The Principle of Hadley v. Baxendale

This chapter concerns the principle of Hadley v. Baxendale. Under this principle a promisee injured by a breach of contract can recover only those damages that either should “reasonably be considered . . . as arising naturally, i.e., according to the usual course of things” from the breach, or might “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.” On the basis of Hadley v. Baxendale contract law has conventionally distinguished between general and consequential damages. General damages are damages that flow from a given type of breach without regard to the buyer’s particular circumstances. Consequential damages are damages that flow from the buyer’s particular circumstance. They can be recovered only if at the time the contract was made it was reasonably foreseeable that the damages would probably result from the breach. A better alternative to Hadley v. Baxendale, which is more in keeping with general law, has three elements: contractual allocation of losses resulting from the breach, the principle of proximate cause, and limits on disproportionate damages.