Descriptive Comparative Analysis of the Doctrine of Efficient Breach from Law and Economic Perspectives

Nowadays, every business transaction and many other activities in this world are used to create a credible contract to secure their legal rights and obligations. Even though a contract is well-established, sometimes there is a condition which makes the contract undesirable anymore, such as increasing in price material, changes in environment regulation or a better offer from other company. Therefore, conducting efficient breach is one of the solutions to obtain a higher surplus or even to prevent from a further loss. To perform efficient breach, the breaching party may breach the original contract only if the victim of the breach receive full compensation, thus there is no party which become worse off. Besides, the other reason by paying full compensation to the victim of the breach is to gain efficiency which is introduced by Richard Coase. Efficient breach is one of the legal doctrines in contract law and closely related with economic. However, the doctrine of efficient breach has created controversy, because there are many criticism regarding morality and inefficiency relatives to not breaching the contract. Therefore, this research will be conducted to observe and analyse the differences of efficient breach from law and economic perspective and the impact of efficient breach to the breaching party and the victim of the breach as a result of efficient breach. Besides, this research also examines the impact of bargaining power during the application of efficient breach