A Breach Born Every Minute

Dave Hoffman

Dave Hoffman is the Murray Shusterman Professor of Transactional and Business Law at Temple Law School. He specializes in law and psychology, contracts, and quantitative analysis of civil procedure. He currently teaches contracts, civil procedure, corporations, and law and economics.

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7 Responses

  1. Jeff Gamso says:

    I’m a criminal defense lawyer. I don’t pretend to understand contract law. But when I was in law school (a couple of decades ago), most if not all of the students in the contracts class were deeply upset at the thought that a breach of contract was considered just fine and by the notion that the victim of the breach could be obligated to mitigate damages.

    It seemed to me (us?) then and to me now (I have virtually no contact with any of my law school classmates) that the basic claim – promises can be broken at will – is fundamentally at odds with one of the key lessons we were taught as children.

    “A man’s word is his bond.”

    “Let’s shake on that.”

    “I give you my word.”

    None of that jibes with, “If I decide to welch on the deal, you’re obligated to make sure it doesn’t cost me much.”

    There was never a chance I would have gone into any sort of law routinely involving contracts, but if there had been, that principle would have turned me off on it.

  2. Yeah, that’s my hypothesis, too: Most people view contracts as promises, and people as having a moral obligation to honor their promises. And it’s as simple as that.

  3. Dave Hoffman says:

    Brett & Jeff,

    Yes, I agree that most people view contracts as promises attended by a moral obligation. But the puzzle is that you can manipulate the degree of obligation by, for instance, having the breachor seek to avoid loss, or by inserting a liquidated damages clause in the contract. The point of the paper is to show why such manipulations work — i.e., what are the psychological roots (and constraints) on the “don’t breach” norm.

  4. ohwilleke says:

    There are many “no harm” breaches of contracts — for example — a due on sale clause when the proposed buyer is more creditworthy than the proposed seller, or a non-monetary default on a promissory note that is current on payments and the debtor is still able to pay as agreed.

  5. I apologize for commenting before reading the paper, which I certainly plan on doing. This is a fascinating inquiry. Dave, what about deposits? Do people think that putting down a deposit and then abandoning it is as immoral as breaching a contract with no deposit? My first example would be the law school applicant who puts down multiple deposits — admissions office figure in to their calculus that a certain number of admittees who make deposits won’t show. Or deposits for apartments by apartment seekers? Or earnest money in hot markets where homebuyers put contracts on houses before they can see them? Do we think of these more like options even though they are actually contracts? Isn’t every contract an option under the efficient breach theory? Some random thoughts before I read your article and am limited by actual knowledge!

  6. Dave Hoffman says:

    It’s a great question and a good area for investigation. I think that deposits are thought of (in lay terms) like liquidated damages clauses. People see the “contract” as pay or play – that’s the beauty of the LD clause, as it turns the moral obligation to perform into a Holmesian deal. But it’s just an intuition. We could test it!

  7. Great opinion all i read, For my opinion The main different between Contract and Promissory is Contract both of them might be change some details or whatever anytime they need both, but the Promissory it s seemed like rather hard to change if the reason is still not much important.