A PRECEDENT CASE: HADLEY V BAXENDALE (1854)

Study Unit A PRECEDENT CASE: Hadley v Baxendale (1854)

(A) THE RATIO OF A CASE A precedent case sets out the legal reasoning which has led to the decision of the judges. This is the important part of the judgment and is known as the ratio decidendi (the reason for deciding) of the case. The rest of the judgment, the ‘other things said’, is called obiter dicta and judges in future cases can refer to the obiter but are not bound by it as they are with the ratio. The ratio of the case below, Hadley v Baxendale (1854), forms a hugely significant precedent in English contract law. The case gave rise to what is known as ‘the Hadley Rule’, and is one of the most frequently cited precedents in the common law world.

(B) THE FACTS OF THE CASE The claimants (plaintiffs) were brothers Joseph and Jonah Hadley, the owners of the City Steam Mills in the English city of Gloucester. The business consisted of processing grain into flour. The mill used a steam engine to operate the machinery involved in the flour-producing process. In May 1853, the crankshaft of the steam engine broke, leaving the mill without power. The original manufacturer in Greenwich, London, agreed to make a new shaft but stated that they needed the broken one to be sent to them so that they could make an exact copy. The defendants, Baxendale and Ors, who traded together as ‘Pickford & Co’, were carriers of goods. They agreed to transport the broken shaft to Greenwich. The Hadley brothers had informed the defendants that the matter was urgent and Pickford & Co informed the Hadleys that if the shaft was delivered to them by 12 o’clock on any day, it would be delivered to Greenwich the following day. However, the Hadleys did not tell the defendants that they could not operate the mill without the shaft, or that if the delivery to Greenwich was delayed they would lose orders and therefore profits. On 13 May 1853, the defendants received the shaft. There were various delays and miscommunications and the delivery was finally made five days later than agreed. The City Steam Mills were therefore unable to function for five days longer than anticipated. Some customer orders were unfulfilled and in other cases the claimants had to buy flour from another supplier to fulfil orders. The claimants claimed damages in the amount of their losses. The Hadleys were initially awarded damages by a jury (civil cases were often tried by jury at this time) and Baxendale appealed.

(C) THE RATIO OF THE JUDGMENT ON APPEAL 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. 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 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 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. But it is obvious that, in the great multitude of cases of millers sending off broken shafts to third persons 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 follows, 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.