Abstract

http://ssrn.com/abstract=1617154
 
 

References (87)



 
 

Citations (1)



 


 



Material Breach of Contract and Rejection with Imperfect Expectation Damages


Bernhard Ganglmair


University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics

September 2, 2011


Abstract:     
An extensive theoretical literature on the efficiency properties of breach remedies, in particular, expectation damages, assumes that these remedies are perfect and exclusive. However, it has been widely accepted that in practice expectation damages are under-compensatory, and victims of breach are often given the choice between different breach remedies. In this article, I study a seller's incentive to breach a contract when expectation damages are under-compensatory, i.e., imperfect, and the buyer can reject a defective delivery by the seller. I argue that the buyer's right of rejection, elsewhere critized for giving rise to opportunistic behavior, corrects for a distortive effect of under-compensatory expectation damages. Moreover, I show that restricting the buyer's right of rejection to sufficiently defective deliveries is necessary for welfare maximization as long as the buyer is allowed to collect damages for rejected deliveries.

Number of Pages in PDF File: 36

Keywords: efficient breach of contract, expectation damages, material breach, rejection, restitution damages, substantial impairment, under-compensation

JEL Classification: D23, D86, K12

working papers series


Download This Paper

Date posted: May 29, 2010 ; Last revised: September 5, 2011

Suggested Citation

Ganglmair, Bernhard, Material Breach of Contract and Rejection with Imperfect Expectation Damages (September 2, 2011). Available at SSRN: http://ssrn.com/abstract=1617154 or http://dx.doi.org/10.2139/ssrn.1617154

Contact Information

Bernhard Ganglmair (Contact Author)
University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics ( email )
800 W Campbell Rd (SM31)
Richardson, TX 75080
United States
HOME PAGE: http://www.utdallas.edu/~ganglmair
Feedback to SSRN


Paper statistics
Abstract Views: 720
Downloads: 88
Download Rank: 164,769
References:  87
Citations:  1

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo4 in 0.344 seconds