The Foundation of the Modern law of damages, both in India and England is to be found in the Judgement in the case Hadley V. Baxendale (1854) 9 Ex 341.  It is a very important leading case, in which the basic Principle governing the fixation of the quantum of damages was settled.

Fact of the Case 

            In this case, the Plaintiff's Flour mill was stopped by the breakdown of a crankshaft. He delivered the crankshaft to Defendant, a common carrier, to be taken to a manufacturer to copy it and make a new. Plaintiff did not known to Defendant that delay would result in a loss of profits. By some neglect on the part Defendant, the delivery of the shaft was delayed in transit beyond a reasonable time (so that the mill was idle for a longer period than otherwise would have been the case had there been no breach of the contract of carrying).
 

Decision / Judgement : 

            The House of Lord Held that the defendant was not liable for the loss of profit accrued during the period of closure since the plaintiff did not disclose the defendant that the mill was closed for want of the Crankshaft. If the plaintiff would have informed that the work disclosed for want of crankshaft, the defendant could have made alternative arrangements for quick transportation of the crankshaft.          


Alderson, B. Observed in this case as follows: 


    "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 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."


Principle Laid Down :

      "Compensation for loss or damage caused by breach of contract" is based on the judgment of the above case.

The rule in Hadley V. Baxendale :

When a contract has been broken, the injured party is entitled to -

  a) such damages which naturally arose in the usual course of things from such breach. This relates to ordinary damages arising in the usual course things;

  b) Such damages which the parties knew, when they made the contract, to be likely to result from the breach. This relates to special damages

  c) Such compensation is not to be given for any remote or indirect loss or damage sustained by reason of the breach and

  d) Such compensation for damages arising from breach of a quasi-contract shall be same as in any other contract.


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