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

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.