ContractsProf Blog

Editor: Jeremy Telman
Oklahoma City University
School of Law

Friday, February 3, 2023

Teaching Assistants: Victor Goldberg, Volume II, An Introduction

Rethinking As readers may recall, I spent much of the Spring of 2022 blogging my way through the first volume of  Victor Goldberg's collected writings on contracts, Rethinking Contract Law and Contract Design (RCL).  Links to those posts can be found here.  This post is the first in a new series of posts on the second volume, Rethinking the Law of Contract Damages. (RLCD).  This post covers Professor Goldberg's short introduction to RLCD.

As Professor Goldberg recounts his experience, he started with the assumption that contracts doctrine was efficient.  The more he explored the law of damages, however, the more he found that it wasn't, and he learned that sophisticated attorneys often find themselves having to contract around doctrinal default rules that do not produce efficient results.  That would be fine, except that courts are sometimes reluctant to give effect to the parties' terms, introducing public policy rationales for enforcing inefficient default rules that the parties have rejected.

In part I of RLCB, which covers direct damages, Professor Goldberg regards contracts as creating an option to terminate, contingent on paying damages.  Default terms, he discovers, sometimes price that option irrationally, in that the costs. associated with breach bear no relation to the parties' needs.   Part II covers  consequential damages. Professor Goldberg revisits his assessment of the "tacit assumption" test (discussed in this previous post), rejected in the UCC but seemingly revived in the UK.  The crux of the matter is risk allocation, and the US and the UK diverge on what tacit assumptions parties make regarding risk allocation, and the law of consequential damages in both jurisdictions is off.  The result has been under-enforcement of consequential damages, especially in the UK.  

I look forward to working my way through this book and sharing a brief summary of Professor Goldberg's insights with our readers.

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The "damages as the exercise price of an option to breach" argument of course conflicts with the notion that breach is in any way wrongful, as did the idea that "breach and pay damages" was an agreement for alternative performance obligations at the obligor's choice. If Goldberg is correct and attorneys are indeed adopting the option theory, why don't they do so explicitly, instead of using language like "breach" which tempts courts to view breach in the traditional way and sometimes frustrating their agreement?

Posted by: Sidney DeLong | Feb 10, 2023 8:07:00 AM

Interesting. I've always sided with the view that there is nothing inherently wrong with breaching a contract. As a general rule, I side with Richard Posner's trochaic "Let Us Never Blame a Contract Breaker," rather than with George Cohen's iambic "The Fault that Lies Within Our Contracts Law," although I am open to George's inspired insight that the difference between his iambs and Posner's trochees is merely a matter of emphasis. Published versions (with an altered title) here:

If Professor Goldberg is lurking, I hope he will weigh in. My take is as follows:

Professor Goldberg writes of commercial contracts among sophisticated parties. I find his economic approach fitting in that context. Among people who share the amoral view of contracts, it seems to me that once you have created something that operates as an option, there is no need to call it an option. Calling it an option might give the wrong impression to those who incline towards a moralistic take on contractual obligations, who might regard the option as rendering the promises illusory.

Posted by: Jeremy Telman | Feb 10, 2023 12:22:08 PM