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Foundational Principles of Contract Law$
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Melvin A. Eisenberg

Print publication date: 2018

Print ISBN-13: 9780199731404

Published to Oxford Scholarship Online: October 2018

DOI: 10.1093/oso/9780199731404.001.0001

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The Theory of Efficient Breach

The Theory of Efficient Breach

Chapter:
(p.51) Six The Theory of Efficient Breach
Source:
Foundational Principles of Contract Law
Author(s):

Melvin A. Eisenberg

Publisher:
Oxford University Press
DOI:10.1093/oso/9780199731404.003.0006

Chapter 6 concerns the theory of efficient breach. This theory claims that breach of contract is efficient, and therefore desirable, if the promisor’s gain from breach after payment of the promisee’s expectation damages will exceed the promisee’s loss after recovering expectation damages. The theory rests on two factual predicates: that the expectation measure makes a promisee indifferent between performance and breach and that the promisor knows the value that the promisee places on the promisor’s performance and therefore can make the calculation the theory requires. Both predicates are incorrect. The predicate that expectation damages makes a victim of breach indifferent between performance and breach is incorrect because the expectation measure systematically fails to achieve that objective. The predicate that a promisor knows the value that the promise puts on the promisor’s performance is incorrect because rarely if ever will a promisee quantify for a promisor the gain he expects to make from a contract.

Keywords:   efficient breach, gain from breach, performance, damages, promisor, promisee

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