The Role of Fault in Contract Law: Unconscionability, Unexpected Circumstances, Interpretation, Mistake, and Nonperformance

It is often asserted that contract law is based on strict liability, not fault. This assertion is incorrect. Fault is a basic building block of contract law, and pervades the field. Some areas of contract law, such as unconscionability, are largely fault based.

Other areas, such as interpretation, include sectors that are fault based in significant part. Still other areas, such as liability for nonperformance, superficially appear to rest on strict liability, but actually rest in significant part on the fault of breaking a promise without sufficient excuse. Contract law discriminates between two types of fault: the violation of strong moral norms, such as the prohibition of deception, and the violation of somewhat weaker moral norms, such as the requirement of due care. In some areas of contract law, one type of fault dominates.

Where both types of fault are relevant, one party's violation of a strong moral norm will normally override the other party's violation of a weaker moral norm. Fault is pervasive in contract law because it should be. One part of the human condition is that we hold both policy and moral values; law cannot escape this condition. Moreover, if moral obligation and fault were removed from contract law, the contracting system would be much less efficient.

The efficiency of the contracting system rests on a tripod whose legs are legal remedies, reputational effects, and the internalization of social norms-in particular, the moral norm of promise keeping. All three legs are necessary to ensure the reliability, and therefore the efficiency, of the contracting system.