Contract Breaches and the Criminal/civil Divide: an Inter-common Law Analysis

• Citation: Vol. 28 No. 3
• Publication year: 2010

Georgia State University Law Review

Volume 28 j 1q

Issue 3 Spring 2012

3-28-2013

Contract Breaches and the Criminal/Civil Divide: An Inter-Common Law Analysis

Monu Bedi

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Recommended Citation

Bedi, Monu (2011) "Contract Breaches and the Criminal/Civil Divide: An Inter-Common Law Analysis," Georgia State University Law Review: Vol. 28: Iss. 3, Article 10.

Available at: http://digitalarchive.gsu.edu/gsulr/vol28/iss3/10

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CONTRACT BREACHES AND THE CRIMINAL/CIVIL DIVIDE: AN INTER-COMMON LAW ANALYSIS

Monu Bedi*

Scholars have long debated why certain common law breaches in American jurisprudence receive criminal punishment (imprisonment) while others only receive civil sanctions (monetary damages). Scholars like Richard Posner and Guido Calabresi/A. Douglas Melamed have used economic-based models and the notion of efficiency to explain why tort breaches only receive civil sanctions but crimes receive criminal punishment. Others, like John Coffee and Paul Robinson, have questioned the explanatory power of these models. Instead, they have focused on the moral difference between torts and crimes. Simply put, a crime's intentional nature makes it morally worse than the carelessness typified by tortious activity. Interestingly, scholars on both sides of the debate have largely neglected to include contract breaches—a significant part of common law—into their models. Like torts, these breaches also only receive civil sanctions. What explains the similar treatment?

This Article makes an original contribution to the literature by systematically introducing contract breaches into the broader criminal/civil debate. It employs the aforementioned economic and moral-based models in an effort to understand the treatment of contract breaches. The economic model, and its focus on efficiency, predictably explains why these breaches only receive civil sanctions. The moral-based model stumbles here. Its focus on intent suggests that a contract breach—as intentional conduct—also deserves moral blame and thus criminal punishment. What is missing from this

Bruce R. Jacob Vistiing Assistant Professor, Stetson University College of Law. A.B. Dartmouth, M.Phil. Cambridge, J.D. Harvard. I would like to thank Mike Allen, Brad Areheart, Jules Coleman, Joshua Dressler, Jamie Fox, Marco Jimenez, Ellen Podgor, and Sonu Bedi for their invaluable comments on earlier drafts. I am also grateful to my research assistant, Kristen Gamboa, for her help.

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model is recognizing the unique nature of the underlying responsibility in a contract breach, and specifically, the difference between a "voluntary obligation" and a "non-voluntary obligation." This Article takes the innovative step of introducing this distinction into the larger criminal/civil debate and using it to conclude that the moral-based and economic approaches can be integrated into a unified model.

Introduction.................................................................................561

I. The Basic Common Law Breaches and Safeguarding

Property.................................................................................567

A. Contract Breaches, Torts, and Crimes..............................567

B. Equalizing Harms: The Safeguarding of Property............570

C. The Public/Private Distinction..........................................573

II. The Economic Model and the Efficiency-Deterrence

Relationship...........................................................................575

A. Efficiency/Deterrence: Crime vs. Tort Breach..................582

B. The Efficiency/Deterrence of a Contract Breach...............587

C. The Efficiency/Deterrence of Fraudulent Inducement......590

III. The Moral-Based Model and the Role of Culpability ....592

A. Culpability: Crime vs. Tort Breach ...................................598

B. Integrating the Economic and Moral-Based Models.........602

IV. Contract Breaches and The Role of Culpability............604

A. The Culpability of a Contract Breach................................605

B. The Culpability of Fraudulent Inducement........................607

C. Contract Breaches and the Moral-Based/Economic

Models ................................................................................609

V. The Unique Nature of Contracts: Voluntary

Obligations vs. Non-Voluntary Obligations..................610

A. The Elements of a Contract Breach and Criminal/Tort Breach ................................................................................611

B. The Moral-Based Model: A Redux....................................613

Conclusion....................................................................................617

2012] contract breaches 561

Introduction

Scholars have long debated why certain common law breaches in American jurisprudence receive criminal punishment (imprisonment) while others only receive civil sanctions (monetary damages).¹ These scholars, however, have focused only on torts and crimes and have largely left out contract breaches—a significant part of common law doctrine. Like its tort counterpart, this breach also only receives civil liability. What explains the similar treatment? This Article makes an original contribution to the literature by systematically introducing contract breaches into this debate on the criminal/civil divide.

It is important to say something about harms. Any meaningful comparison of these three common law breaches requires equalizing the harms involved. otherwise, the analogy will break down. For example, murdering someone is obviously worse than negligently destroying property or failing to contractually deliver a good or service. Explaining why only murder gets criminal punishment in this case does not seem particularly difficult. The harms involved are very different. Homicide is qualitatively worse than any damage to property or loss of particular service. This assumption about harm is important. This Article seeks to understand why, everything else being equal, crimes alone receive criminal punishment, while both tort and contract breaches only trigger monetary sanctions.

This Article works out this ceteris paribus claim by appealing to laws that safeguard property. A person may not steal your property (a crime); she cannot treat your property negligently (a tort); and she may not breach a contract by failing to compensate you for your property (a contract breach). Take the following three cases:

1. Criminal sanctions can include fines, see Model Penal Code § 302.1 (1985), as well as restitution awarded to a victim. See Jeffrey A. Parness, Laura Lee, Edmund Lee, Monetary Recoveries for State Crime Victims, 58 Clev. St. L. Rev. 819 (2010) (noting that some states allow restitution as part of defendant's sentence); Heidi M. Grogan, Characterizing Criminal Restitution Pursuant to the Mandatory Victims Restitution Act: Focus on the Third Circuit, 78 Temp. L. Rev. 1079 (2005) (noting that the Victim and Witness Protection Act permits federal judges to award criminal victims restitution during sentencing); Randy Barnett, Getting Even: Restitution, Preventive Detention, and the Tort/Crime Distinction, 76 B.U. L. Rev. 157, 159-60 (1996) (noting that restitution is part of the punishment imposed on a defendant). Civil sanctions include both compensatory and punitive damages. See Restatement (Second) of Contracts §§ 347, 355 (1981).

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Scenario (1): You are sitting in a coffee shop² writing an essay on your recently purchased laptop that costs $1,000. You leave to go to the bathroom. In your absence, someone quickly steals your computer³ (a crime).

Scenario (2): As you are typing your essay on your recently purchased laptop that cost $1,000, someone negligently knocks it over. You had taken reasonable care to place it squarely on the table so it would not fall.⁴ It breaks completely and is now worth nothing (tort breach).

Scenario (3): Wanting to sell your laptop, you contract with an individual to sell it for $1,000. You give the computer to this person and await delivery of the money at the coffee shop (per the contract terms). To your dismay, this individual breaches the contract by failing to bring the money. The person intentionally decided not to honor the terms of the contract. At the time the contract was made, this person fully intended to pay you $1,000 and said as much. The individual simply changed her mind, even though she had the ability to satisfy the terms of the contract (contract breach).⁵

In all three cases (collectively, the "Scenarios"), you lose the value of the computer. That is, in all Scenarios, you suffer the same monetary harm—a loss of $1,000.⁶ Nevertheless, only in Scenario (1), the criminal act, could the perpetrator suffer possible imprisonment at the discretion of the state. The perpetrators in Scenarios (2) and (3) (the tort and contract breach, respectively)

2. These scenarios are set up in a coffee shop to make them as similar as possible.

3. This act of taking the computer would constitute larceny under common law as the perpetrator permanently intended to deprive the victim of the computer. See, e.g., United States v. Maloney, 607 F.2d 222, 227 (9th Cir. 1979); Edmonds v. State 70 Ala. 8, 9 (1881) (citing Roscoe's Cr. Ev. 622); Model Penal Code § 223.1 note (consolidating larceny and other acquisitive crimes such as embezzlement and false pretenses into the general category of theft) (1962); Model Penal Code § 223.2 (1962); 3 Subst. Crim. L. § 19.8 (2d ed. 2010) (same). For the purpose of this...