In the case of Handley v. Baxendale, the rule to determine consequential damages from the breach of contract was established. According to this rule, the infringing party shall be liable for any losses which the contracting parties should have anticipated, but shall not be liable for any losses which the infringing party could not have anticipated from the data available to him.
Facts:
The petitioner, Handley and Ors operated the mill in a partnership as the proprietors of the “City Steam-Mills” in Gloucester. Their work included cleaning of the grains and then processing them into flour. The “crankshaft of the steam engine at the mill” broke and Handley arranged a new one made by W. Joyce & Co.
Before making the new shaft, W. Joyce asked the plaintiff to send the old one so that the new one would fit together with the other parts of the steam engine. Hadley contacted the defendant, Baxendale and Ors, who was working as common traders under the name Pickford & Co. They were asked to deliver the old craft to the engineers for repair by a certain date at £2 and 4 shillings.
Defendant failed to perform his duties i.e. to transfer the goods at or before the fixed date, which caused huge loss to the plaintiff. Plaintiff sued the defendant for the losses he had to bear because of the defendant and claimed damages.
Issue:
The question before the court was to determine whether the defendant in the case of the breach of contract would be liable for the losses which he/she hadn’t anticipated to be caused by the failure to perform the contract.
Judgement:
The court held that the defendant could only be liable for the general losses but not for the losses plaintiff had due to his failure to perform the duty as plaintiff hadn’t mentioned any special condition on the losses which he might suffer if the defendant failed to perform his part. The court said that mere sending something for repair didn’t indicate that the party would bear any loss from the late delivery of the good and a general person would not anticipate the same.
A non-infringing party shall have the right to damages which arise naturally from the infringement itself or those which are reasonably compensated by the parties at the time of the contract. Here, in this case, though the plaintiff beard real loss due to the defendant, yet it couldn’t be held that party will bear such losses under normal conditions from this type of breach. There may be several reasons due to which a miner can send a shaft to anyone and the defendant had no ways to know that this would lead to the shutdown of the mill. Further, the plaintiff neither told the defendant about special conditions nor did any communication regarding the losses they might bear if the defendant failed to transfer the goods.
Hence, the court held that the defendant could be liable only to the extent of losses anticipated by the parties signing contract under general conditions unless otherwise mentioned.