THE LICENSING CORNER

Sean Hogle
Rooney Nimmo PC

IMAGINING A WORLD WHERE BREACH OF CONTRACT IS AN AMORAL ACT

The basic assumption of our daily work as lawyers is that as a general proposition, people will follow the terms of an agreement, and that compliance is the default mode of operation. A widespread normative aversion to intentionally breaking contracts is a fundamental societal assumption. This assumption informs our work as lawyers in negotiating and drafting agreements. But what if this was not a valid assumption? What if we lived in a world where contract compliance was a simple matter of dollars and cents?

Efficient breach theory states that an economically rational actor will comply with or perform a contract only if the costs of breach exceed the costs or gains of compliance. If a party can calculate with reasonable certainty the losses arising from breach, including compensation for damages to the counterparty that may be payable under the terms of the contract, and weigh that against a measurable gain that exceeds those predicted losses, the breach-efficiency advocates would say that breach in this situation is socially beneficial.