{"id":260,"date":"2010-04-16T12:00:49","date_gmt":"2010-04-16T19:00:49","guid":{"rendered":"http:\/\/fiduciarydutiesblog.com\/?p=260"},"modified":"2010-04-16T12:00:49","modified_gmt":"2010-04-16T19:00:49","slug":"the-fault-that-lies-within-our-contract-law","status":"publish","type":"post","link":"https:\/\/fresnolawyerblog.com\/?p=260","title":{"rendered":"The Fault that Lies Within Our Contract Law"},"content":{"rendered":"

Let\u2019s continue the discussion regarding rules of fault in contract law.\u00a0 This series is from a law review article written by Professor George M. Cohen, who first notes that:<\/p>\n

\u201cThe economic justification starts from the same premise as the traditionalist justification \u2013 that courts should enforce agreements according to the parties\u2019 mutual intentions.\u00a0 [Thus,] the strict liability paradigm permeates classical contract law.\u00a0 Usually, however, the explicit label \u2018strict liability\u2019 appears only in connection with the doctrines of performance and breach.\u201d<\/p>\n

Prof Cohen is absolutely correct on this count.\u00a0 Considering the three time frames in a contract \u2013 formation, performance, and breach \u2013 issues of \u201cfault\u201d really make sense only in connection with performance and breach.<\/p>\n

Prof. Cohen continues.\u00a0 \u201cUnder these doctrines, failure in any way to perform a contract breaches the contract, and subjects the breaching party to liability, regardless of fault.\u00a0 The paradigmatic case is a seller who delivers goods that fail in any respect to conform to the contract.\u201d<\/p>\n

\u201cAn aggrieved party who can prove breach is entitled to compensation, which contract law generally defines as protecting the expectation interest.\u00a0 In short, the reason for nonperformance does not matter.\u201d<\/p>\n

\"Southern<\/a>Yet, in contract law, sometimes it does.\u00a0 It can depend on the relationship of the parties.\u00a0 \u201cA traditionalist justification of strict liability must defend the proposition that the parties generally intend that the reason for nonperformance does not matter.\u00a0 That proposition is, however, contestable, as discussed below.\u201d<\/p>\n

Prof. Cohen wants to look to intent, not to the relationship of the parties.\u00a0 He explains that, \u201cUnder both the traditionalist and economic justifications, the argument for strict liability is stronger if mutual intent is easily determined and clearly distinguishable from fault.\u201d<\/p>\n

He warns that, \u201cAdopting a fault-based system of contract law in those circumstances would lead to illegitimate social judgments by courts on the traditionalist view, and result in inefficient contracting around or failures to contract on the economic view.\u201d<\/p>\n

When, then should fault be considered?\u00a0 \u201cDetermining disputed mutual intent is inherently uncertain.\u00a0 Mutual intent is an ideal.\u00a0 Contracting parties attempt to express mutual intent, often in writing, but do so imperfectly.\u00a0 Contracts are largely a set of private rules, and all rules require interpretation, stories that explain their meaning in a particular situation.\u201d<\/p>\n

Now we return to relationships and their unfair exploitation.\u00a0 \u201cAs unanticipated situations arise, disputes requiring interpretation inevitably occur.\u00a0 The objective theory presumes that when one party manifests some intent and then later asserts a different intent, either he negligently or intentionally misled the other party originally, or is acting opportunistically now.\u201d<\/p>\n

Here follows a tremendous observation.\u00a0 \u201cParties generally resolve these disputes on their own, often driven by reputational concerns<\/strong>.\u00a0 When these efforts fail, they bring their disputes to court.\u00a0 In litigated cases, the parties typically contest the requirements of mutual intent . . . But the uncertainty of intent blurs this dichotomy.\u00a0 When intent is uncertain, fault can help inform intent in a variety of ways.\u00a0 Most obviously, parties may expressly use fault concepts in their contracts, such as best efforts and good faith clauses, which essentially invite courts to make fault-based judgments in the event of a dispute.\u201d<\/p>\n

Prof. Cohen concludes by noting that, \u201cWith respect to contract damages, I have previously argued that the choice among different measures of damages (expectation, reliance, and restitution), as well as the limitations on expectation damages, are best understood as doctrines enabling courts to make relative fault assessments.\u00a0 In fact, damages doctrines are best suited to dividing liability when both parties are at fault.\u00a0 In light of this crucial role of damages in facilitating relative fault assessments, the resistance of courts to \u2018penalty clauses,\u2019 which preclude such assessments, is eminently sensible, despite the continued objection of many economic scholars.\u201d<\/p>\n

(George M. Cohen, The Fault that Lies Within Our Contract Law<\/strong>, in Michigan Law Review<\/em> (June 2009), Vol. 107, No. 8, p. 1445.)<\/p>\n","protected":false},"excerpt":{"rendered":"

Let\u2019s continue the discussion regarding rules of fault in contract law.\u00a0 This series is from a law review article written by Professor George M. Cohen, who first notes that: \u201cThe economic justification starts from the same premise as the traditionalist justification \u2013 that courts should enforce agreements according to the parties\u2019 mutual intentions.\u00a0 [Thus,] the […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6,7],"tags":[],"class_list":["post-260","post","type-post","status-publish","format-standard","hentry","category-economics","category-law-reviews"],"_links":{"self":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/posts\/260"}],"collection":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=260"}],"version-history":[{"count":0,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/posts\/260\/revisions"}],"wp:attachment":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=260"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=260"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=260"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}