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Contract law

The rule in HADLEY v BAXENDALE

The case of Hadley v Baxendale established that there are two types of
loss that can be recovered:

 Losses which are a natural consequence of the breach

 Losses which were in both parties’ contemplation as a possible
consequence at the time of the agreement. Where losses are not
reasonably foreseeable, the party in breach of contract will only be
liable for them if he knew at the time of the contract that such
losses could arise in these particular circumstances.

Illustration 26 – Damages

VICTORIA LAUNDRIES v NEWMAN 1949

Facts:

A delay in the delivery of a boiler caused the loss of the normal trading profit plus
an extra-large profit on the loss of a government contract.

Held:

The loss of the normal profit could be claimed but not for the government contract
since this was not made known to the defendant and was therefore too remote.

Damages are not usually recoverable for loss of enjoyment

On very rare occasions the court will award damages for mental distress where that
is the main result of the breach. Recent decisions have shown that the court is
prepared to recognise ’peace of mind’ obligations in contracts.

Measure of damages

The second issue to be considered is the financial value of the
claimant’s loss. The courts will usually value damages as the cost to put
the claimant back in the position they would have been if the contract
had been properly performed. This is often referred to as protecting the
‘expectation interest’ of the claimant (injured party).

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