Breach of Contract and Harm

• If all people were honest and performed their contracts in good faith, we would hardly need laws, courts, and coercive means of enforcement.

  • The courts become relevant only because contractual relationships occasionally break down.

• There are more differences among legal systems than one might imagine in the theory and regulation of “breakdown.”

• The German system is most unusual for attempting to regulate the field of a breakdown without relying on a concept of breach

  • The pillars of the German system are impossibility and delay in enforcement.

  • The primary remedy under the German system is performance of the original obligation, an obligation that the obligee can convert under certain circumstances in monetary damages.

    • By contrast, the common law states that someone who has breached once is likely to breach again. There is no point in asking for the originally promised performance; it’s better to seek monetary compensation for the loss represented by the nonperformance.

• The standard common law remedy in contracts as well as torts is damages—money to make good the loss.

  • Only if the performance has a unique object—for example, a promise to convey a specific painting or piece of land—can one think about injunction in equity to compel the performance.

• German scholars have internal reasons for pushing the contract remedy as far as it would go in place of the tort remedy.

  • German tort law has no strict rule of the type known in the common law, holding the employer vicariously liable for the torts of their employees.

    • BGB § 831: An employer is not liable for unlawful tortious conduct of employee if there was no fault in the selection or supervision of the employee.

  • Though there are some exceptions (such as the law of express warranties), contract resembles tort liability, with fault at the center of both.

  • Common lawyers claim not to be interested in fault in contract breach, but this seems not to be true in many critical areas, such as the law of mistake.

• Every legal system adopts some version of the objective theory of contracts, and therefore there might be some circumstances in which someone does not wish to be bound but uses language in a way that induces others reasonably to rely on a certain meaning.

Contractual Mistakes

• Issues of mistake readily blend into the topic of contractual interpretation.

• German law is more explicit about the importance of fault in analyzing cases of mistake.

  • Under the common law approach, the mutual mistake precluded the conclusion of a contract; neither side was liable to the other for anything.

    • But the result would be different under American law, the authors claim, if one party was at fault and the other innocent.

• Even if there is no contract under German law, the courts would apply the doctrine of culpa in contrahendo, which also considers the relative fault of the parties