Damages versus Specific Performance: Lessons from Commercial Contracts

Abstract

Specific performance is a central contractual remedy but, in Anglo-American law, generally is subordinate to damages. The familiar rule is that courts will not award specific performance when damages provide adequate relief. Despite rich theoretical discussions of the relative merits of specific performance and damages as contract remedies, little is known about parties’ treatment of the remedy in their contracts. We study 2,347 contracts of public corporations to quantify the presence or absence of specific performance clauses in several types of contracts (clauses that convey the parties’ intent that the court award specific performance in the event of breach). Although a majority of contracts do not refer to specific performance, substantial variation exists in the rates of including specific performance clauses. These clauses appear in some contracts of every type, but their incidence varies widely: high rates of specific performance clauses are found in the area of corporate combinations through merger (53.4 percent) and assets sales (45.1 percent) but much lower rates are observed in loan agreements. It appears, therefore, that treatment of specific performance in sophisticated corporate contracts is more complex than existing theories of contractual remedies allow. We also present results on the associations among contractual acceptance of five default dispute resolution rules: specific performance clauses, arbitration clauses, jury trial waiver clauses, litigation forum clauses, and attorney fees clauses. Rejecting the default damages rule in favor of specific performance is associated with rejecting each of the four other dispute resolution clauses.