Case
Hadley v. Baxendale
Answer: Hadley v. Baxendale (1854, Court of Exchequer). It established that contract damages are limited to losses that arise naturally from the breach or that both parties reasonably contemplated at formation due to disclosed special circumstances. U.S. doctrine reflects this foreseeability limit, including the “reason to know” standard in UCC § 2-715.
Rule to remember
Hadley v. Baxendale (1854) is the foundational contracts case limiting consequential (special) damages to losses that either arise naturally from the breach or were within both parties’ reasonable contemplation at contract formation after disclosure of any special circumstances.
Key elements and checks
- Consequential damages are recoverable only if they arise naturally in the ordinary course of events or were reasonably contemplated due to disclosed special circumstances.
- Foreseeability is assessed at the time of contracting, not at breach.
- Lost profits typically count as special damages and require notice or shared contemplation.
- U.S. sales law mirrors the rule: a buyer may recover consequential losses the seller had reason to know about and could not reasonably avoid (UCC § 2-715).
In the source’s words
“any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know”
§ 2-715. Buyer's Incidental and Consequential Damages | U.C.C. | LII / Legal Information Institute
“where the contract is made in view of special circumstances in contemplation of both parties.”
WESTERN UNION TEL. CO. v. HALL | U.S. Supreme Court | LII / Legal Information Institute
Although the case is English, U.S. jurisdictions broadly follow its foreseeability principle through common law and UCC enactments. Applications vary by state, especially regarding lost-profit proof and the interaction with Code remedies; consult local law.