Grossfeld, Money Sanctions for Breach of Contract in a Communist Economy, 72 Yale L.J. 1326, 1330-1332 (1963)

GROSSFELD, MONEY SANCTIONS FOR BREACH. OF CONTRACT IN A COMMUNIST ECONOMY, 72 Yale L.J. 1326, 1330-1332 (1963): "In a communist economic system the payment of damages can by no means compensate completely the damage incurred. The damage to the society as a whole, for example, cannot be compensated, for every breach of contract disturbs a certain established pattern and demands an increased effort to overcome its consequences and to re-create order. The liquidation of the damages absorbs additional energy and time which could have been better used — if the damage had not occurred — for constructive activity. Moreover, the goods which could not be produced as a result of the breach of contract are missing in the final balance of the plan, or can be produced only at the expense of other goods. The fact that these arguments might equally be given in a western legal system throws some doubt on the contention that the most important goal of the money sanctions for breach of contract is compensation; the relevance of these arguments is at least not restricted to the law of a planned communistic economy. But there is another — I am inclined to say 'unique' — feature in a communist economy that makes compensation itself virtually impossible the existence of a comprehensive plan by which the economy is ruled. In a free, competitive economy, with free access and exchange of goods, nearly every good can be evaluated and replaced by a certain amount of money. Consequently, in such an economic system a purchaser whose supplier breaches a contract can generally purchase the same goods from another supplier, provided the damages he sustained are compensated. Thus in our western legal systems a purchaser very often does not have a vital interest in the specific performance of the contract; whether he receives from the seller the goods he wanted or their money value may make little difference to him. This is not the case in a completely planned economy where there does not exist a free flow of goods available on the open market. If one particular producer or supplier fails to perform his contractual duties there are no others to whom the buyer can turn. Money, therefore, is no equivalent for the product itself. Thus. the tasks imposed upon the enterprise by the plan cannot be accomplished when the enterprise receives money instead of the goods it needs for production, and from this it follows that in such an economy actual performance of every contract is of greatest importance. This 'principle of specific performance' is the basic principle of the communist system of contracts. It represents the categorical demand of the law that the goods which are to be delivered must not be replaced by money damages. Thus even an express agreement between the parties to a contract concluded under the plan that specific performance will be waived in favor of an equivalent in money is void. The money compensation is conceived exclusively as an 'emergency measure,' a 'last resort' when specific performance is virtually impossible.


"These unique features of the economic system demonstrate that the main purpose of the money sanctions for breach of contract cannot be compensation for losses. Rather, the emphasis shifts to prevention of losses or 'education.' The main task of money sanctions becomes the enforcement of contractual discipline, for the understanding is that the more difficult it is to compensate damage the more must be done to prevent it. The money sanctions serve their purpose best, therefore, when they prevent occurrence of a breach of contract. When a party does fail to perform the contract and has to pay damages, they function as a 'form of social criticism,' as a means of 'education through the Mark.' Simultaneously, of course, there is a compensatory effect, but, in direct contrast with the Western systems, compensation is warranted only if it can serve an educational purpose. Moreover, the effects of the money sanction go far beyond the particular contract in question, because the contract and the plan stand in very close nexus. Through the contracts the necessary combination between the central direction of the economy by the state and the economic independence of the enterprises is realized. When concluding contracts within the framework of the plan, each enterprise determines the precise content of its share in the implementation of the plan. The contract is thus a means of economic planning, an instrument by which the purposes of the state can be realized. Compensation for damages, then, is not paid for the benefit of the injured party, but constitutes an attempt by the state to use the individual interest as a tool to achieve social control, to secure the fulfillment of the plan. The party to the contract who sues for damages fulfills a 'public' task; his own interest is satisfied only where it serves the greater goals of the society."