Damages as a Function of Fault: Willful Breach in M&A Contracts

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.