Contracts : Week of September 17

Reading for 17 September

Wrap-up on Hadley v. Baxendale

Default rules. Law and Economics: when it is bad it is horrid. "Assume no transaction costs," but law IS transaction costs. How do we know what a "rational actor" would do? But sometimes they do really good things.

A default rule: if you don't say anything in your contract, the law fills in XYZ (used to be called "Gap Filling"). Basically this reduces transaction costs. Default rules: if you have unforeseeable consequential damages, you get nothing. This is a PENALTY default rule: it incents you to disclose risk, so that people can deal with it up front.

For example, if you don't specify a time (deadline), the UCC specifies a "reasonable" time. If you agree to pay in dollars, the UCC specifies US dollars. It makes it so you don't have to spell every last little thing out.

How far is contract law just a set of arbitrary rules, just to make things predictable (like driving rules)?

Disclaimers of liability. If the seller drafts the contract, and they have even a half- competent lawyer, they'll disclaim all lost profits/consequential damages, etc. And generally sellers write the contracts.

Reading for 19 September