Theory of Efficient Breach of Contract
Subject Areas : Civil jurisprudence, private law
Keywords: contract, efficient breach, termination of contract, economic efficiency, compensation for the damages.,
Abstract :
Abstract: Breach of contract is economically efficient only when the cost of contract enforcement for the obligor surpasses the resulting benefits, thus the obligor accepts payment to the obligee for the damages, placing him at a position of contract in force to avoid further damages to himself. The preconditions for efficiency in breach of contract requires the sum of damages be less than the real imposed damages and in financial assessment of the damage the personal value of the contract is not calculated in favor of the creditor, sufficing to a criterion only. Some legal criticisms are: neglecting ethical values, reducing planning capacity, elimination of profit for the seller of precious goods, and contradiction with the principle of freedom. The legal and economic definition of efficient breach of contract, reviewing pertinent criticisms and a comparative study with the Western legal system are among the major achievements of this paper. Apparently, despite all problems Iran’s legal system has to challenge with to have the theory accepted, thanks to its many advantages efforts should be maintained to pave the ground for translation of this theory into action in Iran. Some solutions to that end, are the following: reinforcing legal system in full compensation for the damages, admitting Pareto efficiency rule, giving priority to social benefits over individual gains, including some economically efficient concepts as prerequisites for realization of economic justice, admitting the theory in view of ethical values, proving its lack of contradiction with specific performance of the contract.
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