The Theory of Efficient Breach

The Theory of Efficient Breach suggests that if a party can breach a contract more cheaply than they would fulfill its terms, and the breach benefits both parties overall, then it might be better to breach legally and compensate the other party for their losses. Essentially, when breaching is economically efficient—saving costs and producing net gain—it can be considered acceptable, as long as the breaching party compensates the non-breaching party fairly. This theory emphasizes the role of economic efficiency and compensation over strict adherence to contractual obligations alone.