The Expressive Cost of Specific Performance

Abstract

A long-standing controversy exists in contract law scholarship whether courts should grant relief for breach of contract in the form of expectation damages or specific performance. Although damage relief is the default remedy in this country, many modern contract theorists favor specific performance as a more appropriate default remedy for breach. Interestingly, two very different strands of scholarship advocate specific performance as a default remedy. Ethical theorists favor a specific performance default because it aligns with the moral obligation that promises must be kept. Scholars in the economic analysis of contract law promote specific performance because it enables efficient breaches on the basis of private bargaining. In this Article we show that both diverse fields of scholarship have overlooked a crucial interdependence between the right of specific performance and the perceived immorality of efficient breaches of contract. While the current literature recommends specific performance as an appropriate remedy if contract breaches are immoral or when impediments to bargaining are minimal, we posit that the moral acceptability and bargaining themselves are affected by whether specific performance is available as a default remedy or not. We argue that, when expressed as a legal default, the legal right to demand performance creates a sense of entitlement and resentment against breach. This legal entitlement effect induces aversion against breach even when performance would be inefficient. Conducting a series of experiments implementing real contracts, we examined the enforcement decisions of promisees confronted with an efficient breach. We provided some participants with a default remedy of specific performance while others could prevent the breach without relying on a specific performance default. Participants preferred to forsake their immediate materials interests in order to obstruct efficient breaches when a specific performance default was available. The availability of a specific performance default increased resentment and moral opposition to efficient breach among promisees even when their material interests in the contract were fully protected by expectation damages. We provide several contributions to the literature. First, since the case for specific performance largely rests on the ability of parties to renegotiate a mutually beneficial outcome, the observed conflict complicates bargaining and thus weakens the efficiency argument in favor of specific performance. Second, our findings add insight into an emerging literature that highlights the impact of defaults in contract law. Third, we challenge deontological conceptions of the immorality of contract breach by suggesting that the acceptability of the efficient breach is not a given, but strongly depends on the institutional context.