Hadley v. Baxendale held that the measure of consequential damages in a breach of contract case shall only consist of the damages that arise naturally from the breach, or those which both parties would have seen as reasonably certain to occur at the time the contract was formed.
Hadley and his associate owned and operated a mill in Gloucester, England. During the course of business, the crankshaft of the mill broke, preventing further work. One day after discovering the breakage, Hadley sent a representative to the office of Baxendale, a well-known carrier company, to have the shaft carried to Greenwich for a new part to be created. The plaintiffs informed Baxendale that the mill was stopped and they needed the shaft delivered immediately. In response, Baxendale informed Hadley that if the shaft was brought to them before noon it would be delivered the next day. The shaft was brought before noon the following day. However, due to some neglect on Baxendale's part, the delivery of the shaft was delayed and Hadley received the replacement several days later than it was expected to arrive. During this time, the plaintiffs were unable to use the mill. The plaintiffs filed suit against Baxendale for their lost profits, calculating £300 in damages. In the lower court, the jury found for Hadley and ordered Baxendale to pay Hadley £50. Baxendale appealed.
The appeals court ruled that damages claimed by Hadley had “to 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” when they made the contract. The court considered that the plaintiff only communicated that there was a broken shaft to be carried and that the plaintiffs were millers. Since it could not be supposed that Baxendale contemplated the damages claimed by Hadley, and the damages could not be seen to flow naturally from the result of the breach, the appeals court ordered a new trial for a redetermination of damages, with an instruction to the jury that it was “not to take the loss of profits into consideration at all in estimating the damages.”
Authorities Cited:
Waters v. Towers (1853)
Citation(s): 8 Exchequer Reports 401
The plaintiffs, Joseph Waters, Edwin Waters, and George Rigg, entered into a contract with the defendants, William Towers and Joseph Shirley, for work to be done on the plaintiffs’ mill. The plaintiffs were in the business of making bobbins, spools used in the textile industry, and needed the factory to be in working condition by a certain time to complete a separate contract they entered. This contract was for the sale of a large number of bobbins to another business, which two of the plaintiffs, Joseph Waters and Edwin Waters, were involved in. The date the plaintiff needed the work completed by was known by the defendants. When the defendants did not complete the work on schedule, the plaintiffs brought suit. The court found that the plaintiffs could be awarded damages for the losses they sustained because of their inability to complete the contract. However, the damages were not available in this case because (1) the plaintiffs could not have sued themselves for the completion of the separate contract, and (2) the separate contract was not valid under the statute of frauds.
The plaintiffs in Hadley argued that the decision in Waters favored their claim. In Waters, however, there was a special agreement in the contract between Waters and Towers to have the work completed by a certain date. In Hadley the plaintiffs alleged no specific date in the contract by which the shaft needed to be delivered.
Theodore Sedgwick: A Treatise on the Measure of Damages (1847)
Citation(s): Theodore Sedgwick, A Treatise on the Measure of Damages (New York, 1874), ch. 3, 56-8
An early treatise on determining the amount of damages in civil law cases, A Treatise on the Measure of Damages was written by Theodore Sedgwick (1811-1859) and originally published in 1847. This work included references to American, English, French, and Roman law for its various sources and opinions on how damages should be determined. Between 1847 and 1891, eight editions were published. Sedgwick himself was a prominent attorney in the United States, eventually serving as the District Attorney for the Southern District of New York from 1858 until his death in 1859.
The plaintiff and defendant in Hadley both referred to Sedgwick’s work. Sedgwick was cited for the principle that “it is sometimes said that the defendant shall be held liable for those damages only which both parties may be fairly supposed to have contemplated at the time they entered into the agreement, as likely to result from it.” Theodore Sedgwick, A Treatise on the Measure of Damages 57 (3d ed., 1858). The defendants in particular used Sedgwick to argue that it was necessary to properly determine the portion of the loss to be borne by each party. The court did not cite Sedgwick directly but articulated the principle quoted above.
Ingram v. Lawson (1838)
Citation(s): 173 English Reports 854; 174 English Reports 280; 6 Bingham's New Cases, English Common Pleas 212
Ingram was the owner and master of a ship called the Larkins. He advertised the ship to the public for a voyage to the East Indies. Lawson published a statement disparaging the ship, claiming the Larkins was bought to transport convicts and was not safe for the voyage. As a result, Ingram lost substantial profits on his next voyage and brought a claim against Lawson for libel. The court found that the statement constituted libel because, by disparaging the ship, Lawson was also disparaging the owner and master of it. Additionally, the court held that even though no malice was proved, the jury was justified in using the evidence of Ingram’s typical income from a voyage to determine damages.
The plaintiffs in Hadley used Ingram to argue the amount of damages. In Ingram, the plaintiff provided evidence to estimate the amount of lost income and thus damages. The Hadley court, however, relied on other reasoning to deny the plaintiffs’ claim for consequential damages.
Borradaile v. Brunton (1818)
Citation(s): 8 Taunton's Common Pleas Reports 535
Borradaile purchased a chain cable from Brunton to replace a rope used to attach a ship’s anchor. Brunton warranted that the cable, when used for that purpose, would last for at least two years. Before two years had elapsed, the chain broke while the boat was anchored between two reefs. The plaintiff was forced to release the chain, losing the anchor, to protect the crew and ship from further damage. The jury awarded the plaintiff damages to cover the cost of the chain and the anchor.
The court in Hadley acknowledged that this case supported the notion that a jury could decide damages. However, the court distinguished the two cases because in Borradaile the defendant provided a warranty that the cable would last two years. There was a specific agreement between the parties for how long the cable would last in the manner it was used, so the loss of an anchor was a foreseeable damage and flowed naturally from the breach if the cable broke. Therefore, the damages were valid.
Nurse v. Barns (1664)
Citation(s): 83 English Reports 43; 1 Raymond's King's Bench and Common Pleas Reports 77
Nurse entered into a contract with Barns to let Barns’s iron mills for six months, in exchange for which Nurse paid £10 as consideration. At trial, the plaintiff was awarded £500 in damages, as a result of lost stock. On appeal, the court found that the damages were valid, in addition to the £10 paid as consideration. The plaintiffs in Hadley cited this case in support of their claim for consequential damages.
More Resources:
Charles Dumoulin (1500–1566), a French legal scholar and one of the most famous jurists of early modern Europe. He is recognized as a founder of a unified French legal culture, and his works are important for understanding the sources of Napoleon’s Civil Code.
"The concept of limiting recovery for contracts damages which are foreseeable can be traced to Roman law. In a constitution enacted by Justinian in 531 A.D., damages were said to be 'limited ad duplum.' This principle stood virtually unopposed for a millennium, and in 1546, the noted French jurist Charles Dumoulin asserted that the reasoning of this Roman constitutional provision was that, under ordinary circumstances, the breaching party would only be able to actually foresee this type of injury, that is, the duplum. Accordingly, in his French texts Dumoulin adopted this Roman principle, and formulated the rule that damages arising from a contract breach were only recoverable if they were foreseeable."
Robert Joseph Pothier (1699-1772) was a French jurist who authored the Digest of Pandects of Justinian, a classic study of Roman law and several treatises on French law that are recognized as providing a foundation for the Napoleonic Code of civil law. In his work, A Treatise on the Law of Obligations, or Contracts, he advocated for limiting contract liability.
“Pothier's influence was nothing short of profound. . . . a New York court cited Pothier in a decision--Blanchard v. Ely--which advocated a foreseeability limitation to contract recovery some 15 years before Hadley was decided. Pothier's treatise was, therefore, largely responsible for spreading the idea of limiting contract liability. This was the case in England, but even more so in the United States, where ‘in order to solve new legal problems one referred to English law, as well as to civil law.' Of Pothier's treatises, it has correctly been asserted that they 'constituted, apart from the Louisiana Civil Code, the easiest way to access the legal tradition of the European continent.' Accordingly, it is unsurprising that, in addition to Blanchard v. Ely, several American cases cited Pothier's treatise in their conclusions, acknowledging it as the true source of the Hadley rule.”