Fault in Contract Law

Abstract

Fault in Contract Law Eric A. Posner 1 March 13, 2008 Abstract. A promisor is strictly liable for breaching a contract, according to the standard account. However, a negligence-based system of contract law can be given an economic interpretation, and it is shown that such a system is in some respects more attractive than the strict-liability system. This may explain why negligence ideas continue to play a role in contract decisions, as a brief discussion of cases shows. Anglo-American contract law is said to be a strict liability system, but it could just as well be a fault-based system. Indeed, one can make a plausible case that a fault- based contract law would be superior to the strict liability system. A fault-based system would result in courts enforcing optimal contracts more systematically than they do currently—if courts could implement the system with sufficient accuracy. The disadvantage of such a system is that courts would need to make difficult inquiries and could make more errors. How the advantages and disadvantages balance out is hard to determine. As many authors have noticed, although Anglo-American contract law is usually called a strict liability system, it does contain pockets of fault. Fault-like notions, such as good faith and best efforts, recur in the cases; and terms are often implied in order to ensure that obligations are reasonable rather than absolute. These doctrines reflect some University of Chicago Law School. Thanks to Richard Craswell, Daryl Levinson, Omri Ben-Shahar, Ariel Porat, Giesela Ruhl, Eyal Zamir, and participants in a seminar at the European University Institute for their helpful comments.