In Contracts, Complexity Sometimes Comes in Boulders

LegalSifter Review analyzes contracts one sentence at a time. That works only if complexity is spread more or less evenly throughout a contract. That’s more or less the case—one can say something about every sentence in a contract. Of course, what’s at stake varies from sentence to sentence. But in writing advice for Sifters—the algorithms that power LegalSifter Review—we do our best to give users a sense of what’s a stake, to allow them to make a decision with every sentence.

If complexity is evenly spread—more or less—throughout a contract, users should generally be able to “sift” a draft contract and consider the advice offered, then make in real time any decisions and any related adjustments.

I’ve grown used to hearing project-management people talk about how a given project is a pebble, a stone, or a boulder. To borrow from that terminology, I suggest that the above scenario is too rosy. Contracts won’t always present you with complexity that might vary but is always manageable. Instead, sometimes you’ll encounter boulders.

A good example of that is a topic I wrestled with recently—consequential damages. The phrase consequential damages is a fixture in limitation-of-liability provisions, but in my experience, few people understand the implications of the phrase. What are consequential damages? What issues are at stake? And how might you address those issues?

I’m one of those who failed to understand the implications. I added a section on consequential damages to the third edition of my book A Manual of Style for Contract Drafting (published in 2013), but it was inadequate and has remained inadequate. That was due largely to a failure of imagination on my part: I didn’t yet have the perspective to address the problem as a whole.

I’m OK with that. The different editions of my book stand for the proposition that coming up with comprehensive guidelines for clear and concise contract language has involved exploring a lot of uncharted territory. Necessarily, that’s an incremental task. What matters is that ultimately I fix what needs fixing.

In working on the manuscript for the fifth edition of my book, I finally got around to setting my shoulder against the boulder that is consequential damages and moving it enough. In this blog post, I talk about that, and I include a link to a PDF of the section on consequential damages that I just added to the manuscript of the fifth edition. As is the case with most of what I write, the new section of consequential damages is the most practical and most novel analysis you’ll find, in terms of how it presents the problem and the solutions it offers.

It follows that I’ll revise the advice offered by the Sifter Limitation of Liability: Consequential Damages. Whatever the advice, the only way to understand the implications would be to take time away from the everyday press of business and read my most recent analysis.

Contracts are complicated. We routinely skate over that complexity, relying on conventional wisdom or whatever we happen to have copy-and-pasted from some other contract. But when it comes to the phrase consequential damages, the gap between the conventional wisdom and reality is stark. If you’re paying attention, and if you care about contracts, you’ll have to take time to wrestle with that boulder.