FACTS
The Plaintiff, Mr. Hadley were millers and worked together in a partnership in the city of Gloucester, South West of England. The main work which was carried out in the mill was to clean grain, ground into the meal and then process the same into flour and bran. After crankshaft of a steam engine broke, Hadley had to arrange a new one. W. Joyce & Co. agreed to make a new crankshaft one the condition that the broken crankshaft be sent to them to ensure fittings.
(Crankshaft is a rotating wheel which enables a machine to rotate. This machine when rotates helps in grinding hard substances into fine powder-like materials.)
To send the broken crankshaft, Hadley contracted with Baxendale, the Defendant a common carrier under the name Pickford & Co. to deliver the crankshaft to the W. Joyce & Co. engineers for repair by a certain date at a cost of 2 pounds and 4 shillings. The Defendant failed to deliver the crankshaft at the expected time, causing Hadley to lose the business as the mill had to be kept shut longer than expected. Which is why the Plaintiff sued the Defendant to recover damages.
ISSUES
The issue raised in the case was whether the Defendant that had breached a contract could be held liable for damages that the he wasn’t aware would have occurred.
JUDGMENT
The court in this case discussed the damage which the Plaintiff should get from the Defendant due to loss incurred. The court held that damages for all those losses can be claimed which can be foreseen by the contracting parties. However, damages cannot be claimed for the losses which cannot be foreseen in the usual course of business. In this case, the Defendant, Baxendale had no idea that his late delivery could cause loss of profits to the Plaintiff, Hadley. Hence, damages in this case were not foreseen by Baxendale which is why he cannot be held liable to pay them.
PRINCIPLE
There are two types of damages-
i. General: These are the damages occurred in usual course of business and time.
ii. Special: These are the damages occurred in an unusual scenario or circumstance. If the other party knows that his breach would cause huge losses, in that case only these damages apply.
SECTIONS OF INDIAN CONTRACT ACT
Section 73
This section reads that in case of damage or breach of contract, the party who suffers by such a breach is entitled to receive from the other party, compensation for any loss or damage which arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Further, the onus is on the Plaintiff to prove whether the compensation is special or general.
This is the main principle laid down in the case we discussed above. Damages shall be given with fair and reasonable manners only which either the parties were already aware off or that the damages occurred in natural course of business. Compensation is not to be given for any remote and indirect loss or damage sustained by the reason of breach.
Section 74
This section reads that in case of breach of contract, if a predetermined sum or amount has been decided, then the party which has complained and suffered from this breach is entitled to get the compensation so decided. In this case it is not necessary to prove that the damage or loss has incurred, simply breaching the contract would also make the party liable for paying the damages.
This section mentions about liquidated damages as the amount for causing damage or breach is fixed while formulating the contract itself.
Also read- What is Privity of Contract? What are exceptions to Privity of Contract?
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