Case Summary Brief (2-Page Maximum) s1

Jim Whitney Economics 495

Case summary brief (2-page maximum)

Recorder name: Jordan Anacker Case name: Hadley v. Baxendale Citation; Date: 1854 Court: Court of Exchequer (England)

Name (if specified) and description of litigants at the original trial court level Plaintiff: Hadley Defendant: Baxendale

Facts of the case: Hadley the Plaintiff runs a mill. The shaft for his mill broke, rendering it inoperable until replaced. He sent the design of the shaft to a nearby building company. The company constructed the shaft and gave it to a delivery service, Baxendale, which promised overnight delivery. At no point did Hadley ever inform Baxendale that the mill would be closed until the shaft was delivered. The delivery actually took 5 days, substantially longer than promised. Hadley could not run his mill for 5 days, and is suing Baxendale for the lost profits from those five days of closure.

Procedural history (remedy sought, prior rulings, grounds for appeal, etc., as available): Orignially a jury granted damages for the lost profits from the five day closure, the case was appealed and overruled. The judge remanded the case, instructing the jury to only award damages to the amount Baxendale was aware it would cost the mill to not have the shaft. Substantially less than the lost profits.

Court opinion (key issues and arguments): The opinion focused on liability in the case. The judge highlighted that Baxendale wasn’t liable for the lost profits form the late delivery of the shaft because Hadley never informed him that his mill was shut down until delivery. Baxendale essentially assumed, based on the knowledge he had, that damages would not be so substantial from his late delivery. If Hadley had informed Baxendale that he was losing profits each day the delivery was late, he could recover those loses in the form of damages from Baxendale, but because he didn’t, Baxendale is only held liable for what a reasonable person would assume the damages would be from the late delivery.

Dissenting opinion, if any (key issues and arguments):

Disposition of case: The case was overruled and remanded with instruction to only hold Baxendale liable for what a reasonable person would assume damages would be.

ANALYSIS OF THE CASE 1. Course topic of the case: Contracts and Liability

2. How does the case relate to the course topic? This case illustrates how liability functions within contracts. Specifically, that if there are extraneous or unusually circumstances, that increase the damage from a breach. The promisee must inform the promisor of the implication of that breach in order to hold them liable for those damages later. If the promisee never communicates the stakes of the contract, they cannot expect the promisor to cover damages for anything more than a reasonable person would assume.

3. Which previously assigned cases, if any, are related to this case, and how does this one differ? Other cases involving broken contracts, no other cases we studied are very similar though. 4. How does the case affect economic incentives and efficiency? This case creates incentives for the promisee to disclose the importance of the completion of the contract, in order to impose liability on them if the contract is later breached. This problem can also be solved through the use of liquidated damages, which are set in the initial contract as a specified amount in the case of a breach. Many simpler contracts like photo developing stations have liquidated damages.