Abstract

Some contract theorists favor specific performance as the appropriate remedy for contract breach. According to ethical theorists, specific performance reinforces the moral obligation that promises should be kept. Some economists argue that specific performance promotes efficient contract bargaining. This Article challenges this conventional wisdom, showing that moral evaluations and the willingness to bargain are themselves strongly affected by whether specific performance is available as a default remedy or not.

Our insight is based on a novel, original empirical study. This Article presents the results of an experiment that measures and compares decisions and motivations involved with the performance, breach, and enforcement of valid legal contracts that participants signed with each other. We provided one group of participants with a default remedy of specific performance while another group could prevent the breach of contract without relying on a legal default. We observed that, when specific performance was the default remedy, participants decided to sacrifice a substantial part of their earnings in the experiment in order to obstruct an efficient breach. Our results indicate that the specific performance default triggered conflicting moral intuitions about contract breach among contracting parties. Specific performance made the ethical norm to adhere to the contract more salient to promisees, while promisors focused on the efficiency of the breach.

Based on these findings, our study challenges fixed, deontological viewpoints on the immorality of contract breach. In providing a dynamic and empirically grounded understanding of the ethics of contract breach, our study highlights the influence of legal frames on moral intuitions. Our findings also question the alleged efficiency benefits of specific performance. By inducing deontological rather than utilitarian intuitions about contract breach, a specific performance default likely has the effect of making negotiations involving efficient breaches more difficult.

How to Cite