Has a company ever blatantly breached a commercial agreement (say with another company) because the financial penalty for doing so was less than the financial gain for doing so?
Yes. A guy named Richard Posner has written a few words on the subject. He calls it “efficient breach”, and thinks that it is a good idea.
Every big company, in Amerca does it every month, and so do most small ones. What am I talking about? Paying bills on time. Your contract, implicit though it may be, is to pay the bill when it is due and before it’s overdue. Failure to do so is, technically, breach.
Most big companies pride themsleves on being at least 60 if not 90 days overdue. It’s called “cash flow management.” The bigger the payor relatitive to the payee, the longer the stretchout.
You’re right about that, except that smart small companies factor in the time, pricing their billing so the big company pays the equivalent of the interest they would pay if they were late. In other words, if you normally charge 1.5% per month for late payment, you raise the price 3% if the big company is usually two months late.
Yes, they do.
My father’s company had a deal with Megacorp X where Megacorp would help to pay for continued development on a product. X however decided not to pay, which caused the product to go bust, opening way for X to buy out the rest of the ownership on the product’s business. And yep, taking legal action just wouldn’t have been worth it for what was a speculative business so…
I agree that it happens all the time and, like Posner says, there are those of us who think it’s good that the law allows this – the engine of commerce runs most efficiently this way. And so long as the courts system works as it should (there’s the rub, of course), then the entity who is the “victim” of the default is not injured, because the defaulting party pays them what they would have expected anyway through legal damages.
–Cliffy