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The English case of Hadley v. Baxendale, 9 Exch. 341 (1854), helped form the foundation of the American law of contract damages.
Hadley was the owner of a mill in Gloucester, England. The crank shaft used in the mill’s engine broke, and Hadley had to shut the mill down while he got a replacement. Hadley hired Pickford & Co., a shipping company owned by Baxendale, to ship the shaft back to its original manufacturer so that an exact replica could be made. Pickford & Co.’s clerk said the shaft would be delivered the following day.
However, because of Pickford & Co.’s negligence, the shaft was not delivered on time. The mill was closed several days. Hadley sued Baxendale for damages, including the lost profits the mill would have earned on those extra days.
The jury sided with Hadley, and the Court of Exchequer Chamber, an English appellate court, took up the case.
The Exchequer Chamber concluded that damages for breach of contract must be limited to those reasonably foreseeable at the time the contract is made. Baxendale could not have foreseen that a delayed shipment would cause the mill’s extended closure, and he was therefore not liable for the lost profits.
Today, this case is still widely studied by contracts students all over the United States.