The fault principle as the chameleon of contract law: A market function approach

Michigan Law Review

Volumn 107, Issue 8, 2009, Pages 1583-1600

  Grundmann, Stefan ^a,b  

^a Department of Private and Business Law ^*  (Germany)

^b HUMBOLDT UNIVERSITY   (Germany)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 66749160774     PISSN: 00262234     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (127)

1. See Ernst Rabel, Aufgabe und Notwendigkeit der Rechtsvergleichung, 13 RHEINISCHE ZEITSCHRIFT FÜR ZIVIL-UND PROZESSRECHT 279, 283 (1924),
2. reprinted in 3 ERNST RABEL, GESAMMELTE AUFSÄTZE 1, 5 (1967) ("In thousands of shadows, you see flickering and shimmering the law of any developed people. AU these vibrating bodies in their unity form a whole which nobody yet has grasped and modelled." (translation by author)).
3. Rabel initiated his work on sales law unification in 1929 with his so-called "Blue Report." 3 ERNST RABEL, Rapport sur le droit comparé en matière de vente, in GESAMMELTE AUFSÄTZE, supra note 1, at 381.
4. See also the announcement in 3 RABELS ZEITSCHRIFT FÜR AUSLÄNDISCHES UND INTERNATIONALES PRIVATRECHT 405 (1929).
5. Rabel is considered to be the "mastermind behind the draft uniform international sales law." Bernhard Grossfeld & Peter Winship, The Law Professor Refugee, 18 SYRACUSE J. INT'L. L. & COM. 3, 11 (1992).
6. See also the contributions by Ole Lando, Ulrich Drobnig, Ulrich Magnus and also Axel Flessner in EUROPÄISCHES .KAUFGEWÄHRLEISTUNGSRECHT: REFORM UND INTERNATIONALISIERUNG DES DEUTSCHEN SCHULDRECHTS (Stefan Grundmann et al. eds., 2000).
7. 1-2 ERNST RABEL, DAS RECHT DES WARENKAUFS (1958);
8. 2 ERNST RABEL, THE CONFLICT OF LAWS (2d ed. 1960).
9. RONALD H. GRAVESON ET AL., THE UNIFORM LAWS ON INTERNATIONAL SALES ACT 1967 (1968);
10. KOMMENTAR ZUM EINHEITLICHEN KAUFRECHT (Hans Dölle ed., 1976);
11. Berndt Godenhielm, Some Views on the System of Remedies in the Uniform Law on International Sales, 10 SCANDINAVIAN STUD. L. 9 (1966).
12. United Nations Convention on Contracts for the International Sale of Goods, Apr. 11, 1980, 1489 U.N.T.S. 3 [hereinafter CISG].
13. For a list of the states which have ratified the convention (seventy-one as of August 2008),
14. see UNCITRAL, Status: 1980 - United Nations Convention on Contracts for the International Sale of Goods, http://www.uncitral.org/uncitraiyen/uncitral- texts/sale-goods/1980CISG-status.html (last visited Feb. 22, 2009); 2007 Bundesgesetzblatt II 690 annex B;
15. see also CESARE M. BIANCA ET AL., COMMENTARY ON THE INTERNATIONAL SALES LAW: THE 1980 VIENNA SALES CONVENTION (1987);
16. JOHN O. HONNOLD, DOCUMENTARY HISTORY OF THE UNIFORM LAW FOR .INTERNATIONAL SALES (1989);
17. COMMENTARY ON THE UN CONVENTION ON THE INTERNATIONAL SALE OF GOODS (CISG) (Peter Schlechtriem & Ingeborg Schwenzer eds., 2d ed., CH. Beck 2005) [hereinafter COMMENTARY ON THE CISG].
18. After the war, Rabel lived and split his research rather evenly between the United States and Germany - probably more than most German emigrants. See, for instance, the most recent report on him by Gerhard Kegel. Gerhard Kegel, Ernst Rabel (1874-1955), in 1 DEUTSCHSPRACHIGE ZIVILRECHTSLEHRER DES 20. JAHRHUNDERTS IN BERICHTEN IHRER SCHÜLER: EINE IDEENGESCHICHTE IN EINZELDARSTELLUNGEN 17 (Stefan Grundmann & Karl Riesenhuber eds., 2007).
19. For the influence of the CISG, see Int'l Inst, for the Unification of Private Law [UNIDROIT], Principles of International Commercial Contracts, passim (2004), available at http://www.jus.uio.no/lm//unidroit.international. commercial.contracts.principles.2004/portrait.pdf [hereinafter Uhidroit Principles].
20. For the influence of the CISG, see PRINCIPLES OF EUROPEAN CONTRACT LAW, PART I (Ole Lando & Hugh. Beale eds., 1995);
21. PART II (Ole Lando et al. eds., 1999);
22. PART III (Ole Lando et al. eds., 2003).
23. While the Unidroit and the so-called Lando principles are not official and are not law, the role of the UN Convention as a model for future EC legislation is accepted also officially. Commission of the European Communities, Communication from the Commission to the Council and the European Parliament on European Contract Law, para. 18-2 0, COM (2001) 398 final (July 11, 2001), available at ec.europa.eu/consumers/policy/developments/contract-law/cont-law- 02-en.pdf.
24. PRINCIPLES OF EUROPEAN CONTRACT LAW, PART II, supra note 8, art. 8:101.
25. PRINCIPLES OF EUROPEAN CONTRACT LAW, PART II, supra note 8, art. 1:108.
26. Unidroit Principles, supra note 7, art. 7.1.7.
27. Some scholars interpret the Principles of European Conttact Law to mirror this approach. See Ole Lando, Non-Performance (Breach) of Contracts, in TOWARDS A EUROPEAN CIVIL CODE 505, 509 (Arthur Hartkamp et al. eds., 3d ed. 2004).
28. CISG, supra note 5, art. 64(1)(b);
29. Parliament and Council Directive 1999/44/EC, art. 3(5), 1999 O.J. (L 171) 12, 15 [hereinafter EU Sales Directive]. For an explanation of the "second chance" and its economic rationale,
30. see Fernando Gomez, Introduction, in EU SALES DIRECTIVE: COMMENTARY 13, para. 108 (Massimo C. Bianca & Stefan Grundmann eds., 2002);
31. Stefan Grundmann, Regulating Breach of Contract-The Right to Reject Performance by the Party in Breach, 3 EUR. REV. CONT. L. 121, 129-37 (2007).
32. See also Comm'n of the European Communities, Proposal for a European Parliament and Council Directive on the sale of goods and associated guarantees, art. 4, COM (95) 520 final (June 18, 1996), available at http://aei.pitt.edu/ 10267/01/COM-(95)-520-final.pdf.
33. This Article does not speak to the merits of a strict liability regime in torts; in fact, it gives ample justification for distinguishing between torts and contracts in this respect.
34. Because this is an American journal, explaining the civil law side is probably more necessary, and I do that in some detail-but even here, the rules I have chosen are meant to be paradigmatic and the overview is admittedly far from systematic.
35. The German law (and more) can be found in English. E.g., CASES, MATERIALS AND TEXT ON CONTRACT LAW 659-63, 667-69 (Hugh Beale et al. eds., 2002);
36. BASIL S. MARKESINIS ET AL., THE GERMAN LAW OF CONTRACT 444-51 (2d ed. 2006).
37. See also Stefan Grandmann, Commentary, in 2 .MÜNCHENER KOMMENTAR ZUM BÜRGERLICHEN GESETZBUCH (Wolfgang Krüger ed., 5th ed. 2008) (providing a more extensive commentary on section 276). The commentary does not, however, represent the majority view in Germany in that, from a policy point of view, the country favors strict liability in principle.
38. Bürgerliches Gestzbuch [BGB] [Civil Code] § 276, 2002 Bundesgesetzblatt I 42, translated at Bundesministerium der Justiz: BGB-translation, http://www.gesetze-im-internet.de/englisch-bgb/german-civil- code.pdf (official translation of the German Ministry of Justice).
39. See id. § 280(1).
40. The second phrase of the section says that damages are owed unless the debtor proves absence of fault; thus the phrase is really about the burden of proof with respect to fault. Id.
41. Canaris recently discussed his ideas on (a core feature of) the new section 276 in a long article. Claus-Wilhelm Canaris, Die Einstandspflicht des Gattungsschuldners und die Übernahme eines Beschaffungsrisikos nach § 276 BGB, in NORM UND WIRKUNG: FESTSCHRIFT FÜR WOLFGANG WIEGAND 179 (Eugen Bucher et al. eds., 2005).
42. For discussion of the argument of ethical superiority, see infra Part II.
43. BGB § 276(1).
44. Karl Riesenhuber, Damages for Non-Performance and the Fault Principle, 4 EUR. REV. CONT. L. 119, 130 (2008). Today, such an objective standard is universally accepted in the relevant case law. But for a critical view of this standard,
45. see KARL LARENZ, LEHRBUCH DES SCHULDRECHTS: ERSTER BAND, ALLGEMEINER TEIL 286 (14th ed. 1987).
46. There is abundant case law on the degree of education, and specialization necessary for doctors and lawyers. See Grundmann, supra note 16, paras. 110-13, 125-137
47. BGB § 323.
48. In these cases, a guarantee to supply a good of the standard owed-at least on the second try-is implied in section 276. See BTDrucks 14/6040 at 132;
49. Grandmann, supra note 16, paras. 177-80;
50. Hansjörg Otto, Die Grundstrukturen des neuen Leistungsstö rungsrechts, 24 JURISTISCHE AUSBILDUNG [JURA] 1, 1-11 (2002);
51. supra note 17.
52. BGB § 311a(2) translated at Bundesministerium der Justiz, supra note 17 ("The obligee may, at his option, demand damages in lieu of performance or reimbursement of his expenses in the extent specified in section 284. This does not apply if the obligor was not aware of the obstacle to performance when entering into the contract and is also not responsible for his lack of awareness.").
53. For an argument advocating the application of this rule to all contracts and in all phases of formation, see Stefan Grundmann, Der Schadensersatzanspruch aus Vertrag, 204 ARCHIV FÜR DIE CIVILISTISCHE PRAXIS 569, 580-82 (2004
54. ). Other authors argue that the wording of the rule captures only complete ex ante impossibility, and they restrict its scope of application accordingly - even though the 2002 reforms were designed to end the splitting up of breach into many different regimes. See, e.g., Christian Grüneberg, in PALANDT, BÜRGERLICHES GESETZBUCH § 311a(4) (Petere Bassange et al. eds., 66th ed. 2007).
55. Helmut Heinrichs, in PALANDT, BÜRGERLICHES GESETZBUCH, supra note 25, § 278(13);
56. Grundmann, supra note 25, at 580 (sharply criticizing this result). The rule is already different under French Law.
57. See CASES, MATERIALS AND TEXT ON CONTRACT LAW, supra note 16, at 663-665
58. See supra note 13.
59. The law (and more) can be found in English.. See CASES, MATERIALS AND TEXT ON CONTRACT LAW, supra note 16, at 663-65, 667-69;
60. Anthony Ogus & Denis Talion, Remedies, in CONTRACT LAW TODAY: ANGLO-FRENCH COMPARISONS (Donald Harris & Denis Talion eds., 1989).
61. See PHILIPPE MALAURIE ET AL., LES OBLIGATIONS para. 945 (2d ed. 2005) (citing the exceptions in section 1927 Code Civil which serve as basis for an e contrario argument in the other cases).
62. See, e.g., MURIEL FABRE-MAGNAN, LES OBLIGATIONS 418, 439-48 (2004) (specifying that the burden of proving fault is on the nonbreaching party unless the case falls into an intermediate category called "obligation de moyens renforcée," in which case the burden of proof is reversed);
63. André Plancqueel, Obligations de moyens, obligations de résultat, 71 REVUE TRIMESTRIELLE DE DROIT CIVIL 334, 336 (1972).
64. Daniels v. White & Sons, Ltd., (1938) 4 All E.R. 258 (K.B.);
65. see also Raineri v. Miles, [1981] A.C. 1050, 1086 (H.L.) ("[F]or damages for breach of contract, it is, in general, immaterial why the defendant failed to fulfil his obligation, and certainly no defence to plead that he had done his best.").
66. See, e.g., GUENTER TREITEL, THE LAW OF CONTRACT 839 (11th ed. 2003).
67. See Supply of Goods and Services Act, 1982, c. 29, § 13 (Eng.);
68. Wilson v. Best Travel Ltd., (1993) 1 AU E.R. 353.
69. More generally on fault in common law, see Barry Nicholas, Fault and Breach of Contract, in GOOD FAITH AND FAULT IN CONTRACT LAW 337 (Jack Beatson & Daniel Friedmann eds., 1995);
70. Guenter H. Treitel, Fault in the Common Law of Contract, in LIBER AMICORUM FOR THE RT. HON. LORD WILBERFORCE 185 (Maarten Bos & Ian Brownlie eds., 1987).
71. See., e.g., Hadley v. Baxendale (1854) 9 Exch. 34.1;
72. HUGH COLLINS, THE LAW OF CONTRACT 410-13 (4th ed. 2003);
73. William Bishop, The Contract-Tort Boundary and the Economics of Insurance, 12 J. LEGAL STUD., 241, 252-60 (1983);
74. James Gordley, The Foreseeability Limitation on Liability in Contract, in TOWARDS A EUROPEAN CIVIL CODE, supra note 12, at 215.
75. CISG, supra note 5, art. 74(2). On this rule see the standard commentaries cited supra note 5.
76. FABRE-MAGNAN, supra note 30, at 576, 583.
77. See, e.g., Riesenhuber, supra note 21, at 132, 148.
78. For a collection of the extensive case law, see Grundmann, supra note 16, paras. 52, 70, 142, 148.
79. Parliament and Council Directive 2004/39/EC, 2004 O.J. (L 145) 1.
80. See generally DIRK H. BLIESENER, AUFSICHTSRECHTLICHE VERHALTENSPFLICHTEN BEIM WERTP APlERH AN DEL (1998);
81. EUROPEAN SECURITIES MARKETS: THE INVESTMENT SERVICES DIRECTIVE AND BEYOND (Guido Ferrarini ed., 1998);
82. Pierre Lastenouse, Les règles de conduite et la reconnaissance mutuelle dans la directive sur les services d'investissement, REVUE DU MARCHÉ UNIQUE EUROPÉEN, 4-1995, at 79.
83. See Clifford Chance LLP, EU legal and regulatory developments: Safeguarding of client assets: CESR's technical advice in relation to Directive 2004/39/EC on Markets in Financial Instruments (MIFID), 11 DERIVATIVES USE, TRADING & REG. 67 (2005);
84. Guido Ferrarini, Contract Standards and the Markets in Financial Instruments Directive (MiFID): An Assessment of the Lamfalussy Regulatory Architecture, 1 EUR. REV. CONT. L. 19 (2005);
85. Angela Knight, The Investment Services Directive - Routemap or obstacle course?, 11 J. FIN. REG. & COMPLIANCE 219, 221 (2003).
86. LARENZ, supra note 2.1, at 276-79;
87. Canaris, supra note 19, at 25.1;
88. Erwin Deutsch, Die Fahrlässigkeit im neuen Schuldrecht, 202 ARCHIV FÜR DIE CIVILISTISCHE PRAXIS 889, 892 (2002);
89. Egon Lorenz, Schuldrechtsmodernisierung - Erfahrungen seit dem 1. Januar 2002, in KARLSRUHER FORUM 2005: SCHULDRECHTSMODERNISIERUNG-ERFAHRUNGEN SEIT DEM 1. JANUAR 2002 59 (Egon Lorenz ed., 2006).
90. Riesenhuber, supra note 21, at 145.
91. See id. at 148.
92. FRANZ BÖHM, FREIHEIT UND ORDNUNG IN DER MARKTWIRTSCHAFT 105-68 (1980);
93. see also David J. Gerber, Constitutionalizing the Economy: German Neo-liberalism, Competition Law and the "New" Europe, 42 AM. J. COMP. L. 25 (1994) (describing and commenting on this concept in English);
94. Stefan Grundmann, The Concept of the Private Law Society: After 50 Years of European and European Business Law, 16 EUR. REV. PRIVATE L. 553 (2008);
95. Wolf Sauter, The Economic Constitution of the European Union, 4 COLUM. J. EUR. L. 27 (1998);
96. Manfred E. Streit & Werner Mussler, The Economic Constitution of the European Community: From "Rome" to "Maastricht", 1 EUR. L.J. 5 (1995) (emphasizing how the Economic Constitution has been influenced by Böhm's ordo-liberalism).
97. See ROBERT COOTER & THOMAS ULEN, LAW & ECONOMICS 208-12 (5th ed. 2008);
98. Steven Shavell, Strict Liability versus Negligence, 9 J. LEGAL STUD. 1, 4-8 (1980).
99. See Shavell, supra note 46.
100. In the German context, see also MICHAEL ADAMS, ÖKONOMISCHE ANALYSE DER GEFÄHRDUNGS- UND VERSCHULDENSHAFTUNO 137-140 (1985);
101. ANDREAS BLASCHCZOK, GEFÄHRDUNGSHAFTUNG UND RISIKOZUWEISUNG (1993).
102. Compare TREITEL, supra note 32 (common law), at 838, with
103. FABRE-MAGNAN, supra note 30, at 573-574 (civil law).
104. On the strict liability concept and the exact shape of the exceptions in this case, see, for example, Hans Stoll & Georg Gruber, Exemptions, in COMMENTARY ON THE CISG, supra note 5, art. 79, paras. 10-13, 30-32, rdnr. 6-9.
105. For its importance in the German legislative process, see ABSCHLUSSBERICHT DER KOMMISSION ZUR ÜBERARBEITUNG DES SCHULDRECHTS 123 (Bundesminister der Justiz ed., 1992).
106. Parliament and Council Directive 97/5/EC, 1997 O.J. (L 43) 25.
107. On the strict liability model of this directive, see STEFAN GRUNDMANN, EUROPÄISCHES SCHULDVERTRAGSRECHT § 4.13 paras. 21-26 (1999).
108. This directive has been repealed by Parliament and Council Directive 2007/64/EC, 2007 O.J. (L 3.19) 1, 8;
109. the rale discussed here has, however, not been changed. See, e.g., DESPINA MAVROMATI, THE LAW OF PAYMENT SERVICES IN THE EU (2008);
110. Johannes Priesemann, Proposal for a Directive on payment services in the internal market: Overview and initial comments, 1 EUREDIA 15 (2006).
111. In the German context, see BGB § 631 and standard commentaries on this section.
112. In the French context, see, for example, FABRE-MAGNAN, supra note 30, at 418.
113. For German Law, see Heinrichs, supra note 26, § 276, para. 28.
114. At least if it is a long-term relational contract that takes up most or all of the breaching party's working power for a considerable time.
115. For a definition, see 1 AM. LAW INST., PRINCIPLES OF CORPORATE GOVERNANCE § 4.01(c) (1994).
116. The lead case in Delaware is Aronson v. Lewis, 473 A.2d 805 (Del. 1984).
117. For a comparative and economic perspective, see Holger Fleischer, Die "Business Judgment Rule" im Spiegel von Rechtsvergleichung und Rechtsökonomie, in FESTSCHRIFT FÜR HERBERT WIEDEMANN 827 (Rolf Wank et al. eds., 2002);
118. MARTIN OLTMANNS, GESCHÄFTSLEITERHAFTUNG UND UNTERNEHMERISCHES ERMESSEN: DIE BUSINESS JUDGMENT RULE IM DEUTSCHEN UND IM AMERIKANISCHEN RECHT (2001);
119. MARKUS ROTH, UNTERNEHMERISCHES ERMESSEN UND HAFTUNG DES VORSTANDS: HANDLUNGSSPIELRÄUME UND HAFTUNGSRISIKEN INSBESONDERE IN DER WIRTSCHAFTLICHEN KRISE (2001).
120. The European Court of Justice also decided that the duty not to discriminate on. the basis of gender was subject to strict liability. E.g., Case C-177/88, Dekker v. Stichting Vormingscentrum. voor Jong Volwassenen (VJV-Centrum) Plus, 1990 E.C.R. 1-394.1, 3975. It is not just cases involving willful and particularly offensive discrimination that are subjected to liability. Given that "indirect" discrimination can be quite tricky, the result reached by the ECJ is not easily explained by an argument that it is "in the hands" of the employer not to discriminate; it seems more like a decision of public policy.
121. See supra note 31.
122. COOTER & ULEN, supra note 46, at 274.
123. BGB § 254.
124. This is a rale that most authors in the American law and economics literature accept as well. See, e.g., COOTER & ULEN, supra note 46, at 346, 366, 383-86;
125. RICHARD A. POSNER, ECONOMIC ANALYSIS OF LAW 172-177 (7th ed. 2007).
126. For an extensive discussion, see Stefan Grundmann, Regulating Breach of Contract - The Right to Reject Performance by the Party in Breach, 3 Eur. Rev. Cont. L 121, 129-37 (2007).
127. For a more law and economics based perspective, see Stefan Grundmann & Andreas Hoerning, Leistungsstörungsmodelle im Lichte der ökonomischen Theorie - nationales, europäisches und internationales Recht, in ÖKONOMISCHE ANALYSE DER EUROPÄISCHEN ZIVILRECHTSENTWICKLUNG 420, 443-448 (Thomas Eger & Hans-Bemd Schäfer eds., 2007).