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Stephen L. Carter

Justice's Bank of America Suit Failed Basic Contracts Test

Repeat after me: A breach is not a fraud. Countrywide knew it.

If I promise to sell you a 2016 BMW and deliver my 2006 Yugo instead, you can sue me for breach. If my breach is “intentional,” you might even get extra damages. But although I have done you a wrong, I have not committed a fraud -- not unless I planned to stick you with the Yugo all along.

Every first-year law student is familiar with this fundamental rule of contracts. The fact that the Justice Department chose to ignore it is crucial to understanding Monday’s decision by the U.S. Court of Appeals for the Second Circuit to overturn a $1.27 billion judgment against Bank of America related to alleged wrongdoing by Countrywide Home Loans.