Contracts, Causation, and Clarity

Daniel P. O'Gorman


Contract-law remedies start with the assumption that an injured party should be fully compensated for all losses caused by the breach. As in tort law, however, difficult issues regarding the cause of an injured party’s loss sometimes arise, including situations in which multiple factors might have caused the loss. And, like tort law, contract law is reluctant to apply the principle of full compensation when the loss was caused by multiple factors.

Multiple factors contributing to a particular loss often suggest the existence of principles competing with contract law’s goal of full compensation. For example, the law seeks to avoid unlimited liability for losses caused by the breach (particularly if the loss was a remote consequence of the breach) to encourage parties to take reasonable actions to reduce losses caused by breach, and to urge parties to disclose, during contract negotiations, any special circumstances that would cause the loss from breach to be greater than ordinarily expected. Accommodating the full- compensation principle and these competing principles is the primary function of the rules of contract damages.

Contract law furthers these principles that compete with the full-compensation principle not through a single doctrine, but through a general causation requirement plus the three limitations on an award of damages: the limitations of certainty, avoidability, and foreseeability, with each governing different aspects of causation. A problem, however, with treating causation issues under multiple doctrines is that courts and attorneys are sometimes confused about which doctrine applies, and doctrines are sometimes used in a manner that addresses a problem designed to be addressed by a different doctrine. This Article clarifies causation analysis in contract law and proposes a coherent framework for such an analysis.

Part I discusses common situations in which a causation issue arises in contract cases. Part II discusses the role each of the three limitations on contract damages plays in causation analysis. Part III proposes a coherent framework for analysis. Part IV is a brief conclusion. 

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