ABSTRACT
The victim of a breach of contract can either sue or exercise self-help by withholding performance. However, the material breach doctrine perversely limits the self-help option in precisely those cases where the litigation response is likely to be unavailing. The result is a situation where contracts are likely to be systematically underenforced. This might be acceptable if the material breach doctrine rested on some firm alternative normative foundation, but this doesn’t seem to be the case. Parties to a mutually executory contract find themselves in a classic prisoners’ dilemma. Each has an incentive to accept the benefit of their counterparty’s performance while breaching. Contract enforcement can solve this problem in situations where litigation justifies its costs. Game theorists, however, have long recognized that in the absence of third-party enforcement, the problem can be solved by a tit-for-tat strategy of retaliation where parties are locked into repeated rounds of prisoners’ dilemma ‘games’. Under the rule of proportional breach proposed in this essay, every breach of contract would allow the victim of breach to withhold some portion of their performance. Doctrinally, the move from a rule of material breach to a rule of proportional breach would mirror the shift in tort law from contributory negligence, which like material breach had an all-or-nothing effect on legal rights, to comparative fault, in which each party’s rights are calibrated to the other party’s breach. Like the shift from contributory negligence to comparative fault, hybrid rules are also possible in which proportional breach could be combined with material breach to allow parties to completely abandon performance in the face of substantial misbehavior.
Oman, Nathan B, A Defense of Proportional Breach of Contract (June 30, 2026), William & Mary Law School Research Paper Forthcoming.
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