Morality, Compensation, and the Contractual Obligation

This article presents empirical estimates that two thirds of the people perceive breach of contract followed by compensation for the promisee as not immoral. In the absence of compensation, it reveals that most individuals perceive the moral value of breach depending on the consequences thereof, with the unfairness of the outcome – and not the inefficiency – as the main factor. Contract law reflects interpersonal morality and allows courts to rescind the contract on grounds of impossibility or impracticability 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 requires performance by the promisor, but rather aims at compensating the victim, thereby reflecting how most individuals perceive breach followed by compensation, from a normative standpoint: as not morally wrong