Consequential Damages: Alien Vomit or Intelligent Design?

32 Pages Posted: 7 Feb 2024 Last revised: 7 May 2024

See all articles by Tara Chowdhury

Tara Chowdhury

University of Virginia - School of Law

Faith Chudkowski

University of Virginia - School of Law

Amanda Gray Dixon

The Becket Fund for Religious Liberty

Rishabh Sharma

University of Virginia (UVA) School of Law

Madison Sherrill

Hunton Andrews Kurth LLP; Duke University School of Law, Students

Hadar Tanne

Freshfields Bruckhaus Deringer - Freshfields Bruckhaus Deringer LLP

Stephen J. Choi

New York University School of Law

Mitu Gulati

University of Virginia School of Law

Date Written: May 3, 2024

Abstract

Every law student learns about Hadley v. Baxendale and the default rule that it sets up on the limits of recoverable damages in contracts disputes. The Hadley rule is one of the most prominent defaults across the common law world. Over the years, increasing numbers of commercial parties have put in place provisions to contract around the default. Indeed, that is what one would expect in a world where rational commercial parties contract around suboptimal defaults. Our article explores the possibility, suggested in a number of practitioner articles, that many of these provisions may be suboptimal (sometimes the product of unthinking and rote copying). Looking at over 1,000 contracts, speaking to over eighty-five practitioners, and using what appears to have been a coordinated effort by senior practitioners in the M&A area to improve drafting practices around 2015-16, we try to better understand which story best characterizes real world contracting. Reality seems someplace in between.

Keywords: Contract Law, Hadley v. Baxendale, Default Rules, Contract Damages

JEL Classification: K12

Suggested Citation

Chowdhury, Tara and Chudkowski, Faith and Dixon, Amanda and Sharma, Rishabh and Sherrill, Madison and Tanne, Hadar and Choi, Stephen J. and Gulati, Mitu, Consequential Damages: Alien Vomit or Intelligent Design? (May 3, 2024). Washington University Law Review, Forthcoming, Virginia Public Law and Legal Theory Research Paper No. 2024-14, Virginia Law and Economics Research Paper No. 2024-8, Available at SSRN: https://ssrn.com/abstract=4709386 or http://dx.doi.org/10.2139/ssrn.4709386

Tara Chowdhury

University of Virginia - School of Law ( email )

Charlottesville, VA
United States

Faith Chudkowski

University of Virginia - School of Law ( email )

580 Massie Rd
Charlottesville, VA 22903
United States

Amanda Dixon

The Becket Fund for Religious Liberty ( email )

3000 K St. NW
Suite 220
Washington, DC 20007
United States

Rishabh Sharma

University of Virginia (UVA) School of Law ( email )

United States
4016447034 (Phone)

Madison Sherrill

Hunton Andrews Kurth LLP ( email )

60 State Street
Suite 2400
BOSTON, MA 02116
United States

Duke University School of Law, Students ( email )

Durham, NC
United States

Hadar Tanne

Freshfields Bruckhaus Deringer - Freshfields Bruckhaus Deringer LLP ( email )

601 Lexington Ave
New York, NY 10022
United States

Stephen J. Choi

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

HOME PAGE: http://rb.gy/y6mrqu

Mitu Gulati (Contact Author)

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States

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