- •CONTENTS
- •CONTRIBUTORS
- •PREFACE
- •Introduction
- •I. A Positive Account
- •II. Normative and Historical Accounts
- •III. Explaining Legal Doctrine
- •A. Willful Breach
- •B. Comparative Fault
- •Conclusion
- •ACKNOWLEDGMENT
- •Introduction
- •C. Summary
- •Conclusion
- •Introduction
- •B. Some Striking Nuances in Common Law Systems
- •II. A Market Function Approach
- •A. Ethics or Economics – The Wrong Question
- •B. Party and Market Expectation as Guidelines
- •D. Fault, Foreseeability, and Other “Softeners” of Strict Liability
- •Conclusion
- •I. Fault and Uncertain Contractual Intent
- •II. An Expanded Law and Economics Approach to Fault
- •III. A Fault-Based Approach to Contract Damages
- •Conclusion
- •Introduction
- •A. A Model
- •B. Fault
- •C. A Comparison: Strict Liability Versus Negligence
- •II. Doctrine
- •A. Impossibility/Impracticability
- •B. Reasonable or Substantial Performance
- •C. Good Faith and Best Efforts
- •D. Interpretation/Implied Terms
- •E. Conditions
- •F. Damages
- •Introduction
- •I. Unconscionability
- •A. Markets
- •B. Moral Fault
- •II. Unexpected Circumstances
- •III. Interpretation
- •IV. Mistake
- •C. Cases in Which the Nonmistaken Party Neither Knew nor Had Reason to Know of the Mechanical Error
- •V. Nonperformance
- •Conclusion
- •Introduction
- •I. Modernizing Tort and Contract Around Fault
- •II. Explaining the Fault Swap
- •Conclusion
- •Introduction: From Fault to Negligence – and Back
- •I. Tort Law
- •III. Gratuitous Transactions: Bailment and Agency
- •A. Coggs v. Bernard
- •C. Siegel v. Spear and Comfort v. McGorkle
- •D. Medical Malpractice, Occupier’s Liability, and Guest Statutes
- •IV. Frustration and Impossibility
- •Conclusion
- •Conclusion
- •A. Analogies in Criminal Law
- •B. Lay Assessments of Culpability
- •C. Two Ways of Defining “Willful”
- •B. “Willful” as a Test for Inefficiency?
- •B. Optimal Damages Under Strict Liability
- •Conclusion
- •II. Cost of Correction Versus Diminution in Value
- •B. Treatment by the Courts
- •Conclusion
- •Introduction
- •C. An Information-Based Explanation
- •B. Informal Lessons from the Example
- •D. From Moral Hazard to Adverse Selection
- •II. Willful Breach Doctrine
- •A. Overcompensatory Expectation Damages
- •B. Tort Damages for Bad-Faith Breach
- •C. Restitution
- •Conclusion
- •Introduction
- •I. Expectation Damages and Willful Breach
- •II. Willfulness, Material Breach, and Damages
- •Conclusion
- •Introduction
- •A. Noncooperation
- •B. Overreliance
- •A. Setting the Stage
- •B. Noncooperation
- •1. When Should Avoiding Overreliance be the Default Rule?
- •Conclusion
- •Introduction
- •I. Stipulation, Fault, and Mitigation
- •II. Encouraging Stipulation
- •A. How Courts Encourage Parties to Stipulate
- •B. Two Advantages of Stipulation: Knowledge and Mitigation
- •Conclusion
- •Introduction
- •II. Comparative Negligence
- •III. Mitigation
- •IV. Reasonable Reliance
- •V. Causation
- •VI. Foreseeability
- •Conclusion
- •I. Summary of the Argument that Breach May Not Be Immoral Given the Incompleteness of Contracts
- •F. When Is Breach Immoral and When Is It Moral in Practice?
- •II. Criticism and Discussion of the Foregoing Argument
- •Conclusion
- •Introduction
- •I. Promise De-moralized, Contract Moralized
- •II. Contract and Promise: More on the Relationship
- •IV. Harm, Fault, and Remedies for Breach
- •V. Fault and Institutional Harm
- •Conclusion: Toward a Moral Law of Contract
- •I. Breach as Moral Harm
- •III. Moral Norms as Default Rules
- •Conclusion
- •CASE INDEX
- •SUBJECT INDEX
Why Breach of Contract May Not Be Immoral • 269
always paid, “[n]o promisee would ever get what she sought. As a further consequence, if this were the universalized response, the agreements would then never be made. The same is not true if performance were the universalized response to a promise to perform.”22 Th is is a perplexing view. As I stated in the preceding paragraph, the buyer is made whole if she receives expectation damages, so she should not be discouraged from contracting under a regime with breach and payment of these damages. Moreover, the seller becomes better off if he can breach and pay damages, so he should be positively encouraged to contract and could share his benefit with the buyer by lowering the contract price. This well-known point from the theory of contracts helps to explain why contracts flourish under our contract law that permits breach and payment of damages, and also why contracting would be unduly hindered were performance insisted upon as a matter of course.
Conclusion
I have explained in this chapter why I think that Seana Shiffrin’s criticisms of the pure logic of my article are misplaced. Contracts are, I observed, substantially incomplete, so that a breach of a contract is ordinarily not a violation of an agreement that explicitly mentioned the contingency that occurred. And if one accepts my definition of moral behavior as that which would have been agreed upon in a hypothetical complete contract, it follows that breach and payment of expectation damages is not immoral, because such breaches occur only when performance would not have been specified in a complete contract.
I also asked about the appeal to the moral intuition of my definition of moral contractual behavior. Although I believe that my definition possesses attractiveness, because it reflects the notion that intended promises should be kept but not unintended ones, I also believe that its virtues can be appreciated only upon reflection. Most individuals seem instinctively to hold a different view, of which Shiffrin’s is an exemplar, namely, that breach per se has an immoral dimension. I suggested that the primary explanation for why individuals hold this moral belief is that they regard contracts as simple promises and ignore the incompleteness of contracts – individuals tend to confuse the violation of a contract with the breaking of an explicit promise.
Last, I observed that different criteria may be employed for choosing among definitions of morality: consistency with the moral beliefs found in the population; derivation from favored underlying principles; and the advancement
22 Shiff rin, Breach of Contract, supra note 5.
270 • Steven Shavell
of the welfare of contracting parties. I stressed that according to the welfare criterion, my definition of when breach ought to occur is desirable and that breach and payment of expectation damages increases the well-being of both sellers and buyers. Conversely, a moral view under which positive weight is accorded to performance per se works against the interests of both sellers and buyers.
EIGHTEEN
Fault and Harm in Breach of Contract
Dori Kimel
Th is chapter offers a defense of the common law’s approach to considerations relating to moral culpability in breach of contract – an approach by which such considerations tend to play a fairly limited role in devising the appropriate response to a breach. Calls for assigning fault a more central role in the law of contract are often inspired by the thought that it ought to reflect more systematically and more directly the morality of promise. The chapter seeks to expose this theoretical stance as misguided, instead locating the common law’s approach to fault in broader ideas underpinning the legal and the political culture of which the common law is a product, and in particular the harm principle. The chapter concludes with an outline of what makes a law of contract moral, taking issue with the view that a moral law of contract is one that sets out to enforce morality.
Introduction
Th e key to the interest in the philosophical foundations of contract – inconstant as it has been in recent decades – lies, I believe, in the relationship between contract and promise. That contract is the legal equivalent of an institution with a full and independent existence outside the law, though perhaps not a source of direct interest in its doctrinal dimensions, means that this branch of the law furnishes its students with a unique opportunity to investigate a certain dimension of the relationship between law and morality.
Why is this opportunity unique? Opportunities to gain an insight into the relationship between law and morality (or law and other dimensions of our society and culture) are probably present in the study of any branch of the law. When it comes to contract, however, we find not an assortment of moral ideas and their legal manifestations, but what looks, at least, like the legal counterpart of one, whole, discrete, normative institution. The norms
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272 • Dori Kimel
of promise, that is – the norms that govern the making, discharging, termination, frustration, or response to the breach (etc.) of promises – form a complete and, in many ways, discrete normative institution or practice. Thus, this legal domain furnishes us with a uniquely suitable lens through which to investigate a particular dimension of the relationship between legal and extralegal norms or normative systems.
If the relationship between contract and promise is the key to the philosophical interest in contract and contract law, it is also the key to the main puzzles encountered by those who have shown such interest. For as soon as closer attention is paid to the relationship between contract and promise, not just the foundational similarities but also some startling discrepancies between these two normative institutions come to light – the more startling the more one expects the law of contract simply to reflect promissory logic and (where applicable) enforce promissory norms. I will not attempt to catalogue all such discrepancies in the present context, but at the highest level of abstraction I think they can be grouped around two main themes: voluntariness and fault.1
On the voluntariness side, apparent tensions between contract and promise are bound up with the idea that if contract, like promise, were based on the recognition of the value of voluntarily assumed, self-imposed obligations, then contract law would look different: It would impose far fewer limitations and far fewer conditions on parties’ ability to have their expressed wishes – and nothing other than their expressed wishes – enforced by law. Contract law doctrines such as consideration and implied terms, the relative rarity of actual enforcement (as opposed to the award of monetary compensation for breach), and much besides to do with the numerous ways in which the freedom of contract is encroached upon in contemporary jurisdictions, have been adduced as evidence in this context.
When it comes to fault, the apparent tension naturally concerns the fairly negligible role that fault plays in contract law: if the law of contract is based on
1Th ere is, in fact, a third theme, to do with the fact that a promise is a unilateral undertaking whereas a contract is (typically) a bilateral one. Objections to the contract-promise analogy based on this observation have been met by suggestions along the lines that the correct analogy is between contract and an exchange of promises, or an exchange of conditional promises, etc. (For an excellent recent contribution to this debate see H. Sheinman, Agreement as Joint Promise, in H. Sheinman (ed.) Promises and Agreements: Philosophical Essays (New York: Oxford UP (forthcoming)). Such objections may or may not amount to more than a quibble, but either way, they are avoided altogether if the correct analogy is taken to be that between (legal) contracts and (nonlegal) agreements, be the relationship between “agreement” and “promise” as it may. This distinction is of little or no significance for the purposes of this chapter, so I’ll continue to use, for the most part, the familiar “contract and promise” language; I think, however, that none of my arguments would be affected if “promise” is replaced with “agreement.”