4 J. Legal Stud. 249, 267-274 (1975)
DANZIG, HADLEY V. BAXENDALE: A STUDY IN THE INDUSTRIALIZATION OF THE LAW

[T]he rule in Hadley v. Baxendale may have had its most significant contemporary effects not for the entrepreneurs powering a modernizing economy, but rather for the judges caught up in their own problems of modernization.

By the middle of the nineteenth century Parliament had acted to modernize the judicial system in a number of important ways. Successive law revision commissions and ensuing enactments had effected changes in the substantive laws of tort, debt, criminal law and . . . contractual liability. Antiquated aspects of pleading and procedure were similarly remodeled. But the size and case disposition capacity of the common law courts remained remarkably stagnant.

In 1854 the entire national judiciary of Britain and Wales sitting in courts of general jurisdiction numbered fifteen. These judges, distributed equally between three benches — the Court of Common Pleas, the Queen's Bench and the Exchequer — sat individually to hear all cases in London and at Assize (court held in major provincial towns) for two terms of about four weeks each year. They convened as panels of three or four to hear appeals in London at other times. They sat in panels usually numbering seven (confusingly denominated as the Exchequer Chamber) to hear appeals from the panels of three or four. Only appeals from the panels of seven would be heard by another body of men: The House of Lords.

A quarter of a century earlier, in a famous speech in the House of Commons, Lord Brougham had asked:

How can it be expected that twelve judges can go through the increased and increasing business now, when the affairs of men are so extended and multiplied in every direction, the same twelve, and at one time fifteen, having not been much more than sufficient for the comparatively trifling number of causes tried two or three centuries ago?

Brougham's call for more judges was answered in 1830 by the addition of one judge to each court. But even with this improvement, it was apparent that there was a severe limitation on the number and intricacy of the trials and appeals that these judges could process. Indeed over the fifty years surrounding the decision in Hadley v. Baxendale the number of cases brought to trial in the common law courts each year remained remarkably stable and low (around 2400 cases) despite the extraordinary increase in commercial transactions over the period. Although the modern observer is likely to approach this situation with his view colored by images of the endless, enervating litigation described in Dickens' Bleak House (published in 1853), this stability in case processing apparently was not achieved by allowing a case backlog to accumulate. Extant docket sheets show that at any given Assize no more than half a dozen cases would typically be held for later sittings. The Hadley v. Baxendale litigation is suggestive of this speed in disposition. The Hadleys suffered their injury in May; they brought their suit and received prompt jury trial and judgment in August. Baxendale appealed on the fifth of November, had the appeal argued on the first of February, and received a favorable decision by the end of the month.

Probably the most critical factor in enabling the Courts at Common Law to operate on so intimate a basis was the reconstruction, by act of Parliament in 1846, of the haphazardly functioning local "Courts of Requests" into an extensive and competent court system capable of handling a large volume of cases. This system of "county courts" was rendered inferior to the Common Law Courts (which began being called "Superior Courts") by permitting appeal from County Court judgments to a Common Law Court and by limiting county court claims to sums less than £20. Further, the intent of the legislature to effect a transfer of minor cases away from the Superior Courts was manifested by the enactment of a statute assessing costs against even a victorious plaintiff in Superior Court if his recovery in a contract case amounted to no more than £20, or in a tort case to £5.

After their creation in 1846, the County Courts immediately became the journeyman carriers of the judicial workload. Within their first year of operation they reported receiving 429,215 cases. In 1857 they dealt with 744,652 "plaints." We are properly cautioned to discriminate between substantial judicial business and routine administrative debt collection cases in assessing the significance of case loads over this period. This advice is particularly apt because the County Courts were initially conceived as debtor-creditor courts and always drew the bulk of their business from this context. But it seems clear that the County Courts also quickly began handling a substantial number of more substantial lawsuits, and this development was strongly reinforced by an Act of Parliament in 1850 which expanded County Court jurisdiction to encompass claims of up to £50. By the time of Hadley v. Baxendale the County Courts were very probably handling many times the number of tort, contract, and other nondebt cases then being processed by the Superior Court judges at Assizes.

Against this backdrop the rule in Hadley v. Baxendale can be seen to have had significant contemporary implications which are normally invisible to the modern observer. The bifurcation of the County and Superior Court systems effected a specialization of labor insofar as it tended to discriminate between unimportant and important cases at least on the basis of the amount of recovery they involved. This division of labor was perfectly sensible so long as County Court work was almost exclusively concerned with debts, because in that form of litigation the amount likely to be awarded can be ascertained with great certainty. But by 1854 the events I have sketched probably prompted an increase in contract litigation in the County Courts. If brought in Superior Courts these cases were pressed at the peril of securing only minor recovery and then having that success washed out by the burden of costs. Under such conditions it is not surprising that previously ignored questions of the calculation of damages in contracts cases began to receive attention, not so much because these rules were considered important as matters of substantive law as because they were important as rules of jurisdiction. By identifying the criteria by which damages were to be assessed, the Hadley v. Baxendale court enhanced the predictability of damages and therefore the correct allocation of cases between the systems. Moreover, since the rule of the case coupled this enhanced predictability with an assertion of limitations on recovery, it tended to shunt cases from the Superior Courts toward the County Courts and thus to protect the smaller systems from at least a portion of the workload that if untrammelled would overwhelm it.

Some standardization of court decisions was implicit in these developments. But this standardization afforded more advantages than simply those associated with caseload allocation and (because of enhanced predictability of outcome) caseload reduction through settlement. Standardization was a means by which the Superior Courts could enhance their authority over County Courts at the very moment they were yielding primary jurisdiction to them.

In 1854 it must have been apparent to the fifteen judges who composed the national judicial system that they had no hope of reviewing half a million cases or even that fraction of them which dealt with genuinely contested issues. Moreover the relatively small stakes involved in County Court cases left all but a minuscule proportion of litigants disinclined to incur the costs of appeal. Under these conditions it is not surprising that ad hoc review gave way to attempts at crystallized delineation of instructions for dispute resolution which more closely resembled legislation then they did prior common law adjudication.

In its centralization of control, the judicial invention here examined paralleled the industrial developments of the age. The importance of the centralization of control is particularly evident when the rule is put back into the context in which it was promulgated: in terms of judges' control over juries. Told at its simplest level, Hadley v. Baxendale is the tale of a litigation contest between two local merchants and a London-based entrepreneur in which the local jury decided for the local merchants and the London judges asserted the priority of their judgment for the national entrepreneur. The tension inherent in the conflict of perspectives between the two decision-making centers — local juries and appellate judges — is underscored when one focuses on the particular decision-makers in this case. It was a special jury that rendered a verdict for the Hadleys. Special juries were drawn, at the request of a party (probably on assertion of unusual complication in the litigation) from a limited list of property owners. At the Baxendale trial nine of the twelve jurors were designated "merchants." Three were labelled simply "Esquire." If life in the mid-nineteenth century was anything like life in our times, the jury members, themselves local merchants who must have suffered frustration or injury from the then frequent occurrence of carrier error, probably sympathized much more readily with the Hadleys than with Baxendale. In contrast, the panel which heard the case on appeal was "special" in a way quite different from the jury. Two of the panel's members had experienced the difficulties and adopted the perspective of Pickford's at one time or another. [Baron Martin, one of the three judges who decided the appeal, had previously represented the Pickford Company in the case of Black v. Baxendale, 1 Ex. 410, 154 Eng. Rep. 174 (1847), and Baron Parke's brother had at one time been the company's managing director.] Under these conditions the invention of the case must have seemed particularly appealing to its promulgators. It led not simply to a resolution of this case for Baxendale, but also, more generally, to a rule of procedure and review which shifted power from more parochial to more cosmopolitan decision-makers. As Baron Alderson put the matter, "we deem it to be expedient and necessary to state explicitly the rule which . . . the jury [ought] to be governed by . . . for if the jury are left without any definite rule to guide them, it will, in such cases as these, manifestly lead to the greatest injustice."

From a less personal perspective the invention also affected a modernization by enhancing efficiency as a result of taking matters out of the hands of the jurors. Whatever its other characteristics, jury justice is hand-crafted justice. Each case is mulled on an ad hoc basis with reference to little more than, as Chitty put it, "the circumstances of the case." In an age of rapidly increasing numbers of transactions and amounts of litigation, a hand-crafted system of justice had as little durability as the hand-crafted system of tool production on which the Hadleys relied for their mill parts. By moving matters from a special jury — which cost £24, untold time to assemble, and a half hour to decide — to a judge, the rule in Hadley v. Baxendale facilitated the production of the judicial product. And by standardizing the rule which the judge employed, the decision compounded the gain — a point of particular importance in relation to the County Courts where juries were rarely called.

Thus, the judicial advantages of Hadley v. Baxendale can be summarized: after the opinion the outcome of a claim for damages for breach of contract could be more readily predicted (and would therefore be less often litigated) than before; when litigated the more appropriate court could more often be chosen; the costs and biases of a jury could more often be avoided; and County Court judges and juries alike could be more readily confined in the exercise of their discretion. Clearly the rule invented in the case offered substantial rewards to the judges who promulgated it and in later years reaffirmed it [footnotes omitted].