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The main theoretical foundations behind efficient default include transaction cost theory and incentive theory.

Regarding the first the costs of the economic transaction are analyzed to then reach the decision to violate a contract when the costs associated with compliance exceed the expected benefits. In the second theory it is understood that the parties to a contract are motivated by economic incentives and in certain cases the maximization of these incentives can lead to an efficient default decision.

Basically just as in the case of their interests carefully considering the costs and benefits associated with their choice. In the case of the film — and in real life — the strategy was successful and led Phone Number Data not only Nike but Michael Jordan himself to absolute success.

However it is important to highlight that efficient default is not universally accepted and is often the subject of legal debates as the importance of maintaining the integrity and trust of contractual relationships must be taken into account.

After all can a party deliberately breach the contract by paying a fine? Or would it not be an option for the creditor to choose between paying the fine and the installment since the fine could be qualified as insufficient to compensate for the default?

In the Brazilian legal system we have two fundamental principles that must be considered when analyzing a breach of contract: good faith and the social function of the contract. Good faith permeates the duty of the parties to cooperate for the good execution of the contract and the social function goes further implying the importance that contracts not only serve the private interests of the parties involved but also contribute to social well-being and meet certain fundamental values ​​of society.

Therefore the rule in Brazil is that disoriented non-compliance with obligations at any cost cannot be accepted. This is because the unbridled permission to breach contracts simply by paying fines ends up weakening signed contracts generating negative effects on the market precisely by removing the security that should be guaranteed from commercial relationships. Furthermore it can generate abusive financial consequences for the party that suffers from non-performance and a breach of established contractual trust.



On the other hand there are legitimate and valid means adhering to good faith to allow a choice to fulfill the obligation or pay its equivalent. A classic example widely used in commercial contracts are “ take or pay ” clauses . These clauses establish that one party usually the buyer has the obligation to accept and pay for a minimum quantity of goods or services regardless of their actual need or intention to consume that entire quantity. In other words he receives an advantage at the start due to the minimum consumption commitment assumed and is obliged to carry it out or pay the equivalent. If you do not need it or do not remove the product in both cases the obligation will be fulfilled.

This is an example of good faith in which the parties assess their risk and establish real contractual planning allowing the choice between consuming the good or paying the equivalent.

Therefore although there are success stories — applauded in Hollywood — such as the case of Nike efficient failure cannot be considered a strategy for every circumstance. Therefore it is necessary for parties to carefully assess the risks and consider the significant implications this approach may have on their contractual relationships and the market in general. And for contractors it is essential to establish fines that encourage compliance with obligations which is expected in a good faith relationship.
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