Hadley v Baxendale (1854) 9 Exch 341

The plaintiffs, the owners of a flour mill, sent a broken iron shaft to an office of the defendants, who were common carriers, to be conveyed by them, and the defendants’ clerk, who attended at the office, was told that the mill was stopped, that the shaft must be delivered immediately, and that a special entry, if necessary, must be made to hasten its delivery; and the delivery of the broken shaft to the consignee, to whom it had been sent by the plaintiffs as a pattern, by which to make a new shaft, was delayed for an unreasonable time; in consequence of which, the plaintiffs did not receive the new shaft for some days after the time they ought to have received it, and they were consequently unable to work their mill and thereby incurred a loss of profits.

Were the mill’s lost profits sufficiently within the carrier’s contractual contemplation, given the ordinary consequences and special information communicated when arranging delivery?

The Court of Exchequer held that the lost profits claimed could not be recovered on the information communicated to the carrier. Damages must fall within loss arising naturally in the ordinary course or loss reasonably contemplated by both parties because relevant special circumstances were made known when contracting.

The particular dependence of the mill's continued operation on prompt return of this replacement shaft had not been sufficiently brought within the carrier's assumed contractual responsibility. The court ordered a new trial with the proper direction on remoteness. The decision did not establish that business profits are inherently unrecoverable. It required attention to the ordinary consequences of delay and to the special information available at the time the bargain was made.

Contractual damages cover losses arising ordinarily from the breach and losses within the parties' reasonable contemplation because special circumstances were communicated at formation. Causation alone is insufficient. The type of loss and the defendant's relevant knowledge determine remoteness, subject to later refinements concerning contractual responsibility.

Hadley supplies the foundation for contractual remoteness and distinguishes ordinary consequences from specially communicated risks. It should be read with The Heron II on the level of likelihood and The Achilleas on assumed responsibility in an unusual commercial setting. The case is not an exclusion of lost profits as a category. In an exam, identify the information exchanged at formation and explain why that information makes the claimed kind of loss ordinary or specially contemplated.