Tacit Agreement Test

The contract law delay rules allow the recovery of consecutive damages for infringement if the aggrieved party had “experience reasons” for such damages at the time of the contract. It is generally observed that the demanding parties systematically negotiate these rules of delay, as the extent of the consequent damage is very uncertain and is largely under the control of the non-break party. Nevertheless, some parties maintain the standard rules and some contracts involving demanding actors contain an explicit provision authorizing consecutive damages, including loss of earnings, in the event of infringement. These parties complete the test, which only awards consecutive damages if their recovery has been “tacitly agreed”. This test, rejected by commentators and most jurisdictions outside New York, limits the recovery of consecutive damages more than the standard “Reason to know” test. In this article, I insult contracts with explicit points of order on loss of earnings and cases in which the courts have determined whether the parties have implicitly consented or whether they have reason to know the potential gains. I argue that the relevant contracts and cases show that consecutive damage clauses are used to resolve a contractual problem that might otherwise be exchanged for both. The parties and the courts have found that an obligation to pay unrealized earnings can reduce the risk of opportunistic behaviour inherent in the fact that a party is required to make a relational investment before the counterparty performs the benefit. In the case of transactions dealing with these characteristics, the institution may result in its consideration being retained by its counterparty between the time the initial investment is made and the date on which the second party is to act. I propose that an obligation to pay for loss of profits in the event of an infringement limit the risk of congestion and that, in these circumstances, the value of the promise compensates for the loss of efficiency that is otherwise related to the imputation of damages resulting from the party least able to avoid it. While a promise of loss of earnings in the event of an infringement is not the exclusive answer to this holdup problem, it is a plausible and perhaps superior way to avoid it.

13.04.2021 ∙ af admin