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== Development of the theory == | == Development of the theory == | ||
The theory of efficient breach seeks to explain the [[common law]]'s preference for [[expectation damages]] for breach of contract, as distinguished from [[specific performance]], [[reliance damages]], or [[punitive damages]]. 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." Expectation damages, according to the theory, give parties an incentive to breach when and only when performance | The theory of efficient breach seeks to explain the [[common law]]'s preference for [[expectation damages]] for breach of contract, as distinguished from [[specific performance]], [[reliance damages]], or [[punitive damages]]. 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." Expectation damages, according to the theory, give parties an incentive to breach when and only when performance in inefficient. | ||
The first statement of the theory of efficient breach appears to have been made in 1970 in a [[law review]] article by Robert Birmingham in "Breach of Contract, Damage Measures, and Economic Efficiency".<ref>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.").</ref> The theory was named seven years later by Charles Goetz and Robert Scott.<ref>"Liquidated Damages, Penalties, and the Just Compensation Principle: A Theory of Efficient Breach", 77 Colum.L.Rev. 554 (1977).</ref> Efficient breach theory is commonly associated with [[Richard Posner]] and the [[Law and Economics]] school of thought. Posner explains his views in his majority opinion in ''[[Lake River Corp. v. Carborundum Co.]]'', 769 F.2d 1284 (7th Cir. 1985). | The first statement of the theory of efficient breach appears to have been made in 1970 in a [[law review]] article by Robert Birmingham in "Breach of Contract, Damage Measures, and Economic Efficiency".<ref>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.").</ref> The theory was named seven years later by Charles Goetz and Robert Scott.<ref>"Liquidated Damages, Penalties, and the Just Compensation Principle: A Theory of Efficient Breach", 77 Colum.L.Rev. 554 (1977).</ref> Efficient breach theory is commonly associated with [[Richard Posner]] and the [[Law and Economics]] school of thought. Posner explains his views in his majority opinion in ''[[Lake River Corp. v. Carborundum Co.]]'', 769 F.2d 1284 (7th Cir. 1985). |