How Far the Theory of Efficient Breach Could Reach
PhD student: Ms W. Liao
Promotors: Prof M.G. Faure, Dr N.J. Philipsen
Duration: 1/9/2011 - 31/8/2015
PhD defence: 23/9/2015
The key point of the efficient breach theory is not how to cognize an efficient breach, but to realize that not all promise should be kept,esp. when the plaintiff has been fully compensated. Actually, efficiency is balanced between monetary compensation and other values shared by the parties. It sounds plausible in theory, but I want to examine it in some practical rules. if so, I will further figure out the applicable scope of this theory by establishing several hypotheses. In my research, both of the positive conditions and negative conditions that may affect the applicability of monetary remedy will be discussed, set in a context of other substitutive remedies. Finally, the theorem of efficient breach will be analysed under the ground of civil-law system in order to learn what the theory could provide for those countries. I. Research Background, Theoretical Review and the Basic Questions The contract liability, one of the most controversial issues of contract law between the two legal systems, has an intimate relationship with the theory of efficient breach in Anglo-American law. Scholars of Law and economics, like Richard Allen Posner, Melvin A.Eisenberg, and Ruth Colker, advocated this theorem, with a hypothesis that all the traders are rational-economic men. So it seems justifiable that the party prefers to breach for being better off, while his expected benefit is comparatively marginal. This theory was supported in American courts to distribute liability of default, accompanied by an elaborated system of common law remedy of expectation damages. As it\'s said, the remedy from the default party entitles the aggrieved party to a certain amount of money, through which he gets what he may obtain from the performance of contract. Then efficient breach functions as \"costless breach\" or \"valid contract breaking\", as well. In this case, every breach is efficient so long as the breach party prepares to pay the plaintiff enough money. The real question here is that how much money is enough as it\'s called. Supported by this, breach or not has nothing to do with morality. However, controversy has never stopped since the theory was raised and this theory was rarely accepted by the civil law system countries. Especially, as economic depressions swept across the globe, some developed countries witnessed a fragmentary market and a huge decline in customer trust. Jurists from all around world attempt to rethink the role of law to re-establish market confidence and also present several sensitive issues around credit, profits, morality and law. For this question, my research won\'t adopt any extreme way to abolish the doctrine of efficient breach or to exaggerate it. Actually, questions related to efficient breach theory are complicated, more than legal or economical ones. On one hand, contractual parties are wheeler-dealers and would choose activities of great benefits by nature. In this sense, defaults are unavoidable and understandable. On the other hand, freedom need to be restricted to set rules for the market, and only by which, transactions may go smoothly. So a more practical solution is to set some boundaries for it. For that purpose, I want to discuss to what extent this theory can be applied and how to overcome the setbacks of it. The whole research will be conducted in three levels, coupled with a group of detailed questions. In accordance with normal logic, we must cognize the efficient breach before further discussing it. So the first level of my research will explain the efficiency in the current common law system of contract compensation, together with some basic concepts around breach and performance. For the second, I would like to establish my hypothesis that the compensation of expected loss is replaceable, which may be tested by a mixed-methodology. Here the real practical rules will also be examined to reveal how the principle is executed nowadays and what the limitation it may encounter. Based on the previous two parts, the positive and negative requirements of the application of efficient breach will be concluded, which will lead to another valuable issue. That is, the feasibility of efficient theory in the civil-law traditional countries, whose own contract systems go on wheels without this theory.