Document Type

Working Paper

Publication Date

2008

Center/Program

Center for Contract and Economic Organization

Center/Program

Program in the Law and Economics of Capital Markets

Abstract

Many scholars believe that notions of fault should and do pervade contract doctrine. Notwithstanding the normative and positive arguments in favor of a fault-based analysis of particular contract doctrines, I argue that contract liability is strict liability at its core. This core regime is based on two key prongs: (1) the promisor is liable to the promisee for breach, and that liability is unaffected by the promisor's exercise of due care or failure to take efficient precautions; and (2) the promisor's liability is unaffected by the fact that the promisee, prior to the breach, has failed to take cost-effective precautions to reduce the consequences of non-performance. I offer two complementary normative justifications for contract law's stubborn resistance to consider fault in either of these instances. First, I argue that there are unappreciated ways in which courts' adherence to strict liability doctrine at the core of contract reduces contracting costs. In addition, I argue that a strict liability core best supports parties' efforts to access informal or relational modes of contracting, especially where key information is unverifiable.

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