The Efficiency of a Disgorgement as a Remedy for Breach of Contract

Economic analysis suggests that to give a contract promise a general remedy that would require a breaching promisor to disgorge any benefit of breach would hinder the efficient post-contractual reallocation of performance resources. This article explores certain situations in which disgorgement appears to be an efficient remedy for breach of contract, including cases in which the breaching party refuses to pay contract damages at the time of breach. A rule permitting promisees to recover as prejudgment interest the breacher\u27s benefit from withholding payment of damages would, in theory, be efficient in allocating the risk of the breacher\u27s credit worthiness to the best risk bearer. Colorado has implemented this remedy, but has, over time, extended it to require the defendant to disgorge the benefits of breach instead of the benefits of withholding damages. This extension appears to be unwarranted. Moreover, serious practical and theoretical difficulties in defining and measuring the benefits of either breaching or withholding damages cast doubt on the utility of the disgorgement remedy