FACTS
- Plaintiffs: Hadley and Others, millers and mealmen, operated a steam-engine mill in Gloucester.
- Incident: The mill’s crank shaft broke, stopping mill operations. Plaintiffs needed a new crank shaft, which required the old one to be sent to W. Joyce in Greenwich as a model for a replacement.
- Contract with Defendants: The defendants, Pickford & Co., common carriers, agreed to transport the broken shaft from Gloucester to Greenwich. They assured delivery by the next day if the shaft was sent by noon.
- Delay: Despite these assurances, the shaft was delayed in delivery by seven days due to negligence by Pickford & Co.
- Result of Delay: Plaintiffs experienced a halt in mill operations, incurring losses in profits, inability to serve customers, expenses of sourcing alternative flour, and wages for idle workers.
- Damages Claimed: Plaintiffs sought £300 in damages, arguing that the delay directly led to these losses.
TRIAL COURT PROCEEDINGS
- Defendants’ Argument: They claimed the losses alleged by the plaintiffs were too remote to warrant compensation and offered £25 as satisfaction for damages.
- Verdict: The jury awarded the plaintiffs an additional £25 in damages.
- Appeal: The defendants appealed, seeking a new trial on the grounds of misdirection in the jury’s instructions.
JUDGEMENT (Alderson, B.)
Legal Principle (Remoteness of Damages):
- When one party breaches a contract, the damages awarded should cover:
- Those losses that naturally arise from the breach according to the usual course of events.
- Or, losses that were within the contemplation of both parties when the contract was made.
- If specific circumstances increase the extent of damages, these must be explicitly communicated to the party in breach at the time of contracting. Otherwise, the party is only liable for general, foreseeable damages.
Application to Case:
Special Circumstances: The defendants were aware that the item being shipped was a broken mill shaft, but they were not informed that the mill was entirely dependent on the timely delivery of this shaft to avoid a complete shutdown.
Foreseeability of Loss: Since the defendants were unaware of the mill’s dependency on the shaft’s timely delivery, the substantial losses claimed were deemed too remote and unforeseeable. The usual expectation for such shipments would not involve a complete stoppage of mill operations.
Decision: Alderson, B. concluded that the trial judge should have instructed the jury to exclude the loss of profits from the damages, as these were not reasonably foreseeable based on the information provided to the defendants.
CONCLUSION
The court ordered a new trial with specific guidance for the jury to disregard the claimed profits loss, as these were deemed too remote to be included in the damages due to lack of communicated special circumstances.
SIGNIFICANCE
- Establishes the Rule on Remoteness of Damages: This case introduced the principle that for damages to be recoverable, they must be either a natural consequence of the breach or reasonably foreseeable by both parties at the time of contracting.
- Impact on Contract Law: The decision in Hadley v. Baxendale became a cornerstone in determining damages, distinguishing between direct (foreseeable) and indirect (unforeseeable) losses in breach of contract cases.
