Intentional breach of contract

Under US law, the courts as a general matter (outside of special contexts like insurance) refuse to penalize intentional breaches of contract. If the damages resulting from the breach are outweighed by the loss caused by compliance with the contract, the courts will usually not punish the breaching party merely because of that party's intention to breach. "The traditional goal of contract remedies is compensation of the promisee for the loss resulting from the breach, not compulsion of the promisor to perform his promises. Therefore, ‘willful’ breaches have not been distinguished from other breaches …." Freeman & Mills, Inc. v. Belcher Oil Co. (Cal. S. Ct. 1995). The concept of "efficient breach" under US law is based on "the understanding that people will sometimes intentionally break their contracts for no other reason than that it benefits them financially." Sierra v. Lockerby (9th Cir. 2008).

I have three questions I'd like to pose with respect to the "efficient breach" concept:

1) What is the law in other jurisdictions? Are there contract regimes that inject moralism into contractual obligations or otherwise punish willful breach of contract?

2) Counsel are frequently called upon to provide guidance on whether a certain proposed course of action would constitute a breach of contract and to assess the consequences of breach. Does counsel have a duty to recommend intentional breach, in furtherance of counsel's fiduciary duty to her client, if losses avoidable from compliance (or benefits attainable due to breach) clearly outweigh the damages payable to the opposite contractual party resulting from breach? Could there be situations in which counsel would be ethically required to advocate for intentional breach? It seems counter-intuitive for us to advocate for breach.

3) Relatedly, if applicable law does not punish intentional breach, doesn't counsel have a duty to maximize legal protection for a client that may in fact need to intentionally breach in the future? Should counsel actively work to draft and negotiate contracts that preserve the ability to intentionally breach? For example, in limitation of liability clauses, like the kind below, it's not uncommon to include an exception to the operation of the cap in cases of "gross negligence, recklessness or intentional misconduct", or "willful or grossly negligent acts". If counsel is representing a client whose position is such that a limitation of liability clause matters more to the client than to the opposite party (such as a customer whose only obligation is to pay), is there a way to modify the language to preserve capped liability for intentional breach but retain uncapped liability for otherwise wrongful or tortious conduct (in order to satisfy the opposite party's insistence on uncapped liability for "wrongful" conduct)? The issue can get tricky if the adverse party hails from a jurisdiction that punishes willful breach.

What are some drafting/negotiating strategies counsel can use to ensure that counsel's client is not subject to unlimited liability, and liability for consequential damages, even in the event of intentional breach?


Except for claims arising from Vendor's gross negligence, recklessness, or intentional misconduct: (a) Vendor's maximum aggregate liability for all claims, liabilities or obligations arising under or relating to this Agreement, regardless of the theory of liability, whether for breach of this Agreement, including breach of warranty, or in tort or otherwise, will in no event exceed all amounts paid by Customer to Vendor under this Agreement; and (b) in no event will Vendor be liable for any indirect, punitive, special, incidental or consequential damages in connection with, related to or arising out of this Agreement.

[excerpted from]


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