Hadley v. Baxendale case brief

Hadley v. Baxendale; (Ct. Exchequer, 1854); CB 80; Notes 9 (Classic consequential damages case)

• Facts: P’s crank shaft broke, without it, mill can’t run. D carriers delayed in returning shaft, P suing for lost profits. D’s claim not liable b/c too remote and they were not aware of special circumstances.
• Issue: Did the lost profits arise naturally from the breach such that P can recover?
• Holding: No. Lost profits did not arise naturally from breach, nor were they “reasonably in the contemplation of both parties, at the time they made the contract, as the probable result of it.”
• Rule: D will only be held liable for the P’s losses if they are generally foreseeable or if the P tells the D about any special circumstances in advance. Codified in UCC § 2-715.
• Commentary: D couldn’t fairly and reasonably contemplate the breach. Didn’t have chance to mitigate or prevent damages. Court says if special circumstances exist, parties can agree to extra damages or charges – court doesn’t want to take away that power.
• Test: (1) Arise naturally in the reasonable course of things, those things that are specifically within the contemplation of the parties; (2) special circumstances of which D is on notice.
• Note: Tacit agreement test (asking if D tacitly agreed to take on the potential liability) test is rejected by § 2-715. Too hard for P to show that D tacitly agreed.