Over-Reliance Under Contractual Disgorgement

American Law and Economics Review, Volume 20, Issue 1, 1 April 2018, Pages 82–104

Bar Ilan University Faculty of Law Research Paper No. 18-06

23 Pages Posted: 22 Jun 2017 Last revised: 7 Aug 2018

See all articles by Yehonatan Givati

Yehonatan Givati

Hebrew University of Jerusalem - Faculty of Law

Yotam Kaplan

Bar-Ilan University - Faculty of Law

Date Written: April 1, 2018

Abstract

A well-known result in economic analysis of contract law is that expectation damages lead to over-reliance by the non-breaching party. Recently, the contractual disgorgement remedy has attracted much attention from scholars, yet no attempt has been made to analyze reliance investment under this remedy. In this paper, we develop a model showing that under disgorgement a problem arises that is the mirror image of the problem that arises under expectation damages. While expectation damages lead to over-reliance by the non-breaching party, the disgorgement remedy leads to over-reliance by the breaching party. Therefore, the choice between these two contractual remedies should depend on which over-reliance problem is more costly. We also highlight other factors that can guide the choice between these two remedies.

Suggested Citation

Givati, Yehonatan and Kaplan, Yotam, Over-Reliance Under Contractual Disgorgement (April 1, 2018). American Law and Economics Review, Volume 20, Issue 1, 1 April 2018, Pages 82–104, Bar Ilan University Faculty of Law Research Paper No. 18-06, Available at SSRN: https://ssrn.com/abstract=2989938

Yehonatan Givati

Hebrew University of Jerusalem - Faculty of Law ( email )

Jerusalem
Mount Scopus, 91905
Israel

Yotam Kaplan (Contact Author)

Bar-Ilan University - Faculty of Law ( email )

Faculty of Law
Ramat Gan, 52900
Israel

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