Rethinking Contract Law and Contract Design

Rethinking Contract Law and Contract Design

Rethinking Law series

Victor P. Goldberg

Rethinking Contract Law and Contract Design presents a rich array of ideas that reassess the law and economics of contractual relations. Victor P. Goldberg uses a transactional framework to critically analyse and re-evaluate contract doctrine and specific legal cases. This important work examines particular contractual precepts whilst conducting a detailed exercise in legal archaeology, challenging readers to reconsider significant legal decisions by forensic exploration of records, briefs, and other materials, including the staple cases of textbooks and casebooks.

Chapter 16: Concluding remarks

Victor P. Goldberg

Subjects: economics and finance, law and economics, law - academic, commercial law, law and economics, law of obligations


The unifying concept of this book is that an economic understanding of contract design will illuminate both contract doctrine and contract interpretation. With regard to remedies, I have followed Scott and Triantis (2004) in calling into question the primacy of the expectation damages remedy, especially when it is presented as making the victim of a breach indifferent as to whether or not the promisor had performed. I observed the explicit termination clauses, in effect options to abandon, in a number of areas and the methods parties used for pricing these options. In order to adapt to changed circumstances, one party was given the discretion to adapt, but it would be confronted with a price reflecting the counterparty’s reliance. From the behavior of parties with explicit termination clauses, I drew some inferences about the pricing of an implicit termination clause – that is, the remedy for breach. This led to the conclusion that the default remedy of making the “victim” whole was not, in general, what parties would prefer. I recognize that the compensation principle is so well entrenched that a full frontal assault will be futile. But, we can at least nibble away at the corners of the doctrine. I suggested that one of the areas that would benefit from rethinking is the lost-volume-seller remedy. Unfortunately, there is a statute (§_2-708 (2)) and an Official Comment which put some constraints on courts. I believe the statute gives some leeway for creative interpretation.

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