Hadley v. Baxendale
In the court of Exchequer, 1854.
9 Exch. 341.

            . . . At the trial before Crompton. J., . . . it appeared that the plaintiffs carried on an extensive business as millers at Gloucester; and that on the 11th of May, their mill was stopped by a breakage of the crank shaft by which the mill was worked. The steam-engine was manufactured by Messrs. Joyce & Co., the engineers, at Greenwich, and it became necessary to send the shaft as a pattern for a new one to Greenwich. The fracture was discovered on the 12th, and on the 13th the plaintiffs sent one of their servants to the office of the defendants, who are the well-known carriers trading under the name of Pickford & Co., for the purpose of having the shaft carried to Greenwich. The plaintiffs' servant told the clerk that the mill was stopped, and that the shaft must be sent immediately; and in answer to the inquiry when the shaft would be taken, the answer was, that if it was sent up by twelve o'clock any day, it would be delivered at Greenwich on the following day. On the following day the shaft was taken by the defendants, before noon, for the purpose of being conveyed to Greenwich, and the sum of 21. 4s. was paid for its carriage for the whole distance; at the same time the defendants' clerk was told that a special entry, if required, would be made to hasten its delivery. The delivery of the shaft at Greenwich was delayed by some neglect; and the consequence was, that the plaintiffs did not receive the new shaft for several days after they would otherwise have done, and the working of their mill was thereby delayed, and they thereby lost the profits they would otherwise have received.


            On the part of the defendants, it was objected that these damages were too remote, and that the defendants were not liable with respect to them. The learned Judge left the case generally to the jury, who found a verdict with ₤251. damages beyond the amount paid into Court.

 . . .

            The judgment of the Court was now delivered by

            ALDERSON, B. We think that there ought to be a new trial in this case; but, in so doing we deem it to be expedient and necessary to state explicitly the rule which the Judge, at the next trial, ought, in our opinion, to direct the jury to be governed by when they estimate the damages. . . .

            "There are certain established rules," this Court says, in Alder v. Keighley (15 M. & W. 117), "according to which they jury ought to find."  And the Court, in that case, adds: "and here there is a clear rule, that the amount which would have been received if the contract had been kept, is the measure of damages if the contract is broken."


The basic principle of contract damages is to put the non-breacher in as good a position as he or she would have been had the contract been performed as promised. 

Does the court achieve this goal when it follows the "clear rule, that the amount which would have been received if the contract had been kept, is the measure of damages if the contract is broken"?

(a) Yes

(b) No


            Now we think the proper rule in such a case as the present is this: - 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.


The court distinguishes two types of damage:  (1) those arising in the usual course of things; and (2) those reasonably supposed to be in the contemplation of the parties at the time of contracting.  Focus for now on (1).  If the court were to hold that the Hadley's lost profits were damages arising in the usual course of things, then it would award the Hadley's the lost profits and thereby putting them in the position they would have been had the breach not occurred.

(a) Yes

(b) No


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 circumstances so known and communicated. But, on the other had, if these 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 breach of contract.


Suppose you routinely hire me to deliver packages for you.  As we both know, the packages never contain items worth more than $20.  Today, however, you hand me a package containing a diamond necklace worth $1 million.  You hand me the package already wrapped and do not tell me the value of what it contains. 

(a) The damage of $1 million if the package is lost is "reasonably supposed to be in [my] contemplation . . . at the time of contracting." 

(b) The damage of $1 million if the package is lost is not "reasonably supposed to be in [my] contemplation . . . at the time of contracting." 


For, had the special circumstances been known, the parties might have specially provided for the breach of contract by special terms as to the damages in that case; and of this advantage it would be very unjust to deprive them. Now the above principles are those by which we think the jury ought to be guided in estimating the damages arising out of any breach of contract. It is said, that other cases such as breaches of contract in the non-payment of money, or in the not making a good title to land, are to be treated as exceptions to from this, and as governed by the conventional rule. But as, in such cases, both parties must suppose to be cognisant of that well-known rule, these cases may, we think, be more properly classed under the rule above enunciated as to cases under known special circumstances, because there both parties may reasonably be presumed to contemplate the estimation of the amount of damages according to the conventional rule.


The court will not award damages not "reasonably supposed to be in the contemplation of the parties at the time of contracting."  Suppose the court were to hold--as indeed it does below--that the Hadley's lost profits were not "reasonably supposed to be in the contemplation of the parties at the time of contracting."  Then it would not award the lost profits.

(a) This would not to put the Hadley's back in the position they would have been had the contract not been breached.

(b) This would put the Hadley's back in the position they would have been had the contract not been breached.


            Now, in the present case, if we are to apply the principles above laid down, we find that the only circumstances here communicated by the plaintiffs to the defendants at the time the contract was made, were, that the article to be carried was the broken shaft of a mill, and that the plaintiffs were the millers of that mill. But how do these circumstances shew reasonably that the profits of the mill must be stopped by an unreasonable delay in the delivery of the broken shaft by the carrier to the third person? Suppose the plaintiffs had another shaft in their possession put up or putting up at the time, and that they only wished to send back their broken shaft to the engineer who made it; it is clear that this would be quite consistent with the above circumstances, and yet the unreasonable delay in the delivery would have no effect upon the intermediate profits of the mill. Or, again, suppose that, at the time of the delivery to the carrier, the machinery of the mill had been in other respects defective, then , also, the same results would follow. Here it is true that the shaft was actually sent back to serve as a model for a new one, and that the want of a new one was the only cause of the stoppage of the mill, and that the loss of profits really arose from not sending down the new shaft in proper time, and that this arose from the delay in delivering the broken one to serve as a model. But, it is obvious that, in the great multitude of cases millers sending off broken shafts to third parties by a carrier under ordinary circumstances, such consequences would not, in all probability, have occurred; and these special circumstances were here never communicated by the plaintiffs to the defendants. It follow, therefore, that the loss of profits here cannot reasonably be considered such a consequence of the breach of contract as could have been fairly and reasonably contemplated by both the parties when they made this contract. For such loss would neither have flowed naturally from the breach of this contract in the great multitude of such cases occurring under ordinary circumstances, nor were the special circumstances, which, perhaps, would have made it a reasonable and natural consequence of such breach of contract, communicated to or known by the defendants. The Judge ought, therefore, to have told the jury, that, upon the facts then before them, they ought not to take the loss of profits into consideration at all in estimating the damages. There must therefore be a new trial in this case.


Notes and Questions

(1) The court distinguishes between two types of damages:  (a) Damages that "should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things"; and (b) Damages "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." 

By (a), they mean damages that a reasonable person would realize are the likely result of a breach of a contract of the type in question.  By (b), they mean damages that a reasonable person would not realize are the likely result of a breach of a contract of the type in question.  These damages arise from special circumstances one would not normally assume to be the case. The breacher always bears the (a)-type damages; however, he or she bears the (b)-type damages only if he or she is knew or should have known of the special circumstances giving rise to them.

The Restatement, Second, Contracts expresses essentially the same rule in terms of reasonable foreseeabiity.  Damages a reasonable person would realize are the likely result of a breach of a contract of the type in question are always reasonably foreseeable.  Damages that arise from special circumstances are reasonable foreseeable only if the breaching party had reason to be aware of them at the time of contracting.   The breacher bears only those damages that were, at the time of contracting, reasonably foreseeable by the breacher as the probable result of a breach. 

(2) In Postal Tel. Cable Co. v. Lathrop 131 Ill. 575 (1890), a coffee dealer sends a telegram directing his broker to buy 1000 bags of coffee.  Through the telegraph company's error, the amount got changed in transmission to 2000 bags.  Shortly after the purchase, the price of coffee fell, and the dealer sustained double the loss he would have, had the order been properly transmitted.  The dealer sues the telegraph company to recover the extra loss. 

The court held that the loss on the additional 1000 bags was reasonably foreseeable by the telegraph company at the time of contracting as the probably result of the breach.  Thus, the plaintiff's expectation award was:

(a) The loss on 2000 bags of coffee.

(b) $0.

(c) The loss on 1000 bags of coffee.

(3) The Hadley court claims that "it is obvious that, in the great multitude of cases millers sending off broken shafts to third parties by a carrier under ordinary circumstances, such consequences [the lost profits as result of the delay in delivery] would not, in all probability, have occurred."

The court supports this claim with convincing facts about mills in England.

(a) True.

(b) False.

(4) In Postal Tel. Cable Co. v. Lathrop 131 Ill. 575 (1890), a coffee dealer sends a telegram directing his broker to buy 1000 bags of coffee.  Through the telegraph company's error, the amount got changed in transmission to 2000 bags.  Shortly after the purchase, the price of coffee fell, and the dealer sustained double the loss he would have, had the order been properly transmitted.  The dealer sues the telegraph company to recover the extra loss. 

The court held that the loss on the additional 1000 bags was reasonably foreseeable by the telegraph company. 

(a) It is clear that a reasonable person would realize are the likely result of a breach of a contract of the type in question.

(b) It is clear that the damages arose from special circumstances, and that the telegraph company was aware of these special circumstances.

(c) Neither (a) nor (b).