This case deals with remoteness of damages in contract law.
- Hadley & Co., a milling business, owned a flour mill. The mill’s crankshaft broke, and they needed a replacement.
- They hired Baxendale, a carrier from Pickford & Co., to transport the broken shaft to the manufacturer for a replacement.
- Hadley told Baxendale that the shaft needed to be delivered urgently but did not specify that the entire mill was shut down until the new shaft arrived.
- Due to Baxendale’s delay, the shaft arrived late, causing Hadley to suffer a loss of profits because the mill remained non-operational for longer than expected.
- Hadley sued Baxendale for lost profits, claiming the delay caused financial harm.
Final Order (Judgment)
The Court of Exchequer ruled in favor of Baxendale, holding that:
- Damages must be foreseeable at the time of contract formation—a party is only liable for losses that arise naturally from the breach or were reasonably contemplated by both parties at the time of the contract.
- Since Hadley did not inform Baxendale that the mill would remain shut until the new shaft arrived, Baxendale could not have foreseen the lost profits.
- Lost profits were too remote to be claimed as damages because they were not a natural consequence of the delay.
Conclusion
Hadley was not entitled to compensation for lost profits, as the loss was not foreseeable by Baxendale. This case established the Hadley v. Baxendale Rule, which is still used today to determine remoteness of damages in contract law.
