Development of The 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 means to fairly compensate the other party). Such penalties would discourage efficient breach, and therefore "efficient" behavior, which would be undesirable for society as a whole. Posner explains his views in his majority opinion in Lake River Corp. v. Carborundum Co., 769 F.2d 1284 (7th Cir. 1985).
Read more about this topic: Efficient Breach
Famous quotes containing the words development of, development and/or theory:
“John B. Watson, the most influential child-rearing expert [of the 1920s], warned that doting mothers could retard the development of children,... Demonstrations of affection were therefore limited. “If you must, kiss them once on the forehead when they say goodnight. Shake hands with them in the morning.””
—Sylvia Ann Hewitt (20th century)
“The man, or the boy, in his development is psychologically deterred from incorporating serving characteristics by an easily observable fact: there are already people around who are clearly meant to serve and they are girls and women. To perform the activities these people are doing is to risk being, and being thought of, and thinking of oneself, as a woman. This has been made a terrifying prospect and has been made to constitute a major threat to masculine identity.”
—Jean Baker Miller (20th century)
“We have our little theory on all human and divine things. Poetry, the workings of genius itself, which, in all times, with one or another meaning, has been called Inspiration, and held to be mysterious and inscrutable, is no longer without its scientific exposition. The building of the lofty rhyme is like any other masonry or bricklaying: we have theories of its rise, height, decline and fall—which latter, it would seem, is now near, among all people.”
—Thomas Carlyle (1795–1881)