4 - Beyond foreseeability: consequential damages in the law of contract

Summary

INTRODUCTION

The image of the Garden of Eden both before and after the Fall plays a powerful role in religious and literary theory. It also has its precise, if humbler, analogue in modern law and economics scholarship. Eden before the Fall is the complete contingent state contract: the relationship between parties is so specified that nothing that has not been anticipated can occur during the life of the contract. Each possible breach is known in advance, as are the elements of the appropriate remedy. In such a world, a common-law judge need only consult the sacred text of the contract in order to resolve all doubts about the rights and duties of the parties.

The Fall from Eden is the world we live in, where contracts never cover all the contingencies that might arise. This world necessarily arises whenever the cost of contracting is positive, for now it no longer pays to draft contracts to envision what will happen in all possible states of the world, even if such were technically possible. Now contract interpretation becomes a second-best proposition that addresses the uncertainty and ambiguity that explicit provisions could have resolved but did not.

Redemption after the Fall is only partial, and lies in the sound rules of contract construction. Of necessity, the possible techniques are divided into two basic types.