Specific Performance versus Damages for Breach of Contract

When would parties to a contract want performance to be specifically required, and when would they prefer payment of money damages to be the remedy for breach? This fundamental question is studied here, and an answer is provided that is based on a simple distinction between contracts to produce goods and contracts to convey property. Setting aside qualifications, the conclusion for breach of contracts to produce goods is that parties would tend to prefer the remedy of damages, essentially because of the problems that would be created under specific performance if production costs were high. In contrast, parties would often favor the remedy of specific performance for breach of contracts to convey property, in part because there can be no problems with production cost when property already exists. The conclusions reached shed light on the choices made between damages and specific performance under AngloAmerican and under civil law systems, and they also suggest the desirability of certain changes in our legal doctrine. * Samuel R. Rosenthal Professor of Law and Economics, Harvard Law School. I thank Melvin Eisenberg, Allen Ferrell, James Gordley, Christine Jolls, Louis Kaplow, and Eric Posner for comments, David Katz and Gary Lee for research assistance, and the John M. Olin Center for Law, Economics, and Business at Harvard Law School for research support. Specific Performance versus Damages for Breach of Contract © 2005. Steven Shavell. All rights reserved.