When is a willful breach 'willful'? The link between definitions and damages.

• Author: Craswell, Richard

The existing literature on willful breach has not been able to define what should count as "willful." I argue here that any definition we adopt has implications for just how high damages should be raised in those cases where a breach qualifies as willful. As a result, both of these issues--the definition of "willful," and the measure of damages for willful breach--need to be considered simultaneously.

Specifically, if a definition of "willful" excludes all breachers who behaved efficiently, then in theory we can raise the penalty on the remaining inefficient breachers to any arbitrarily high level ("throw the book at them"). But if, instead, a given definition of willful would catch even some efficient breachers in its net, the damages assessed against willful breachers should be more limited. In that case, damages for willful breach might still justifiably be raised, but they should be raised only to the level that is economically efficient.

INTRODUCTION

Liability for breach of contract is often described as a form of strict liability, in which the measure of damages is unaffected by the culpability of the breach. However, courts sometimes do award higher damages, under various legal doctrines, if the behavior of the breacher seems especially culpable. (1) When they do, they may describe the breacher's behavior using labels such as willfully, or in bad faith, or fraudulently, or maliciously--or, as Dickens once put it, "otherwise evil-adverbiously." (2)

Unfortunately, labels like these are not self-defining. Over fifty years ago, Corbin was scathingly critical of their use:

The word most commonly used is "wilful"; and it is seldom accompanied by any discussion of its meaning or classification of the cases that should fall within it. Its use indicates a childlike faith in the existence of a plain and obvious line between the good and the bad, between unfortunate virtue and unforgivable sin. (3) In this Article, I make three claims. First, I argue that willful breaches cannot be defined merely by reference to the breacher's mental state, and that (as a result) the existing literature on willful breach lacks an adequate definition of "willful." Second, I argue that any definition of "willful" we adopt will have important implications for just how high damages should be raised in those cases where a breach qualifies as willful, so that both of these issues--the definition of "willful," and the measure of damages for willful breach--should be considered simultaneously. Third, I argue that these issues also require consideration of the fact-finding demands that each choice would place on courts.

1. DEFINING A "WILLFUL" BREACH

   I begin with the problem of defining "willful." One natural interpretation of that term links it to the defendant's mental state: willful breaches are knowing or intentional breaches. (4)

   The problem with this definition is that adjectives like "knowing" and "intentional" (and their adverb forms, "knowingly" and "intentionally") are most easily applied to specific actions. A breach, by contrast, is not an action but a state of affairs. If I promise to deliver widgets to you by next Tuesday, then I am in breach if Tuesday arrives and you have no widgets, but your being widgetless on Tuesday is not itself an action. Your widgetless state may be the result of an action, of course; but typically it is the result of a whole sequence of actions: of all the things that were done (or not done) in the days leading up to Tuesday. Thus, before we can apply tests like "knowingly" or "intentionally," we need to know the individual actions in that sequence to which those terms should be applied.

   To illustrate, consider two staples of the contracts curriculum: Jacob & Youngs, Inc. v. Kent, (5) and Peevyhouse v. Garland Coal & Mining Co. (6) In Kent, a builder promised to use a particular brand of pipe to build a house; in Peevyhouse, a mining company promised to make certain repairs to the land after they finished mining the coal. The builder in Kent used the wrong brand of pipe, apparently by accident; but the mining company in Peevy house decided the promised repairs would cost too much, so it simply refused to make the repairs. Described in this way, Peevyhouse sounds deliberate or willful, while the breach in Kent sounds accidental. (7)

   However, Kent can be characterized as a willful breach if we focus on other events in the sequence. After all, as soon as the builder discovered his mistake, he could have torn the house down and started over, this time using the right brand of pipe. (Much of the pipe was in the interior walls and foundations, and so could not be replaced without demolishing the house.) The builder chose not to do this, for demolishing the house would have been extremely expensive, but there is no question that this choice--the choice not to demolish the house--was deliberate. Thus, if the intentionality of this part of the sequence is what matters, Kent must be classified with Peevyhouse as a deliberate or willful breach. (8) Granted, we can avoid this characterization of Kent if we focus instead on the builder's earlier, unintentional mistake about what brand of pipe was being installed. But why should the intentionality of that event control our characterization of the breach, rather than the intentionality of the subsequent decision not to tear down the house and start over?

   Indeed, if we are free to pick and choose which decision to focus on, the breach in Peevyhouse was not necessarily willful. True, the coal company deliberately chose not to repair the land once they learned how much it would cost to do so. Under at least one reading of the facts, though, the coal company originally thought there was sufficient coal near enough to the surface that the promised repairs would have been relatively easy. As it turned out, the coal was deeper and less plentiful, and this made the repairs more expensive than they might have been. (9) Thus, if we focus on the coal company's mistake about the coal, that event in the sequence looks just as involuntary as the builder's mistake about the pipe. And if the answer is, "the coal company should have known there was a risk it might be mistaken," why not say that the builder should also have known there was a risk it might get the brand of pipe wrong?

   The problem here is fundamental, in the vast majority of cases, the parties to a contract do not intend to breach at the time they signed it. Instead, they hope the contract will be performed as planned, but then something else happens. Costs go up, or a better offer is found elsewhere, or work is performed incorrectly, and what originally looked like a good deal becomes less appealing to one party. Sometimes that party grits her teeth and performs anyway, but the litigated cases are those in which she decides she will not go through with the deal. If we look at the entire sequence of the defendant's decisions, there will almost always be some that were deliberate, thus potentially allowing us to classify the breach as willful. But there will also usually be some events that were not deliberate--the increase in costs, or the work that was done incorrectly, or the better offer that came along at the last minute--so if we focus on that event, we will classify the breach as resulting from an unintentional decision.

   Indeed, even when breaches were in some sense intended from the beginning, we can always (if we try) find nondeliberate events that played a role. Consider a sleazy aluminum siding company that lures customers in by quoting a very low price, planning all along to take their down payment and disappear. (10) While this sounds like the quintessential example of a deliberate breach, consider that even this company might have lived up to its contract if, after the contract was signed, an eccentric millionaire had unexpectedly offered it a reward for completing the job. Thus, even this breach can be described as resulting from a sequence of two events: an earlier event that was beyond the siding company's control (the failure of any millionaire to offer a reward), followed by a later, deliberate decision about how to respond to that event (the decision not to install the siding). Focusing on the second of these events makes the breach seem deliberate--but if we focus instead on the first event, it is hard to distinguish this example in any formal way from cases like Kent or Peevyhouse.

   Of course, quibbles like these do not stop most of us from condemning the siding company's breach as "willful" even if we cannot articulate a formal definition of that term. Apparently, in some cases (like my aluminum-siding example) we naturally select the breacher's deliberate decisions to focus on, and we see the resulting breach as willful. In other cases (perhaps Kent?), we decide to focus instead on the chance event or the mistake, and see the breach as accidental. Often, these choices are made without our being consciously aware of them--though behavioral researchers are beginning to investigate these choices more systematically, as I discuss below in Section I.B.

   1. Analogies in Criminal Law

      Viewed in these terms, the problem is not unique to contract law. A close analogy can be found in criminal law, in cases where it matters whether the defendant acted "voluntarily," and where the application of that label may depend on our choice to focus on earlier or later events in the sequence that led up to a crime. For example, a badly intoxicated driver may be literally unable to control her car, so if we focus entirely on her actions while she is behind the wheel, the resulting crash will seem involuntary. But if we look instead at her earlier decisions (made while she was sober) to drive to a party where she intended to drink, and to do so without making any arrangements for a designated driver, those decisions make the accident seem more the result of a voluntary choice. (11)

      Criminal law must also...