Title: The Anatomy of Contract Damages and Efficient Breach Theory
Abstract: This article simplifies the confusing array of modern contract damage rules and provides an analytic structure for evaluating whether breach is profitable and efficient in complicated cases. The single proposed rule replaces the multiplicity of rules designed for different factual contexts that are followed by courts and perpetuated by the Uniform Commercial Code (UCC). The proposed approach to contract damages reflects the traditional underlying policy of common law and statutory contract damage rules, which is to place the injured party in as satisfactory a position as if the breaching party had performed. The rules governing the calculation of contract damages presented in this article avoid historical characterization of the involved in different damage measures. The expectation, reliance, and restitution interests underlying the traditional conceptualization of contract damages add only confusion to understanding the relevant rules. The model developed in this article only implicitly recognizes the interests involved. It focuses instead on the substance of what the law accomplishes. While this article's approach to contract damages greatly simplifies the understanding and calculation of damages, it also makes possible analysis of the incentives created by contract damage rules in complex cases. The article explores the remarkably close relationship between the structure of contract damage rules, the conditions for when breach is profitable, and the conditions for when breach is desirable. By way of a mathematical model, the article demonstrates that contract damage rules always yield incentives promoting breach only when breach is efficient. It substitutes a surplus-based conceptualization of contract damage law for the interest-based analysis that dominates the modern theory of contract damages.
Publication Year: 2006
Publication Date: 2006-05-01
Language: en
Type: article
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Cited By Count: 2
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