The Efficient Breach Theory: The False Assumptions and Reasons

Abstract

There are two main criteria by which the efficient breach theory needs to be evaluated. The first is whether the assumptions of the theory are actually correct. The second is whether, if they are, the theory can be embodied in (or adopted by) common law. If both answers are affirmative, then the theory may be said to be valid. To begin with, there are two crucial assumptions upon which the EBT rests: (i) that at the moment when the seller decides whether to perform or to breach, he or she knows the value placed upon the promised performance by the buyer; and (ii) that a regime of routine specific performance leads to inefficient results. It will be demonstrated that these two assumptions are dubious. Further to this, it will be argued that there are at least four additional reasons why the efficient breach theory should not be embodied in contract law.

Keywords: Crucial assumptions, Specific performance, Evaluated