What does Efficient Breach mean?
An efficient breach is when one intentionally breaches a contract by paying out, mainly because the monetary compensation is much more affordable, convenient, or logical than fulfilling what the contract outlined in the first place. Efficient breaches are designed to minimize any sort of potential damages, mainly due to the fact that it is much more efficient for the breaching party to leave the contract with a monetary pay out amount rather than performing their end of the written deal. Most times, the party's breach of contract would be more profitable than it would be to complete the contract.
Example of Efficient Breach
Jane signed a contract with her job to work there for five years. The contract stated that she can leave her job after the five years has been completed, or she can renew her contract and possibly get a monetary raise. However, if she were to quit her job before the five years was up, she would have to pay the company $2,000 to end her contract. Three years into her employment, Jane became engaged to a gentleman who lived out of the country. Paying for flights and travel expenses to visit her fiance on her days off was becoming increasingly expensive for Jane. So, Jane decided it would be more cost effective for her to do an efficient breach of her contract by quitting her job and moving to her fiance's residing country. For Jane, the payout amount to get out of her contract would be much less money than it would be for her to continue to pay for expensive plane tickets and other expenses to visit her fiance. She approached the CEO of her company, letting him know that she was to quit her job and move out of the country. Her boss understood, and she paid the $2,000 to breach her contract.
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