Opinion ID: 2178388
Heading Depth: 2
Heading Rank: 1

Heading: The General Principle of Hadley

Text: In Hadley, the owner of a mill, which had been shut down because of a broken shaft, contracted with a carrier to transport a shaft to another city where it was to be used as a model in making a replacement. The miller notified the carrier that haste in delivery was essential; the miller did not, however, indicate that operation of the mill was dependent on such prompt delivery. In a contract action for negligent delay in delivery, the miller claimed damages for lost profits arising from the nonoperation of the mill. On appeal from a verdict for the miller, Baron Alderson held that recovery for those lost profits was impermissible. The carrier could not be expected to anticipate that the mill operations would be suspended by the delay in delivery since no notice of this special circumstance had been given the carrier. The Court enunciated the following rule to be applied in assessing contract damages: 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. Now, if the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants, and thus made known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of the injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated. But, on the other hand, 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 a breach of contract. 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 unjust to deprive them. Id. 354-355. [5] (Emphasis supplied.) This rule, which has come to be known as the rule of Hadley v Baxendale , has been almost universally accepted as a correct statement of the principle by which the extent of special damage recovery is to be determined in an action for breach of contract. See Frederick v Hillebrand, 199 Mich 333, 341; 165 NW 810 (1917); 1 Restatement Contracts, ง 330, p 509.