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. Despite rich theoretical discussions of specific performance, 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. Although a majority of contracts do not refer to specific performance, substantial variation exists in the rates of including specific performance clauses. High rates of specific performance use in the area of corporate combinations through merger (53.4 percent) or assets sales (45.1 percent), inclusion of specific performance in some contracts of every type, and much lower use of it in loan agreements suggest that treatment of specific performance in sophisticated corporate contracts is more complex than existing theories of contractual remedies allow. Theories should expressly account for contract type variation. 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 fee clauses. Rejecting the default damages rule in favor of specific performance is associated with rejecting each of the four other dispute resolution clauses.