Private Law Theory

ABSTRACT
Contract law’s foreseeability rule is a staple of 1L contracts courses, casebooks, and contract theory: a plaintiff may recover only losses that the defendant had reason to foresee at the time of contracting. Conventional wisdom is that the rule is as simple as it is irrelevant. It operates straightforwardly, encouraging plaintiffs to notify defendants about unusual risks before contracting, but it is largely irrelevant since most commercial contracts contain ‘exclusion’ clauses, which preclude liability for the kinds of losses whose foreseeability is typically contested.

But if that simple rule is right, the courts seem to have made a mess of it. They deny liability for damages that were foreseeable and award damages for losses that weren’t obviously foreseeable when the parties formed their contract. A plaintiff’s pre-contracting notice does not necessarily shift liability to the defendant. And because courts appear to apply the foreseeability rule inconsistently, exclusion clauses don’t mean what parties think they mean. Defendants find themselves liable for the very losses they thought they had excluded by contract. In other words, courts don’t use foreseeability in the way we say they do, and parties don’t control their liability in the way we think they can.

This Article argues that the conventional understanding of the foreseeability rule is wrong. It shows that courts use two different foreseeability tests, a ‘societal’ test and a ‘relational’ test, that reflect different analytical perspectives one can take on breach of contract. While the societal foreseeability test protects our common interest in maintaining consistent expectations in frequently encountered contractual settings, the relational foreseeability test vindicates contracting parties’ control over their relationship. Navigating the tension between the two tests requires courts to assess whether the parties should have the exclusive right to decide how to protect the interests affected by breach.

Diamond, Alma, Contract’s Two Foreseeabilities (August 13, 2025).