Discuss the principles of law laid down in Hadley v. Baxendale and examine the extent of their application in India.

Question: Discuss the principles of law laid down in Hadley v. Baxendale and examine the extent of their application in India. [RJS 1971]

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Answer

Hadley v. Baxendale, [1854] EWHC J70,  is a landmark case in English Contract Law, which laid down the principle of foreseeability of damages in cases of breach of contract. The case involved the loss suffered by the plaintiff, Hadley, due to the delay in the delivery of a broken mill shaft, which was to be repaired by the defendant, Baxendale. Hadley claimed damages for the loss of profits during the period of delay, which the court held to be not foreseeable by Baxendale at the time of the contract, and hence not recoverable.

The Principles of Law laid down in Hadley v. Baxendale are as follows:

Direct Damages are Recoverable for Breach of Contract: A party can claim compensation for the loss suffered due to the breach of a contract, which is a direct result of the breach.

Foreseeability of Damages: A party can only claim damages that were reasonably foreseeable by the other party at the time of the contract. The test for foreseeability is whether a reasonable person in the position of the parties would have contemplated the loss as a probable result of the breach.

Special Damages: A party can only claim special damages if they were communicated to the other party at the time of the contract. Special damages are those that arise from special circumstances that were known or should have been known to the other party.

The application of the principles of law laid down in Hadley v. Baxendale in India is well established. The Indian Contract Act, 1872, which governs contracts in India, recognizes the principle of foreseeability of damages. Section 73 of the Act provides that a party who suffers a loss due to the breach of a contract can claim damages that arise naturally in the usual course of things, or were reasonably contemplated by the parties at the time of the contract. Section 73 of Indian Contract Act says,

When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.

Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.

The Indian courts have consistently applied this principle in cases of breach of contract.

The principles of law laid down in Hadley v. Baxendale continue to be relevant and are widely applied in India. For instance, in the case of Union of India v. M/s Raman Iron Foundry (1974), the Supreme Court of India held that in determining the damages for a breach of contract, the basic principle is that the party who has suffered the loss is entitled to be compensated for the loss suffered as a natural consequence of the breach, or as a consequence which the parties knew, or ought to have known, at the time of entering into the contract.

These principles ensure that parties to a contract are aware of the potential consequences of a breach and can make informed decisions when entering into a contract.

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