CHAPTER IV.

WHAT DAMAGES MAY BE RECOVERED WHERE THERE HAS BEEN

A BREACH OF CONTRACT.

WHEN either party breaks the contract the other has a right to recover damages, but it does not follow that he can recover the whole of the loss he has suffered in consequence of that breach. The question is, what are the damages to the plaintiff caused by the defendant's breach which the law will allow the plaintiff to recover? The measure of the damages has been defined by the Sale of Goods Act as "the "estimated loss directly and naturally resulting, in the

ordinary course of events, from the . . . breach of con"tract" (a). The leading case on this subject is Hadley v. Baxendale (b), which although not a case of sale of goods, but of late delivery by a carrier, is a most important one in consequence of the Judges of the Exchequer Court having there laid down certain rules of general application to breaches of contract.

In Hadley v. Baxendale (b), in 1854, the plaintiffs were millers at Gloucester. On the 12th of May the engine shaft in their mill had to be removed in consequence of a fracture, and on the 13th the plaintiffs sent a servant to the defendants, who were carriers, to say that the mill was stopped, and that the shaft must be sent at once to Greenwich, to be used there as a pattern in making a new one. The defendants said that if the shaft was sent by 12 o'clock the next day it would be delivered at Greenwich on the following day. Accordingly, the shaft was delivered to the defendants before 12 o'clock on the 14th, but was not delivered by them at Greenwich

(a) Sale of Goods Act, ss. 50 (2) and 51 (2).

(b) Hadley v. Baxendale, 23 L. J. Ex. 179; 9 Exch. 341.

till several days later, and the consequence was that the new shaft was not delivered at the mill as soon as it otherwise would have been; the working of the mill was delayed and the profits on the working were lost, and other expenses incidental to the stoppage were incurred, for all of which the plaintiffs sought to hold the defendants liable, but failed. Alderson, B., in delivering the judgment of the Exchequer Court said: "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

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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 circum"stances so known and communicated. But, on the other

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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 cir"cumstances, 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 advan

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tage it would be very unjust to deprive them. Now in the

present case, if we are to apply the principles above laid "down, we find that the only circumstances here communi"cated by the plaintiffs to the defendants at the time the

"contract was made, were that the article to be carried was "the broken shaft of a mill. But how do these circum"stances show reasonably that profits of the mill must be stopped by an unreasonable delay in the delivery of the "broken shaft by the carrier to the third person? Suppose "the plaintiffs had another shaft in their possession put up "or putting up at the time, and that they only wished to "send back the broken shaft to the engineer who made it; "it is clear that this would be quite consistent with the "above circumstances, and yet the unreasonable delay in the delivery would have no effect upon the intermediate profits "of the mill." And after pointing out that although in the special circumstances of the case the loss did arise from the defendants' neglect, he proceeded, "these special circum"stances 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 the contract as could have been fairly "and reasonably contemplated by both parties when they "made this contract. For such loss would neither have "flowed naturally from the breach of this contract in the "great multitude of such cases occurring under ordinary cir"cumstances; nor were the special circumstances, which, "perhaps, would have made it a reasonable and natural "consequence of such breach of contract, communicated to, "or known by the defendants."

This case has since been followed in cases too numerous to be referred to; and the reader is referred for fuller information on the subject to Mr. Mayne's work on Damages.

In the case of Gee v. The Lancashire and Yorkshire Railway Co. (a), in 1860, a very important remark was made by Bramwell, B., who, while delivering judgment, referred to the rule in Hadley v. Baxendale (b), that damages to be recoverable must be such as the parties must be taken to

(a) Gee v. Lancs, and Yorks. Ry. Co., 30 L. J. Ex. 11; 6 H. & N. 211. (b) Hadley v. Baxendale, 23 L. J. Ex. 179; 9 Ex. 341.

have contemplated as the probable result of the breach, and said: "I am not sure that another qualification might not be "added which would be in favour of the plaintiff in this case, viz., that in the course of the performance of the contract, one party may give notice to the other of any particular consequences which will result from the breaking of the contract, and then have a right to say, "If after that notice, you persist in breaking the contract, "I shall claim the damages which will result from the "breach" "(a).

In the case of a sale of goods, the seller's breach may consist in his having delivered to the buyer an article of less value than the article which should have been delivered, and there the difference in value is the measure of the damages; or the breach may have consisted in the failure to deliver any goods at all, and in this case instead of the damages being a difference in value as in the first one, they are what the buyer must pay to obtain the goods in the market, or if necessary from some other quarter. But by reason of having such an inferior article or nothing at all delivered to him, the buyer may suffer much greater damages than the difference in value, or the full value, and then the question becomes, are those greater damages such as the parties at the date of the contract must be taken to have contemplated as the probable result of the breach? Or the seller's breach may consist in the unpunctual delivery of the goods.

On the other hand, the buyer may have been the party to break the contract, as by refusing to accept the goods when tendered. Here the seller may by reselling the goods put himself in a position in which the buyer had contracted to put him, and charge the buyer with costs reasonably incurred in doing so; but he may be unable to resell them, and he may then give evidence of any loss he has suffered; and if that loss is such as the parties must be taken to have contemplated, he may recover it.

(a) See also Simpson v. London and North Western Ry. Co,, 1 Q, B. D. 274 ; and Horne v. Midland Ry, Co., L, R. 7 C. P. 583.