June 2009 Vol. 107 No. 8 THE REVIEW

Foreword: Fault in American Contract Law

Omri Ben-Shahar & Ariel Porat

Symposium: Fault in Contract Law

The basic rule of liability in tort law is fault. The basic rule of liability in contract law is no fault. This is perhaps one of the most striking divides within private law, the most important difference between the law of voluntary and nonvoluntary obligations. It is this fault line (speaking equivocally) that the present Symposium explores. Is it a real divide—two opposite branches of liability within private law—or is it merely a rhetorical myth? How can it be justified?

As law-and-economics scholars, this fault/no-fault divide between contract and tort is all the more puzzling. In law and economics, legal rules are understood as incentives, evaluated within a framework in which parties take actions to prevent different types of loss. Tortfeasors can take measures to avoid accidents; contracting parties can take measures to avoid loss from breach. The context of the loss can diverge between contract and tort—accidents to strangers versus harm to a known breached-against party—but the underlying framework of incentives is similar, if not identical. Robert Cooter famously described this underlying framework as a unified “model of precaution,” and Richard Craswell showed how to think of the breach-or-perform decision as a problem of precaution, mirroring the framework of tort law. Thus, to those of us who take the idea of a unified model seriously, a significant puzzle looms large: if these two branches of law share the same underlying framework, why do they follow different liability regimes?

To be sure, the unified model takes a very general view of tort and contract. But the divergence puzzle is all the more challenging when we increase the resolution of our view and compare some of the main tort and contract doctrines, only to find again a clear divide. For example, tort law has a substantial causation requirement, but causation is seldom an issue in contract. Tort law recognizes claims for punitive damages; contract law by and large does not. Contract law limits the magnitude of recovery through doctrines like foreseeability and certainty; tort law mainly employs proximate cause and duty of care, which limit liability in a different way. And the list continues: economic harm (common in contract but not in tort), nonpecuniary losses (common in tort but much less in contract), comparative fault (applied as a defense in tort but not in contract), and mitigation of damages (common in contract, not in tort).

It would take more than one symposium to explain the puzzling interface between contract and tort. Any explanation, though, would have to begin with an account of the limited role that fault plays in contract law. This breaks down to separate lines of inquiry: (1) Should lack of fault be a defense against breach? Should the breaching party be able to escape liability if he can show that he worked hard to avoid breach? (2) Should fault be an aggravating factor multiplying damages? Should the breaching party be liable for more than normal damages if breach was “malicious”? (3) Should contract law take the aggrieved party’s fault into account? These three lines of questions—the no-fault defense, the willful-breach multiplier, and contributory fault—are the focus of the present Symposium.

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