Despite the United States trying hard be anything but British, our legal system still echoes much of the British legal system. In point of fact, a number of the most fundamental legal concepts we use have origins overseas in British case law. The famous case of Hadley v Baxendale (1854) is one example of this phenomenon.
Hadley v Baxendale is an English contract law case which made a major contribution to the legal doctrine of foreseeability. The plaintiff, Hadley (who was the defendant in the appellate case), suffered considerably in lost profits. This was an immediate consequence of the poor performance of Baxendale. However, the lost profits were not recoverable because the loss of such profits was not a reasonably foreseeable consequence of this performance.
Hadley v Baxendale: The Case
Mr. Hadley and his associate were millers who worked together in the town of Gloucester. Hadley hired Baxendale to deliver a broken crankshaft to a repair shop in Greenwich. The delivery was time sensitive and Hadley needed the part to arrive at the repair shop by a specific date.
Baxendale failed to deliver the broken crankshaft to the shop by the proper date and, as a consequence of this lateness, Hadley lost business.
Hadley claimed Baxendale should recover the profits lost as a result of Baxendale’s poor performance. The trial court jury awarded Hadley £25 (roughly £2,500 today). This was appealed and brought before the Court of Exchequer.
What’s the law say?
When a breach of contract occurs, damages are recoverable only when they are reasonably foreseen. Just because damages result from a breach of contract does not mean that they are automatically recoverable; they must be a reasonably foreseeable consequence of the breach.
Court rules in favor of Baxendale
The appellate court (Court of Exchequer) overturned the jury award. Furthermore, they determined that although Baxendale had violated the contract, it was not reasonably foreseeable that the lateness would cause a substantial loss of profits. In order for such lost profits to have been recoverable Hadley needed to have specifically communicated the fact that such lost profits were a probable consequence.
Though a relatively simple case, Hadley v Baxendale is a landmark decision and still informs our contract law today. Even today, when a package is not delivered on time, Hadley can be invoked!
Photo by Dan Dennis