Duhaime's Law Dictionary

Hadley v Baxendale, Rule in Definition:

A rule of contract law which limits the defendant of a breach of contract case to damages which can reasonably be anticipated to flow from the breach.

In Hadley, there had been a delay in a carriage (transportation) contract. The mill owner sued for damages but the defendant was held not liable for profits lost due to his failure to deliver a mill shaft promptly. The court found that he could not be taken to have known of the special circumstance that until the shaft was delivered, the mill could not operate:

"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 were 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 those 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."

In Cornwall Gravel, a courier (Purolator) was held liable for profits lost when it failed to deliver Cornwall Gravel's tender on time. The Purolator courier had been told that the package contained a tender and that delivery had to be made before a certain time. In the ordinary course of events, it would be obvious that unless the tender arrived before the deadline, a contract could be lost. But here, Purolator knew of the special circumstances and on this basis, referring to the rule in Hadley v Baxendale, the court held it liable for Cornwall Gravel's lost profits.


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