Virtue Ethics and Efficient Breach

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contracts scholars have been arguing over the concept of "efficient breach" for over thirty years. The issues at stake in this argument are well known, yet the debate fails to subside. Supporters of efficient breach contend that allowing a promisor to escape the obligation to perform by paying a money substitute both increases the potential gain from contractual exchange, and corresponds to the arrangement that most contracting parties would have wanted. (1) Critics of the concept respond that allowing promisors to avoid performance without securing the promisee's formal ex post consent works an injustice in the individual case, and undermines the social practice of contracting more generally. (2)

These arguments are thoroughly familiar to anyone who teaches and writes about basic contract law, because they have been rehearsed again and again in the literature. (3) Indeed, the debate has proliferated in recent years. (4) Why do the leading writers in the discipline continue to revisit a debate in which the main positions have long been staked out? one possibility might be that they are contending for the hearts and minds of their students, who, each year, encounter the concept anew as they are introduced to the basic normative underpinnings of contract law. on this explanation, efficient breach remains a contested issue in contracts for the same reason that the fault principle remains a contested issue in torts; it is a locus for conflict between values that are inherently in tension, yet both deeply rooted in our political and moral culture, so that the issue will never go away. An alternate possibility, however, which I explore in this essay, is that the debate remains active because there are important normative concerns that have still not been adequately clarified by efficient breach's critics or addressed by its defenders.

The purpose of this essay is to suggest that the debate over efficient breach has focused on deontological concerns (specifically, whether contract breach is equivalent to promise-breaking, and whether promise-breaking in the contractual context is necessarily wrong) to the exclusion of aretaic ones (specifically, that failing to follow through on a contractual relationship is not conducive to virtuous character or to the maintenance of a flourishing community). It argues that the standard deontological objections to efficient breach do not substantially undermine its basic analysis, because they can generally be addressed by reinterpreting or revising the underlying contract so that paying a money substitute in lieu of specific performance is explicitly authorized. on such a reinterpretation, paying money when performance becomes inconvenient is neither a breach nor a wrong; it is just an alternate way of discharging one's contractual duties. (5) In this way, "efficient breach" (perhaps relabeled "efficient performance" or "efficient cancellation option" in the interest of more favorable marketing (6)) can easily be squared with deontological ethics.

The essay also suggests that the intuitive resistance that many people experience to the concept of efficient breach may be better explained by aretaic concerns--that is, by virtue ethics. The aretaic objection, unlike the deontological objection, cannot be disposed of by reinterpreting the promise so that paying money counts as performance rather than breach, because it is not fundamentally based on the morality of keeping promises. Rather, it is based on the morality of making promises in the first place. on this objection, a promise that can be satisfied with a cash substitute is a cheap and superficial one, and not the kind that we should valorize.

While the concept of efficient breach can be squared with deontological ethics, accordingly, it cannot be squared with virtue ethics unless one is prepared to argue that seeking efficiency is a virtue, or at least that it is not a vice. The balance of this essay elaborates on these various claims. …