Morality, Compensation, and the Contractual Obligation

This article presents empirical estimates suggesting that most people do not perceive breach of contract followed by compensation for the promisee as immoral. In the absence of compensation, the article reveals that individuals commonly perceive the moral value of breach depending on the consequences thereof, with the unfairness of the outcome—and not the inefficiency—as the preponderant factor. Contract law reflects observed interpersonal morality and allows courts to rescind the contract on grounds of impossibility, impracticability, or frustration if the breach is fair and the promisor avoids exceptionally high losses, but not if the breach is unfair and the promisor breaches to profit from a substitutive transaction. The law, moreover, does not punish breach, nor inevitably require performance by the promisor, but instead aims at compensating the victim, thereby reflecting how most individuals perceive breach followed by compensation, from a normative standpoint: as not morally wrong.