Performance, Punishment and the Nature of Contractual Obligation

Abstract

According to the theory of efficient breach, the reason the common law does not order specific performance presumptively for breach of contract,' nor punish deliberate breach,2 is that sometimes it is economically efficient for contracts to be broken.3 By limiting itself to awarding damages, the law allows indeed encourages contracting parties to breach whenever the cost of performance is greater than the value of performance. The theory of efficient breach has been subject to a variety of criticisms. Some critics, including some economists, argue that the rules regarding specific performance and punishing breach are not in fact efficient.4 Other critics argue that the notion of efficient breach is inconsistent with other features of the law, such as the awarding of nominal damages, the tort of inducing breach of contract or an executor's duty to perform contracts made by the deceased.5 Yet other critics emphasise the inconsistency between the theory of efficient breach and judicial statements about the 'wrongfulness' of breach or judicial statements to the effect that 'the purpose of a contract is performance and