The Cost of Guilty Breach
22 Pages Posted: 18 Feb 2021 Last revised: 12 Apr 2021
Date Written: February 14, 2021
The traditional framework of U.S. private law that every first-year student learns is that contracts and torts are different realms: contracts is the realm of strict liability and tort, of fault. Contracts, we learn from the writings of Holmes and Posner, are best viewed as options: they give parties the option to perform or pay damages. The question we ask is whether, in the real world, that is indeed how contracting parties view things. Using a dataset made up of a thousand M&A contracts and thirty in-depth interviews with M&A lawyers, we find that there is at least one significant area of transactional practice that rejects the “fault is irrelevant to contract breach” perspective.
Keywords: damages, contracts, option, M&A
JEL Classification: K12, K22
Suggested Citation: Suggested Citation