Name: Rishi RajRoll 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 non-performance 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 abreach 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 tohavehad 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.[footnoteRef:1] [1: (1854) 9 Exch. 341, at p. 354]

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

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.

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