{"id":268,"date":"2010-04-23T23:21:21","date_gmt":"2010-04-24T06:21:21","guid":{"rendered":"http:\/\/fiduciarydutiesblog.com\/?p=268"},"modified":"2010-04-23T23:21:21","modified_gmt":"2010-04-24T06:21:21","slug":"willfulness-versus-expectation","status":"publish","type":"post","link":"https:\/\/fresnolawyerblog.com\/?p=268","title":{"rendered":"Willfulness Versus Expectation"},"content":{"rendered":"

This week we consider another view on the issue of whether some contractual breaches are such that additional remedies should be imposed by the courts, beyond the traditional damages for breach of contract.<\/p>\n

In other words, Is some conduct sufficiently wrongful that a court should have the right to impose additional damages to deter such wrongful acts?\u00a0 The law of fiduciary duties answers \u201cYes \u2013 courts should award additional damages by way of deterrence.\u201d\u00a0 Does this analysis hold weight in a contractual setting?<\/p>\n

Professors Steve Thel and Peter Siegelman state that, in the context of a contractual breach, \u201cWillfulness matters [ ] because it identifies those breaches that should be prevented or deterred \u2013 that is, all breaches that could have been avoided at little or no cost to the promisor.\u201d<\/p>\n

\"Bixby<\/a><\/p>\n

Now, I agree that wilfulness matters, but I believe that the reason why is tied to the relationship between the parties.\u00a0 Thel and Siegelman instead posit that \u201cwhen willfulness [ ] is present, courts rightly award remedies that serve to deprive the promisor of any incentive to breach and to assure the promisee of getting full expectation.\u201d\u00a0 Thus, they tie \u201cdeterrence damages\u201d to the relative ease by which a party could have avoided breach.<\/p>\n

Professors Thel and Siegelman acknowledge that \u201ccontract law generally does not concern itself with the morality of breach in any direct way.\u00a0 People enter into contracts in hopes that the promises made to them will be kept, and when a promise is broken, the promisee\u2019s injury is typically the same whatever the reason for the breach.\u00a0 A disappointed promisee ought to be satisfied with full expectation, regardless of what motivated the breach.\u201d<\/p>\n

Good point, and an analysis often relied upon by judges.\u00a0 However, \u201cwhile contracting parties will agree upon different levels of commitment in different situations, they will almost always agree that some breaches are out of bounds.\u201d<\/p>\n

That\u2019s the $64 question.\u00a0 What kinds of breach fall outside of societal norms?\u00a0 I think that looking at the conduct inherent in the breach can lead to inconsistent results.\u00a0 Contract law is, after all, greatly concerned with consistency.\u00a0 In my view, certain kinds of contractual relationship lead to greater reliance by one of the parties, and therefore the law should impose a higher standard of duty on the breaching party.\u00a0 This is similar to the concept applied to fiduciaries.<\/p>\n

Professors Thel and Siegelman work from a well-known case involving a construction project in which the contractor failed to use the materials specified by the contract.\u00a0 \u201cImagine a variant in which the contract calls for Reading pipe, but the builder deliberately substitutes Cohoes, which is cheaper (but just as good), with the intent of keeping the savings.\u00a0 Should this be treated as a willful breach?\u00a0 We suggest that it should be.\u201d<\/p>\n

Why?\u00a0 In my view, the reason why is because the property owner placed additional reliance on the contractor and could not defend himself.\u00a0 According to Thel and Siegelman, \u201dsince the two brands are of identical quality, both builder and owner could be made better off by a breach that substitutes cheaper Cohoes for more-expensive Reading and splits the savings between the two parties . . . That would provide the appropriate party with incentives to look for cheaper materials, and would result in lower contract price.\u201d<\/p>\n

Yet, the cost of policing the behavior of the breaching party rises dramatically, and places an undue burden on the property owner.\u00a0 State Thel and Siegelman, \u201cthe problem, of course, is that a builder will have an incentive to substitute not just cheaper but functionally identical materials, but also cheaper inferior ones.\u201d<\/p>\n

In a 1906 case, Justice Cardozo wrote that \u201cThere is no general license to install whatever, in the builder\u2019s judgment, may be regarded as \u2018just as good\u2019.\u201d\u00a0\u00a0 Similarly, the court in Groves v. John Wunder Co<\/em>. explained that \u201cdefendant\u2019s breach . . . was wilful.\u00a0 There was nothing of good faith about it.\u00a0 Hence, that the decision below handsomely rewards bad faith and deliberate breach of contract is obvious.\u00a0 That is not allowable.\u201d<\/p>\n

Professors Thel and Siegelman conclude that \u201cthis is especially true in a construction contract, where such substitute materials are easy to find and substitutions are often difficult to detect.\u00a0 In the face of this problem, treating the breach as willful and awarding the owner the cost-of-correction measure provides the appropriate incentives for the builder to inform the owner of the opportunity for savings, and to negotiate for consent to deviate from the contract.\u201d<\/p>\n

Yet, I think the argument is better cast in terms of the relationship between the parties.\u00a0 A building owner places substantial reliance on the contractor.\u00a0 The law should support such reliance, which is the reason why extra-contractual damages should be awarded for wilful breach.<\/p>\n

(Steve Thel and Peter Siegelman, Willfulness Versus Expectation: A Promisor-Based Defense of Willful Breach Doctrin<\/strong>e, in Michigan Law Review<\/em> (June 2009), Vol. 107, No. 8, p. 1517.)<\/p>\n","protected":false},"excerpt":{"rendered":"

This week we consider another view on the issue of whether some contractual breaches are such that additional remedies should be imposed by the courts, beyond the traditional damages for breach of contract. In other words, Is some conduct sufficiently wrongful that a court should have the right to impose additional damages to deter such […]<\/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-268","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\/268"}],"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=268"}],"version-history":[{"count":0,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/posts\/268\/revisions"}],"wp:attachment":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=268"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=268"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=268"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}