- Rethinking Law series
Chapter 8: The “tacit assumption” and consequential damages
AbstractThis chapter defends the “tacit assumption” test for recovery of consequential damages. Critics of the notion ask: “would reasonable people have contemplated the possibility?” The test asks, even if they would have contemplated the possibility, how would reasonable people allocate the risks? The risks are, to some degree, endogenous—both parties contribute to the harm. The relevant question should be to what extent can one party run its business in reliance on the successful performance of the counterparty’s obligation? The widespread use of disclaimers suggests that the risk of consequential damages should typically be assigned to the non-breaching party. The chapter also considers some significant exceptions to that rule.
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