- •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
The Fault Principle as the Chameleon • 49
a loss.45 Th erefore, he should carry the risk of not being compensated when he does not disclose this risk during contract formation. Why this reasoning – itself a pocket of fault – should be restricted to strict liability regimes only, and not apply to fault regimes, is not evident at all. Thus, the German regime would need correction not only with respect to the principle (strict liability), but also with respect to the excuse. The question of foreseeability is, however, more complex than that. Because it is not always easy to prove damages, compensation for breach is typically suboptimal as a general rule. Therefore, it may well be that the risk of incurring liability that is not foreseeable to the breaching party reduces his inclination to breach the contract where performance avoids the problem of proof of damages. When assessing the well-foundedness of a foreseeability rule, the following alternative must therefore be kept in mind: The criterion may well place the onus of disclosing on the party who has better information, but it may also reduce the already suboptimal deterrence value of damage remedies.
Yet another way to deviate from strict liability is with the “second chance” principle. If a breaching party faces certain remedies only after having a chance to cure its nonconformity, then remedies are not immediately available in all cases of breach. Under European and German law, the secondchance principle applies not only to the nonbreaching party’s restitutionary remedies, but also to his damages, insofar as the damages consist of the return of the defective performance and a claim for money to buy a substitute. The requirement of a “second chance” may deviate from strict liability even more than a mere fault requirement, because breaching parties may have a right to a second try even if they acted in a grossly negligent – not just a negligent – way. From a policy perspective, this deviation from strict liability can be justified by the fact that the second chance postpones more invasive remedies only if the chance is used promptly and without considerable hassle.46 Th us, this justification for deviation does not reduce the amount of compensation, but affects only the form of compensation.
Conclusion
Fault or strict liability? This is too simplistic a question. Strict liability and some fault liability is more or less the reality in all countries – with larger exceptions in the area of services. Furthermore, if the aim of the fault requirement is to not excessively restrict the freedom of the breaching party, there
45Cooter & Ulen, supra note 36, at 274.
46For an extensive discussion, see Stefan Grundmann, Regulating Breach of Contract – The Right to Reject Performance by the Party in Breach, 3 Eur. Rev. Cont. L. 121, 129–37 (2007).
50 • Stefan Grundmann
are other – probably more appropriate – governance devices in contract law to be taken into account. These include the “second chance” and the foreseeability principles. Thus, this chapter highlights two trends with respect to the fault principle. First is that both general approaches have nuances. Second is the use of functionally related instruments, which traditionally have not been seen in conjunction with the fault principle but have a similar effect.
Part II
THE CASE FOR FAULT
FOUR
How Fault Shapes Contract Law
George M. Cohen
Th is chapter describes three defects in the traditional strict liability paradigm of contract law to demonstrate how fault significantly shapes contract law. First, justifications for strict liability focus on implementing contractual intent when contract law’s main focus is interpreting contractual intent. Fault helps interpret contractual intent. Second, the strict liability paradigm excessively emphasizes a single fault variable – the ability of the promisor to control his own performance – and downplays other relevant fault variables. In particular, the strict liability paradigm ignores the potential for opportunistic behavior by the promisee, which creates a “negligence-opportunism trade-off.” A broader conception of fault emphasizes the potential for fault by both parties and the need to make relative fault assessments. Third, the strict liability paradigm overlooks doctrinal avenues in contact law that incorporate fault. One important example is the law of contract damages. Fault helps explain contract damages doctrine.
Law is an inherently normative enterprise, and so it is inevitably concerned with fault. Contract law is no exception. Yet the application of fault to contract law remains controversial. Theories and doctrines of contract law teach that contract law is and should be a regime of strict liability, rather than a fault-based regime. In my view, however, the theoretical and doctrinal justifications for strict liability in contract law are flawed, incomplete, and misleading. They unduly obscure the role of fault in contract law and hinder its effective use.
In this chapter, I describe three defects in the strict liability paradigm, and use these to demonstrate how fault significantly shapes our contract law.
Th is chapter draws heavily on George M. Cohen, The Fault That Lies Within Our Contract Law, 107 Mich. L. Rev. 1445 (2009), but incorporates my earlier work more than that essay.
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