Beyond Ex Post Expediency - An Ex Ante View of Rescission and Restitution

Abstract:     
It is commonly held that if getting a contractual remedy was costless and fully compensatory, rescission followed by restitution would not exist as a remedy for breach of contract. This claim, we will demonstrate, is not correct. Rescission and restitution offer more than remedial convenience. Rational parties, we argue, would often desire a right of rescission followed by restitution even if damages were fully compensatory and costless to enforce. The mere presence of a threat to rescind, even if not carried out, exerts an effect on the behavior of parties. Parties can enlist this effect to increase the value of contracting.

Number of Pages in PDF File: 15

Keywords: contracts, rescission, rejection, restitution, optional remedies

JEL Classification: K12

Accepted Paper Series