In Memoriam: Hadley v. Baxendale

Lawyers of the world, rejoice! Cultural heritage is yours/ours too–and if we can contribute to the general good/commonweal, we’re not all bottom feeders. (Just most of us, eh?)

Time has come for commemoration of that seminal Contracts-law case. Gloucester (pronounced “gloss’-ter”) England authorities are going to place two plaques on the (below) City Flour Mills building at 6 p.m., Greenwich Mean Time, next Saturday, July 21st, 2007. The below view of Hadley’s Mills building is taken from the Docks, looking toward Gloucester Cathedral (visible behind the Mills).

So what’s this all about? For you non-lawyers (a sorry lot to be sure), Hadley v. Baxendale is a case about a broken mill shaft (yes, that’s the

mill, above), back in 1853. The case is legendary, the source of “contracts law,” which informs business transactions across the Western World. Hadley, the plaintiff, operated the City Steam-Mills–which shut down after the crankshaft broke. Baxendale, the defendant, “trading under the name of W. Joyce & Co.,” had contracted (agreed) with Hadley to deliver the crankshaft to Baxendale’s engineers to repair it by a date specified in the contract–Baxendale didn’t deliver on time, and Hadley lost business as a result.Hadley then sued, asking for the profits lost because of the belated delivery of a repaired crankshaft.

Baxendale countered “that these damages were too remote.”

The court held: it would not hold Baxendale liable for business losses which weren’t generally foreseeabhle, unless Hadley had informed Baxendale of any special circumstances in advance. The court said: “The damages … should be such as may be 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.” The entire meat of the ruling is in the last paragraph, and it is this (for those of you that can decipher it):

Now we think the proper rule is such 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 where 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 such loss would neither have flowed naturally from the breach of this contract in the great multitude of such cases occurring under ordinary circumstances, nor were the special circumstances, which, perhaps, would have made it a reasonable and natural consequence of such breach of contract, communicated to or known by the defendants.

The Judge ought, therefore, to have told the jury, that, upon the facts then before them, they ought not to take the loss of profits into consideration at all in estimating the damages. There must therefore be a new trial in this case.

(emphasis added). The rule of law that dear old Hadley stands for is this: the risk of loss is placed on the party who’s in the best position to handle it. Here, Baxendale had no way of knowing the possible losses that might result from a delayed crankshaft delivery.

Bottom line: make sure that any contracts you enter into are clear, clear, clear. If you want the other party to understand something: generally, it’s best to spell it out in the contract.

Read Hadley v. Baxendale HERE.

Lime out

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7 Comments

Filed under Appellate Law, Business, International, Law

7 responses to “In Memoriam: Hadley v. Baxendale

  1. Pingback: Contracts » Blog Archive » In Memoriam: Hadley v. Baxendale

  2. Pingback: Contracts » Blog Archive » In Memoriam: Hadley v. Baxendale

  3. Pingback: Contracts » Blog Archive » Contracts

  4. Pingback: Contracts » Blog Archive » Contracts-Law

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  7. it really is a It must be quite a lot of work to keep your blog so nice and neat! I really like the point you are making with your last paragraph.. ahead

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