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Concept
Efficient breach
Summary
In legal theory, particularly in law and economics, efficient breach is a voluntary breach of contract and payment of damages by a party who concludes that they would incur greater economic loss by performing under the contract.
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 is inefficient.
Judicial laws that govern contractual agreements and the damages to be incurred upon the breach of an agreement have existed since the 15th century. The motivating factor for establishing the standards of efficient breach was to ensure that the agreement fell under the enforceable fixing of the damages by the execution. this, therefore, stated that there should be a prior forecast or prediction of the provable injury resulting to the breach, otherwise, the breach will be unenforceable and then and breaching party will be limited to unconventional damage measures liquidated. The common law courts then continued to revisit the provisions of liquidated damage provision from the "breacher" compensating for injury and losses only, to a consideration of cost and damages incurred during the process of breaching the contract, as well as the benefits that breaching the contract may have already experienced from the contract. As such, the non-breacher of the contract is in the same position as if the contract had undertaken its full performance, thus, establishing and maintaining efficiency value of the rule
The first statement of the theory of efficient breach appears to have been made in 1970 in a law review article by Robert L.
Official source
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