Hadley v Baxendale

Hadley & Anor v Baxendale & Ors [1854] EWHC J70 (ht t p://www.bailii.org/ew/cases/EWHC/Exc
h/1854/J70.ht ml) is a leading English cont ract law case. It set s t he leading rule t o det ermine
consequent ial damages from a breach of cont ract : a breaching part y is liable for all losses t hat
t he cont ract ing part ies should have foreseen. However, if t he ot her part y has special knowledge
t hat t he part y-in-breach does not , t he breaching part y is only liable for t he losses t hat he could
have foreseen on t he informat ion available t o t hem.
Hadley & Anor v Baxendale & Ors
Court Exchequer Court

Decided 23 February 1854

Citation(s) [1854] EWHC J70 (htt

p://www.bailii.org/ew/
cases/EWHC/Exch/18
54/J70.html) , (1854)
156 ER 145 (https://b
ooks.google.com/boo
ks?id=VppDAQAAMA
AJ&pg=PA145) , 9
ExCh 341, (1854) 23
LJ Ex 179, 18 Jur 358,
[1843-60] All ER Rep
461
 Transcript(s) Abridged judgment on
bailii.org (http://www.
bailii.org/ew/cases/E
WHC/Exch/1854/J7
0.html)
Court membership

Judge(s) sitting Parke B, Alderson B,

Platt B and Martin B

Keywords

Breach of contract, remoteness

Facts
The claimant s, Mr Hadley and anot her, were millers and mealmen and worked t oget her in a
part nership. A crankshaft of a st eam engine at t he mill had broken and Hadley arranged t o have a
new one made by W. Joyce & Co. in Greenwich. Before t he new crankshaft could be made, W.
Joyce & Co. required t hat t he broken crankshaft be sent t o t hem in order t o ensure t hat t he new
crankshaft would fit t oget her properly wit h t he ot her part s of t he st eam engine. Hadley
cont ract ed wit h defendant s Baxendale and ot hers t o deliver t he crankshaft t o engineers for
repair by a cert ain dat e at a cost of £2 st erling and 4 shillings.

Baxendale failed t o deliver on t he dat e in quest ion, causing Hadley t o lose business. Hadley sued
for t he profit s he lost due t o Baxendale's lat e delivery, and t he jury awarded Hadley damages of
£50. Baxendale appealed, cont ending t hat he did not know t hat Hadley would suffer any
part icular damage by reason of t he lat e delivery.

The quest ion raised by t he appeal in t his case was whet her a defendant in a breach of cont ract
case could be held liable for damages t hat t he defendant was not aware would be incurred from
a breach of t he cont ract .

Judgment

Baron Alderson

The Court of Exchequer, led by Baron Sir Edward Hall Alderson, declined t o allow Hadley t o
recover lost profit s, holding t hat Baxendale could be held liable only for losses t hat were
generally foreseeable, or if Hadley had ment ioned his special circumst ances in advance. The
mere fact t hat a part y is sending somet hing t o be repaired does not indicat e t hat t he part y
would lose profit s if it is not delivered on t ime. The court suggest ed various ot her circumst ances
under which Hadley could have ent ered int o t his cont ract t hat would not have present ed such
dire circumst ances, and not ed t hat where special circumst ances exist , provisions can be made in
t he cont ract volunt arily ent ered int o by t he part ies t o impose ext ra damages for a breach.
Alderson B said t he following:

Now we think the proper rule in such a case as the present is this: Where two
parties have made a contract which one of them has broken, the damages which
the other party ought to receive in respect of such breach of contract should be
such as may fairly and reasonably be considered either arising naturally, i.e.,
according to the usual course of things, from such breach of contract itself, or such
as 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 of it. 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. Now the above principles are those by which we think the
jury ought to be guided in estimating the damages arising out of any breach of
contract... But it is obvious that, in the great multitude of cases of millers sending
off broken shafts to third persons by a carrier under ordinary circumstances, such
consequences would not, in all probability, have occurred, and these special
circumstances were here never communicated by the plaintiffs to the defendants. It
follows, therefore, that the loss of profits here cannot reasonably be considered
such a consequence of the breach of contract as could have been fairly and
reasonably contemplated by both the parties when they made this contract.[1]

Significance
Significance
L. L. Fuller and William R. Perdue evaluat ed t he idea of reducing cont ract ual remot eness t o
foreseeabilit y in t his way:

Hadley v Baxendale may be regarded as giving a grossly simplified answer to the

question which its first aspect presents. To the question, how far shall we go in
charging to the defaulting promisor the consequences of his breach, it answers
with what purports to be a single test, that of foreseeability. The simplicity and
comprehensiveness of this test are largely a matter of illusion. In the first place, it is
openly branded as inappropriate in certain situations where the line is drawn
much more closely in favor of the defaulting promisor than the test of foreseeability
as normally understood would draw it. There are, therefore, exceptions to the test,
to say nothing of authorities which reject it altogether as too burdensome to the
defaulter. In the second place, it is clear that the test of foreseeability is less a
definite test itself than a cover for a developing set of tests. As in the case of all
"reasonable man" standards there is an element of circularity about the test of
foreseeability. "For what items of damage should the court hold the defaulting
promisor? Those which he should as a reasonable man have foreseen. But what
should he have foreseen as a reasonable man? Those items of damage for which the
court feels he ought to pay." The test of foreseeability is therefore subject to
manipulation by the simple device of defining the characteristics of the
hypothetical man who is doing the foreseeing. By a gradual process of judicial
inclusion and exclusion this "man" acquires a complex personality; we begin to
know just what "he" can "foresee" in this and that situation, and we end, not with
one test but with a whole set of tests. This has obviously happened in the law of
negligence, and it is happening, although less obviously, to the reasonable man
postulated by Hadley v. Baxendale.[2]

As early as 1894, t he U.S. Supreme Court recognized t he influence of Hadley upon American law:

In Hadley v. Baxendale (1854) 9 Exch. 345, ever since considered a leading case on
both sides of the Atlantic, and approved and followed by this court in Telegraph Co.
 v. Hall, above cited, and in Howard v. Manufacturing Co., 139 U.S. 199, 206, 207 S.,
11 Sup. Ct. 500; Baron Alderson laid down ... the principles by which the jury ought
to be guided in estimating the damages arising out of any breach of contract[.][3]

The Hadley holding was lat er incorporat ed int o Sect ion 351 of t he Rest at ement (Second) of
Cont ract s. A 1994 law review art icle not ed t hat as of t hat year, Hadley had been cit ed wit h
approval by t he st at e supreme court s of 43 U.S. st at es; t hree st at e supreme court s had
adopt ed t he Hadley holding wit hout cit ing Hadley it self; and int ermediat e appellat e court s in t he
four ot her st at es had also favorably cit ed Hadley.[4]

In England and Wales, sect ion 53(2) of t he Sale of Goods Act 1979 art iculat es t he first limb of
Hadley, [t]he measure of damages for breach of warranty is the estimated loss directly and
naturally resulting, in the ordinary course of events, from the breach of warranty, while sect ion
53(4), The fact that the buyer has set up the breach of warranty in diminution or extinction of the
price does not prevent him from maintaining an action for the same breach of warranty if he has
suffered further damage, allows for "special damages", art iculat ing t he second limb.[5]

In Satef-Huttenes Albertus SpA v Paloma Tercera Shipping Co SA (The Pegase) [1981] 1 Lloyd’s
Rep 175, Robert Goff J st at ed,

Although the principle stated in Hadley v Baxendale remains the fons et origo of
the modern law, the principle itself has been analysed and developed, and its
application broadened, in the 20th century ... The general result of the two cases is
that the principle in Hadley v Baxendale is now no longer stated in terms of two
rules, but rather in terms of a single principle—though it is recognised that the
application of the principle may depend on the degree of relevant knowledge held
by the defendant at the time of the contract in the particular case. This approach
accords very much to what actually happens in practice; the courts have not been
over-ready to pigeon-hole the cases under one or other of the so-called rules in
Hadley v Baxendale, but rather to decide each case on the basis of the relevant
knowledge of the defendant.[6]

However, it has been suggest ed t hat t he rule in Hadley v Baxendale is not as novel as it s
celebrat ed import ance suggest s. James Edelman, a Just ice of t he High Court of Aust ralia gave a
speech on t he t opic,[7] assert ing t hat "t he rule set out in Hadley v Baxendale was not novel". For
example, Edelman not ed t hat , in 1564, t he French jurist Charles Dumoulin had argued t hat liabilit y
for breach of cont ract should be limit ed t o foreseeable damage,[8] t hereby pre-dat ing t his same
sent iment in Hadley v Baxendale.

The core of t he judgment below is oft en cit ed as an example of a combinat ion of t he object ive
t est and a subject ive t est :[9]

Where two parties have made a contract which one of them has broken, the
damages which the other party ought to receive in respect of such breach of
contract should be such as may fairly and reasonably be considered either arising
naturally, i.e., according to the usual course of things, from such breach of contract
itself, or such as 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 of it.

See also

Victoria Laundry (Windsor) Ltd v Newman

Industries Ltd [1948] 2 KB 528

Koufos v Czarnikow Ltd or The Heron II

[1969] 1 AC 350
 Parsons (Livestock) Ltd v Uttley Ingham &
Co Ltd [1978] 1 QB 791

South Australia Asset Management Co v

York Montague [1996] 3 All ER 365

Jackson v Royal Bank of Scotland [2005]

2 All ER 71
The Achilleas [2008] UKHL 48

References

1. (1854) 156 ER 145 p. 152.

2. LL Fuller and WR Perdue, "The Reliance
Interest in Contract Damages" (1936) 46
Yale LJ 52, p. 85, JSTOR 791632 (https://w
ww.jstor.org/stable/791632)
3. Primrose v. Western Union Tel. Co., 154 U.S.
1 (https://supreme.justia.com/cases/feder
al/us/154/1/) (1894).

4. Thomas A. Diamond and Howard Foss,

Consequential Damages for Commercial
Loss: An Alternative to Hadley v. Baxendale,
63 Fordham L. Rev. 665 (1994).

5. England and Wales High Court

(Commercial Court), Saipol SA v Inerco
Trade SA (https://www.casemine.com/judg
ement/uk/5a8ff71960d03e7f57ea7849) ,
[2014] EWHC 2211 (Comm), paragraph 14,
delivered 20 June 2014, accessed 21
January 2024

6. [1981] 1 Lloyd's Rep 175 p. 181.

7. Justice Edelman, Hadley v Baxendale
(Paper presented to University of
 Cambridge, Obligations VIII, Revolutions in
Private Law, 9–22 July 2016)
<http://www.fedcourt.gov.au/publications/j
udges-speeches/justice-edelman/edelman-
j-20160725#_Toc457208632 Archived (htt
ps://web.archive.org/web/2016101305520
8/http://www.fedcourt.gov.au/publications/
judges-speeches/justice-edelman/edelman
-j-20160725#_Toc457208632) 13 October
2016 at the Wayback Machine>.

8. C Dumoulin, Tractatus Commerciorum et

Usurarum (1546)

9. See also DPP v Camplin [1978] UKHL 2,

[1978] AC 705.

External links
Judgment of Alderson B (http://mtweb.
mtsu.edu/cewillis/Hadley%20v%20Baxe
ndale.pdf) Archived (https://web.archiv
e.org/web/20110822164426/http://mtw
eb.mtsu.edu/cewillis/Hadley%20v%20B
axendale.pdf) 22 August 2011 at the
Wayback Machine pdf file hosted by
mtsu.edu
Judgment available via Bailii (http://ww
w.bailii.org/ew/cases/EWHC/Exch/185
4/J70.html) (abridged)
English Reports version available via
Google Books (https://books.google.co
m/books?id=VppDAQAAMAAJ&pg=PA1
45)
 Historical background of case (https://w
ww.gloucesterdocks.me.uk/gloucester/
warehouses/pridaysmill.htm)
Picture of Hadley's mill (http://lawprofes
sors.typepad.com/contractsprof_blog/2
005/06/hadleys_mill.html)

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