This
was an English case, so it is applicable to the US legal system?Also note that this case has a headnote.The headnote does not
have the force of law.It is
just a summary designed to aid lawyers.
Hadley
owned a mill, and the shaft broke, shutting down operations.They needed to send the shaft to
Greenwich for repairs.They
contracted with Baxendale, who claimed that they would deliver the shaft
the next day for £2.Baxendale did not deliver the shaft for several days and Hadley
lost business because of it.So he sued.
It
is assumed that he'd lose business for a day or two anyway, but he felt
the slacking on Baxendale's part resulted in a larger loss of business
than he would have if Baxendale had worked faster.
Baxendale
claimed that the damages for the operation of the mill were 'too remote'
and they were not liable for them.
Trial
Court awarded Hadley £25 ($1000s of dollars today!).Baxendale appealed.
Hadley's
lawyers argued that the damages from loss of mill operation were not too
remote, and were the only real damages that Hadley suffered.
Trial
Court came to the conclusion that the breach of contract did definitely
cause the loss, and was the only
cause of the loss.
A
French law case says, "The damages due to the plaintiff consist in
general of the loss that he has sustained, and the profit which he has
been prevented from acquiring.The defendant is only liable for damages foreseen, or which might
have been foreseen at the time of execution of the contract."
The
Appellate Court sent the case back to the Trial Court with explicit
instructions to the jury as to how to calculate damages.
The
Appellate Court ruled that the Trial Court could not consider the loss of
profit in the calculation of damages. (exactly the opposite of tort law!)
If
there are special circumstances to the contract, then the defendant is
liable for damages occurring due to those special circumstances.Assuming of course that those
circumstances were properly communicated to the defendant at the time the
contract was entered into.
This
is the principle of foreseeability.
Damages
after the breach are known as consequential damages.Consequential damages
are only recoverable if they are foreseeable.
Foreseeable is defined as things that are true in the
vast majority of cases, or if they are specifically communicated.And by specifically
communicated, we mean to the head of the company, not some random clerk
who takes your order.
Appellate
Court felt that Hadley did not properly explain that the mill wasn't
working solely because of the shaft.Therefore, Baxendale could not be held liable for
damages resulting from that problem.
What
is the problem with giving Hadley the benefit of the bargain?In this case, and in many cases, the actual direct damages and
therefore the benefit of the bargain is zero.
If
the loss is borne by the shipper, the price of shipping goes up.If the loss is borne by the
miller, the price of bread goes up.There is a real loss in this case, who should bear
the costs?
Remember,
this was Hadley's servant talking
to Baxendale's clerk,
neither of whom had the capability to authority to raise prices.So, is it even reasonable to
assume that risks could be communicated?
