Hadley v. Baxendale


9 ExCH 341 (1854)

One-Sentence Synopsis:  In a breach of contract case, the breaching party should not be liable for payment of damages that could not reasonably be considered arising naturally from such breach of the contract, or could not reasonably have been contemplated by the parties at the time of formation of the contract.

Detailed Summary:  The crank shift of the steam engine that Plaintiffs used at their mill broke, forcing Plaintiffs to close their factory.  Plaintiff contracted with Defendant (a common carrier) to get the broken shaft to a third-party mechanic so that the mechanic could create an identical part.  Defendants were supposed to deliver the shaft to the mechanic in a day, but due to their negligence, the delivery was delayed and, as a result, Plaintiffs’ mill remained closed for 5 extra days.

In their breach of contract action against Defendants, Plaintiffs sought to recover as an item of their damages the substantial lost profits that Plaintiffs contend were caused by their factory remaining closed for 5 extra days.  The court ruled that said lost profit damages were not recoverable in the breach of contract context.

Specifically, the court held that a plaintiff in a breach of contract case is entitled to damages that arise naturally from the breach of the contract itself or damages that the parties could reasonably foresee at the time they entered into the contract.  The court reasoned that while Defendants’ delayed delivery caused the factory to remain closed for extra days resulting in lost profits, that was not the type of consequence one reasonably could expect from breach of a delivery contract.  Moreover, at the time they entered into the contract, Plaintiff did not inform Defendants that they were having to shutdown the factory until the new part arrived, so it was not foreseeable to Defendants that the breach of the contract was going to result in the loss of substantial profits.

Thus, the court held that Plaintiffs were not entitled to recover their lost profit damages from Defendants under their breach of contract claim.

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