Defect Analysis Of The Efficiency Of Breach Of Contract Theory

Efficient breach is a kind of breach, which makes the breachingparty so much better off that he could compensate the nonbreaching partyfor her losses and still come out ahead or lightens his losses. The theoryof efficient breach claims that the law should encourage the breach whenit is efficient and that the exclusive remedy for breach is limited damages.Nowadays, some scholars in China agree to this opinion and try tointroduce it into our Contract Law. However, the theory of efficientbreach is defect. At first, its theoretical basis is weak. Holmes' unilateralchoice, the reasonable allocation of commercial risks, the compactconnection between contract law and morality and Posner's moralitypursuit shows that breach is not neutral .The inconsistency of scholarsstanding for this theory during different periods and abroad application ofpunitive damages make this theory unsatisfied. Secondly, this theory isadverse in practice. On one hand, compared with special performance,damages neither cut down costs nor increase efficiency. And it places apremium on opportunistic breach. Thereby, the remedy is inefficient. Onthe other hand, the remedy is unequal because it deprives claimant of therational right to choose, aggravates the burden of proof anduncompensated losses. And it makes sequential economicactivityimpossible because it endangers reliance.Moreover, courts may bereluctant to accept the theory because it assumes that people are rationaland efficient actors. People are not always rational because they mayconsider many aspects, other than economic reasonableness, whenmaking their decisions. Judges may be affected by their moral beliefswithal. Therefore, the theory of efficient breach appears destined toremain an analytical exercise of legal theory rather than a judiciallyadopted fact. Accordingly, the theory of efficient breach cannot transformthe status quo that judges fail to apply it in any cases in its homeland orenter into our Contract Law.