'Lipstick on a Pig': Specific Performance Clauses in Action

19 Pages Posted: 16 Nov 2020 Last revised: 21 Jan 2021

See all articles by Theresa Arnold

Theresa Arnold

McGuireWoods LLP

Amanda Gray Dixon

Duke University School of Law, Students

Hadar Tanne

Duke University School of Law, Students

Madison Sherrill

Duke University School of Law, Students

Mitu Gulati

University of Virginia School of Law

Date Written: November 25, 2020

Abstract

The black letter law says that money damages are the preferred remedy for contract breach under US law. Specific performance is reserved for extraordinary circumstances. Contract theory tells us that default rules generally reflect what a majority of contracting parties would agree to, had they considered the matter. But do contracting parties agree with the law’s preference for money damages over specific performance? In a data set of more than 1000 M&A contracts, we find that in over 80% of transactions, parties choose specific performance as their preferred remedy. Using interviews with senior M&A lawyers we seek to unpack the reasons why parties are contracting around the law’s distaste for specific performance and default rule of money damages.

Keywords: Contracts, Damages, Specific Performance, SP, M&A, Mergers and Acquisitions

JEL Classification: K12, K22

Suggested Citation

Arnold, Theresa and Dixon, Amanda and Tanne, Hadar and Sherrill, Madison and Gulati, Mitu, 'Lipstick on a Pig': Specific Performance Clauses in Action (November 25, 2020). Wisconsin Law Review, Forthcoming, Duke Law School Public Law & Legal Theory Series No. 2020-77, Available at SSRN: https://ssrn.com/abstract=3696103 or http://dx.doi.org/10.2139/ssrn.3696103

Theresa Arnold

McGuireWoods LLP

434 Fayetteville Street
Suite 2600
Raleigh, NC 27601
United States

Amanda Dixon

Duke University School of Law, Students ( email )

Durham, NC
United States

Hadar Tanne

Duke University School of Law, Students ( email )

Durham, NC
United States

Madison Sherrill

Duke University School of Law, Students ( email )

Durham, NC
United States

Mitu Gulati (Contact Author)

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States

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