Document Type
Article
Publication Title
Journal of Corporation Law
Publication Date
2025
Abstract
In commercial contracting, bargaining parties regularly allocate risk in various ways, including contractual limitations of liability. However, it can be difficult to appropriately apportion responsibility for high-risk contingencies such as data breach. A seller may be unwilling to accept uncapped liability for a contingency whose cost could exceed the expected value of the transaction. Conversely, a buyer may be unwilling to live with only a general damages cap established as a rough-and-ready compromise for more ordinary contingencies. To surmount this impasse, which typically arises toward the end of a negotiation, deal lawyers have begun to craft elevated dollar caps, or “super caps,” to account for specified high-risk contingencies. This Article draws on interviews with a dozen commercial dealmakers and insights from the contemporary literature on contract design to identify and examine previously unexplored multi-tiered systems of contractual damages caps, or “liability ladders.”
This Article contends that super caps, which represent rungs on a liability ladder, should not be deployed as a last-minute patch but recognized as an integral part of a commercial deal’s overall allocation of risks and responsibilities. Introducing the possibility of multitiered liability caps earlier in the bargaining process would maximize efficiency, encourage appropriate incentives, and amplify value creation.
Recommended Citation
Carrie Stanton, Risk, Reimagined: The Untold Story of Liability Laddering in Modern Commercial Dealmaking, 50 J. Corp. L. 1331 (2025).