Talk:Efficient breach

This article doesn't belong in a law section. It deals with an economic concept which, in the article, is admittedly not applicable to a case at law. Take it out of the Common Law series. -CN

I changed the scenario a great deal. It was previously written that the promisee would collect $1000 for the value of the bricks. That's wrong. I can't tell if the previous author meant the promisee gets back the $1000 he already paid, or if he gets $1000 extra. Either way, of course, is wrong.

Getting back money you've already given is the restitution interest, where in this case we can expect the promisee to seek the expectation interest (to be put in as good a position as if there was no breach).

Getting $1000 in free money doesn't work, either, for two reasons. 1 - you're not entitled to that much free money if there is a breach. It would be a double recovery (you keep what you intended to pay for the bricks, and you get the value of the bricks; in a sense, you would be getting the bricks twice, even though you never got any bricks). 2 - if the breaching party had to give up $1000, after receiving $1500 for the bricks, the breaching party would be $500 poorer than if the efficient breach never took place. Yet efficient breach really only makes sense if the breaching party is going to be richer (otherwise... why breach?)

I also cut the sentence about the morality-based criticism of efficient breach, as it is already reflected in the sentence about Fried's criticism.

I also edited the section with a quote from Posner; this quote was unsourced, most likely taken out of context, and does not reflect his views insofar as I understand them. Efficient breach is sometimes used as an argument against punitive damages for breach of contract. Posner discusses this in Lake River. Lake River Corp. v. Carborundum Co., 769 F.2d 1284 (7th Cir. 1985). From Randy Barnett's Contracts casebook, p. 159. Posner's fear is largely that companies could go bankrupt more often if threatened by large penalty clauses (and that this would be very bad for society, possibly trigger other bankruptcies, etc.).

Dherb 09:34, 30 September 2006 (UTC)

I disagree with two points made in this article.

First, the doctrine of efficient breach is not used, so far as I know, as a justification for refusing to award punitive damages in breach of contract cases. The primary justification is, instead, the quite simple fact that the purpose of breach of contract remedies is to put the non-breaching party in the position she would have been in had the breaching party not breached. Because an award of punitive damages would put the non-breaching party in a better position than if the breaching party had performed, punitives are unnecessary. (Of course, a similar argument could be made in favor of eschewing punitive damage awards in tort cases, but other policy reasons have persuaded that punitive damages serve useful purposes in such cases). Thus, it is true (but not much more than a truism) to say that the concept of efficient breach justifies a refusal to impose punitive damages, but only because an award of punitives in a case of a breach otherwise efficient would prove inefficient. Put another way, because (among other things) the law does not award punitive damages, it turns out that some breaches are efficient.

Second, the parenthetical that refers to "non-tortious breach[es] of contract" doesn't really make sense. The concepts of tort and contract are apples and oranges. There are no tortious breaches of contract; there are only breaches of contract. (In fact, one of the charms of a breach of contract, is that it can't be modified by any legally meaningful term).

Hi. You’re raised a question that should be discussed. You’re right that torts and contracts are different areas of the law. However, the law contains many hybrids – such as tortious interference with an existing contract, which is apparently what is referred to in the article. Since contracts isn’t really my area of practice, I can probably do no better in the way of explanation than to quote from a contract law tutorial[1] by Professor Craig A. Smith[2]:

Border Between Tort and Contract Damages

The general rule is that punitive damages (as opposed to compensatory damages) are not recoverable for breach of contract, even if the breach is willful. (See, UCC 1-106(1).) However, recent cases have tested the limits of this principle. In a cause involving tortious interference with an exisiting [sic] contract, the plaintiff may recover the full pecuniary loss of the benefits it would have been entitled to under the contract. The plaintiff is not limited to damages recoverable in a contract action, but instead is entitled to the damages allowable under the more liberal rules recognized in tort actions. (Rest.2d, Torts, § 774A.) In Texaco, Inc. v. Pennzoil, Co. , 729 S.W.2d 768 (Tex.App.1987) the jury was held to have properly based its damage award on the replacement cost model. The jury was correctly instructed that the measure of damages was the amount necessary to put Pennzoil in as good a position as it would have been in if its agreement with Getty had been performed. The punitive damage award, which amounted to 40% of actual damages, was ruled not excessive.

I hope this answers your question.--Tregonsee 14:58, 29 July 2006 (UTC)