Contract; remedies for breach; damages; consequential loss.
Facts: The crankshaft of Hadley's mill broke, bringing milling operations to a complete halt. The manufacturers of the shaft said that they could make a replacement, but they needed the broken shaft to copy it. Hadley consigned the broken shaft to Baxendale, a carrier, telling him it was the broken shaft of a mill, and instructing him to take it to the manufacturer. Baxendale said he would deliver it to the manufacturer the next day, but then he carelessly delayed for several days before transporting it. During this whole period the mill stood idle. Hadley claimed damages for breach of contract from Baxendale, to compensate for the loss of profits caused by the delay.
Issue: Was Hadley entitled to compensation for the lost profits?
Decision: In the circumstances, Hadley was not entitled to such damages.
Reason: A plaintiff who establishes a breach of contract is not restricted to claiming damages only for direct (immediate) losses. In appropriate circumstances they may also claim damages to compensate for more remote (or consequential) losses. However, damages for consequential loss can only be claimed if the losses may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as a probable result of such a breach. The court decided that Hadley's loss of profits were not direct loss because normally it would be expected that a mill would have, or could acquire, a spare shaft and so it was not reasonably forseeable that a broken shaft would cause a complete halt of production.
The court also decided that the lost profits could not be claimed as consequential loss because Baxendale had not been told that the mill would remain completely out of operation until the shaft was replaced. This meant that the loss of profits was not something both parties would have contemplated at the time of contracting.