen, at the time of the execution of the contract, when it is not owing to his fraud
that the agreement has been violated. Even in the case of non-performance of the
contract, resulting from the fraud of the debtor, the damages only comprise so much
of the loss sustained by the creditor, and so much of the profit which he has been
prevented from acquiring, as directly and immediately results from the nonperformance of the contract, Alderson B., the honourable judge in the case, stated
that were the parties have made a contract which one of them has broken damages are
recoverable when they are such as may fairly and reasonably be considered arising
naturally, that is, according to the usual course of things from the breach or when
they are such as may reasonably be supposed to have been in the contemplation of

both parties at the time they made the contract, provided that in both cases, they are
the probable result of the breach. Now, if the special circumstances under which the
contract was actually made were communicated by the plaintiffs to the defendants,
and thus known to both parties, the damages resulting from the breach of such a
contract, which they would reasonably contemplate, would be the amount of injury
which would ordinarily follow from a breach of contract under these special
circumstances so known and communicated. But, on the other hand, if these special
circumstances were wholly unknown to the party breaking the contract, he, at the
most, could only be supposed to have had in his contemplation the amount of injury
which would arise generally, and in the great multitude of cases not affected by any
special circumstances, from such a breach of contract. For, had the special
circumstances been known, the parties might have specially provided for the breach
of contract by special terms as to the damages in that case; and of this advantage it
would be very unjust to deprive them.1
Therefore, the court held that plaintiff will only be compensated for those damages
which were reasonably foreseeable at the time at which the contract was entered into.
Thus, after giving the above rule, the judge ordered a fresh trial to determine the
amount of money that would have to be paid by the defendant to the plaintiff.

7. Reasons as identified by the court for its decision

The decision of the court of ordering a new trial was based on the principle that the plaintiff
can only be compensated for those damages which were reasonably foreseeable at the time of
the contract or if there were any special circumstances which were contemplated by the two
parties at the time of entering into the contract and the damage suffered was reasonably
foreseeable according to the special circumstances. The court also said that if the special
circumstances are not known to both the parties, the defendant would only be liable for
damages which are the natural consequence of the breach. The reasoning behind this principle
is that if the special circumstances had been known to the parties, they might have specially
provided for the breach of contract by special terms as to the damages in that case. Also if the
principle had not been laid down in this case, then the defendants would have been in a
disadvantageous position since the plaintiffs would have claimed for even the remotest of the
damages suffered by them in case of a breach. Moreover, in this case, the special
circumstance was never communicated to the defendants, that the plaintiffs only had one
steam engine and thus, had the engine stopped working, the mill would have come to a
standstill. Thus, the main reason of the decision was to put the plaintiff and the defendant in
cases like Hadley v Baxendale on an equal footing and thus, prevent the defendants from
injustice.

8. Analysis of issues framed by the court

1 (1854) 9 Exch. 341, at p. 354

In the case of Hadley v. Baxendale (1843-60) All ER Rep. 461 172, there was only
one main issue which was determined by the court as already mentioned above, that
what is the amount of damages that the plaintiff is entitled to in accordance with the
facts of the case. In the trial before Crompton J., the jury held that the defendant is
liable to pay 25 pounds to the plaintiff for the breach committed by the defendant.
However, this judgement was challenged on the grounds of misdirection. The Court of
Exchequer identified the main issue of the case and decided that the defendant is only
liable for those damages suffered by the plaintiff which could be reasonably
foreseeable at the time of contract.
Analysing the issue framed by the court, we realize that it was the only possible issue
that could have arisen in accordance with the facts of the given case. Thus, the court
has very correctly identified the main issue and has given a reasonably just judgement
and a principle which puts both the parties entering into a contract on an equal
footing. Thus, the judgement of Alderson B. has removed the possible biasness that
could have occurred in the judgement of the given case. This has only been possible
due to the correct identification of the main issue of the case and thus, a lot of credit
should go to the court for deciding the case as fairly as possible.

9. Analysis of the reasoning of the court

The decision of the court in the case that there should be a fresh trial is based on the
reason that the damages suffered by the plaintiff were not reasonably foreseeable at
the time of the contract and also, that the special circumstances were never
communicated to the defendants. The special circumstance that should have been
communicated was that the plaintiffs had only one steam engine and if there was any
delay in repairing the shaft, their business would come to a halt and thus, they would
suffer losses. However, this special circumstance was never communicated to the
defendants and it was only said that the shaft should be delivered to Greenwich as
soon as possible. Thus, the reasoning of the courts decision was perfectly reasonable
because if the defendants do not have any idea about the special circumstance, then
they can be held liable for those damages occurring due to the breach which they do
not even know can occur if they breach the contract. Also, had this judgement not
been given, the concept of remoteness of damage would not have come into place and
thus, parties would have brought an action for even the remotest of consequences
occurring due to the breach. Thus, the decision of the court has been reasonably
deduced and is unbiased and just.

10.

Impact of the decision on the law

The case of Hadley v Baxendale contained the foundation of the law on the amount of
damages that an injured party is entitled to in case of a breach of contract. The law
that stood before the case was- The plaintiff is entitled to the amount that they would
have received if the party that breached the contract had performed the contract

properly. There was no law related to the remoteness of damage or foreseeability prior
to this case. The following new principle came into existence after the judgement in
the case:
Were the parties have made a contract which one of them has broken damages are
recoverable when they are such as may fairly and reasonably be considered arising
naturally, that is, according to the usual course of things from the breach or when
they are such as may reasonably be supposed to have been in the contemplation of
both parties at the time they made the contract, provided that in both cases, they are
the probable result of the breach.
In my opinion, this law put an additional responsibility on the plaintiffs shoulder to
specify the special circumstances to the defendant.
The law also gave some protection to the party that has breached since the party
would not be held liable for those damages suffered by the plaintiff which were not
reasonably foreseeable or were not contemplated by both the parties.
The law put both the parties who entered into a contract on an equal footing since if
this law would not have been operational then the plaintiff would have brought an
action to the court for even the remotest damage suffered by him due to the breach of
the contract.
Thus, the decision in the case of Hadley v Baxendale gave a fair and just law which
has been applied in a number of subsequent cases.