Contract Law
Part of the common law series
Contract
Contract formation
Offer and acceptance  · Mailbox rule
Mirror image rule  · Invitation to treat
Firm offer  · Consideration
Defenses against formation
Lack of capacity to contract
Duress  · Undue influence
Illusory promise  · Statute of frauds
Non est factum
Contract interpretation
Parol evidence rule
Contract of adhesion
Integration clause
Contra proferentem
Excuses for non-performance
Mistake  · Misrepresentation
Frustration of purpose  · Impossibility
Impracticability  · Illegality
Unclean hands  · Unconscionability
Accord and satisfaction
Rights of third parties
Privity of contract
Assignment  · Delegation
Novation  · Third party beneficiary
Breach of contract
Anticipatory repudiation  · Cover
Exclusion clause  · Efficient breach
Fundamental breach
Remedies
Specific performance
Liquidated damages
Penal damages  · Rescission
Quasi-contractual obligations
Promissory estoppel
Quantum meruit
Subsets: Conflict of law Commercial law
Other areas of the common law
Tort law  · Property law
Wills and trusts
Criminal law  · Evidence

Efficient breach refers to an intentional breach of contract and payment of damages by a party who would incur greater economic loss by performing under the contract. Image File history File links Scale_of_justice. ... A contract is a legally binding exchange of promises or agreement between parties that the law will enforce. ... This article concerns the common-law legal system, as contrasted with the civil law legal system; for other meanings of the term, within the field of law, see common law (disambiguation). ... A contract is a legally binding exchange of promises or agreement between parties that the law will enforce. ... Offer and acceptance analysis is a traditional approach in contract law used to determine whether an agreement exists between two parties. ... The mailbox rule or the postal acceptance rule is a term of common law contracts which determines the timing of acceptance of an offer when mail is contemplated as the medium of acceptance. ... In the law of contracts, the mirror image rule states that an offer must be accepted exactly without modifications. ... In contract law, an invitation to treat (invitation to bargain in the US) is an action by one party which may appear to be a contractual offer but which is actually inviting others to make an offer of their own. ... In the United States, a firm offer is an offer defined by UCC § 2-205 of the Uniform Commercial Code of the United States. ... Consideration is something that is done or promised in return for a contractual promise. ... The capacity of both natural and artificial persons determines whether they may make binding amendments to their rights, duties and obligations, such as getting married or merging, entering into contracts, making gifts, or writing a valid will. ... Duress in the context of contract law is a common law defence, and if you are successful in proving that the contract is vitiated by duress, you can rescind the contract, since it is then voidable. ... Undue influence (as a term in jurisprudence) is an equitable doctrine that involves one person taking advantage of a position of power over another person. ... In contract law, an illusory promise is one that courts will not enforce. ... The statute of frauds refers to the requirement that certain kinds of contracts be made in writing and signed. ... This article or section does not cite its references or sources. ... This article or section does not cite its references or sources. ... A standard form contract (sometimes referred to as an adhesion contract or boilerplate contract) is a contract between two parties that does not allow for negotiation, i. ... An integration clause, in the contract law, is a term in the language of the contract that declares it to be the complete and final agreement between the parties. ... Contra preferendum or contra preferentem is the rule in contract law that is applied when interpreting a clause, especially an exclusion clause, in an action that says that, where ambiguity as to a terms meaning exists, it should be read against the party who wrote it. ... In contract law a mistake is incorrect understanding by one or more parties to a contract and may be used as grounds to invalidate the agreement. ... In contract law, a misrepresentation is a false statement of fact made by one party to another party and has the effect of inducing that party into the contract. ... Frustration of purpose is a term used in the law of contracts to describe a defense to an action for non-performance based on the occurance of an unforseen event which makes performance impossible or commercially impracticable. ... Impossible redirects here. ... The doctrine of impracticability in the common law of contracts excuses performance of a duty, where that duty has become unfeasibly difficult or expensive for the party who was to perform. ... An illegal agreement, under the common law of contract, is one that the courts will not enforce because the purpose of the agreement is to achieve an illegal end. ... This article or section does not cite its references or sources. ... This article or section does not cite its references or sources. ... Accord and satisfaction is the purchase of the release from a debt obligation. ... The doctrine of privity in contract law provides that a contract cannot confer rights or impose obligations arising under it on any person or agent except the parties to it. ... An assignment is a term used with similar meanings in the law of contracts and in the law of real estate. ... Delegation is a term used in the law of contracts to describe the act of giving another person the responsibility of carrying out the performance agreed to in a contract. ... Novation is a term used in contract law and business law to describe the act of either replacing an obligation to perform with a new obligation, or replacing a party to an agreement with a new party. ... A third party beneficiary, in the law of contracts, is a person who may have the right to sue on a contract, despite not having originally been a party to the contract. ... Breach of contract is a legal concept in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other partys performance. ... Anticipatory repudiation (or anticipatory breach) is a term in the law of contracts that describes a declaration by one party (the promissing party) to a contract that they do not intend to live up to their obligations under the contract. ... Cover is a term used in the law of contracts to describe a remedy available to a merchant buyer who has received an anticipatory repudiation of a contract for the receipt of goods. ... An exclusion clause is a term in a contract that seeks to restrict the rights of the parties to the contract. ... Fundamental breach, sometimes known as a repudiatory breach, is a breach so fundamental that it permits the aggrieved party to terminate performance of the contract, in addition to entitling that party to sue for damages. ... Definition of Specific performance In the law of remedies, a specific performance is a demand of a party to perform a specific act. ... Liquidated damages is a term used in the law of contracts to describe a contractual term which establishes damages to be paid to one party if the other party should breach the contract. ... Penal damages are best seen as quantitatively excessive liquidated damages and are invalid under the common law. ... In contract law, rescission (to rescind or set aside a contract) refers to the cancellation of the contract between the parties. ... Estoppel is a concept that prevents a party from acting in a certain way because it is not equitable to do so. ... Quantum meruit is a Latin phrase meaning as much as he has deserved. In the context of contract law, it means something along the lines of reasonable value of services. Situations The concept of quantum meruit applies to the following situations: I. When a person employs (impliedly or expressly) another... International private law, private international law or conflict of laws is the branch of private law which regulates lawsuits involving foreign laws or jurisdictions. ... Commercial law (sometimes known as business law) is the body of law which governs business and commerce. ... In the common law, a tort is a civil wrong for which the law provides a remedy. ... This article or section does not cite any references or sources. ... In the common law, a will or testament is a document by which a person (the testator) regulates the rights of others over his property or family after death. ... The law of trusts and estates is generally considered the body of law which governs the management of personal affairs and the disposition of property of an individual in anticipation and the event of such persons incapacity or death, also known as the law of successions in civil law. ... The term criminal law, sometimes called penal law, refers to any of various bodies of rules in different jurisdictions whose common characteristic is the potential for unique and often severe impositions as punishment for failure to comply. ... The law of evidence governs the use of testimony (e. ... Breach of contract is a legal concept in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other partys performance. ...

Development of Efficient Breach Theory

According to Black's Law Dictionary, efficient breach theory is "the view that a party should be allowed to breach a contract and pay damages, if doing so would be more economically efficient than performing under the contract."

The first statement of the theory of efficient breach appears to have been made in a law review article by Robert Birmingham in "Breach of Contract, Damage Measures, and Economic Efficiency, 24 Rutgers L.Rev. 273, 284 (1970) (“Repudiation of obligations should be encouraged where the promisor is able to profit from his default after placing his promisee in as good a position as he would have occupied had performance been rendered”). The theory was named by Charles Goetz and Robert Scott, Liquidated Damages, Penalties, and the Just Compensation Principle: A Theory of Efficient Breach, 77 Colum.L.Rev. 554 (1977).

Efficient Breach Theory is associated with Richard Posner and the Law and Economics school of thought. It has been used to defend the traditional common law rule that a non-tortious breach of contract cannot be remedied by punitive damages and penal damages (unreasonably excessive liquidated damages that are seen as a punishment for breach rather than a remedy). Such penalties would discourage efficient breach (therefore discouraging efficient behavior) and possibly put companies at increased risk of bankruptcy, which would be very bad for society. Posner explains his views in his majority opinion in Lake River Corp. v. Carborundum Co., 769 F.2d 1284 (7th Cir. 1985). Richard Allen Posner (born January 11, 1939, in New York City) is currently a judge on the United States Court of Appeals for the Seventh Circuit. ... Law and economics, or economic analysis of law is an approach to legal theory that applies methods of economics to law. ... This article concerns the common-law legal system, as contrasted with the civil law legal system; for other meanings of the term, within the field of law, see common law (disambiguation). ... Not to be confused with torte, an iced cake. ... In English and American jurisprudence, there is a legal maxim that That is, the law will provide appropriate remedies to protect the right. ... Punitive damages are damages awarded to a successful plaintiff in a civil action, over and above the amount of compensatory damages, to: punish the conduct of the civil defendant; deter the civil defendant from committing the invidious act again; and deter others from doing the same thing. ... Penal damages are best seen as quantitatively excessive liquidated damages and are invalid under the common law. ... Liquidated damages is a term used in the law of contracts to describe a contractual term which establishes damages to be paid to one party if the other party should breach the contract. ...

Posner's Illustration of Efficient Breach

Judge Richard Posner gave this well-known illustration of efficient breach in "Economic Analysis of Law":

Suppose I sign a contract to deliver 100,000 custom-ground widgets at $.10 apiece to A, for use in his boiler factory. After I have delivered 10,000, B comes to me, explains that he desperately needs 25,000 custom-ground widgets at once since otherwise he will be forced to close his pianola factory at great cost, and offers me $.15 apiece for 25,000 widgets. I sell him the widgets and as a result do not complete timely delivery to A, who sustains $1000 in damages from my breach. Having obtained an additional profit of $1250 on the sale to B, I am better off even after reimbursing A for his loss. Society is also better off. Since B was willing to pay me $.15 per widget, it must mean that each widget was worth at least $.15 to him. But it was worth only $.14 to A -- $.10, what he paid, plus $.04 ($1000 divided by 25,000), his expected profit. Thus the breach resulted in a transfer of the 26,000 widgets from a lower valued to a higher valued use.

Criticism of Efficient Breach

Some have argued that morally, A is obligated to honor a contract made with B because A has made a promise. (See, for example, Charles Fried's "Contract as Promise.")(“The moralist of duty thus posits a general obligation to keep promises, of which the obligation of contract will only be a special case – that special case in which certain promises have attained legal as well as moral force.”) Charles Fried is a prominent conservative American jurist and lawyer. ...