Post by Yonathan Arbel
Greg Klass’ recent post (as well as recent essay) raised the issue of efficient breach. Deeply embedded in the debate on efficient breach is the choice of remedies between specific performance and expectation damages. If courts award money damages, then this—in the view of opponents of the efficient breach theory—enables promisors to “buy” their way out of promises. Instead, the argument goes, awarding specific performance would give promisees “what they were promised”. Contrary to their approach, specific performance is reserved under U.S. law only to (arguably) exceptional circumstances involving unique goods and land.
In my work, I try to show that enforcement matters. Parties do not negotiate or behave in the shadow of the law, I argue, but in the shadow of the sheriff. And conventional theory has tended to downplay and sometimes completely overlook the role of enforcement. Thinking through the lens of enforcement on private law provides new insight on old questions and the question of choice of remedies is no exception.
Looking from this perspective, I conducted a qualitative empirical analysis looking into the motivations of people suing for specific performance and the real-life outcomes of these lawsuits: are judgments implemented? Do people negotiate around them? To what extent do the motivations of litigants differ from their lawyers?
The recently published results of this investigation highlight the difference between doctrine and practice. The study reaches two complementary conclusions. On the one hand, specific performance is definitely not equivalent to giving the promisee what was promised, but in practice, it may be akin to giving the promisee less than she would get under expectation damages. The reason is comparative enforceability. For reason of institutional competence, specific performance is less enforceable than money damages. As I explain in the paper, our enforcement institutions specialize in the enforcement of money damages, but lack the resources, powers, and experience to effectively enforce judgments for specific relief. For theorists who care about corrective justice and the morality of promises, this conclusion that specific performance is inferior to money damages from the promisee’s perspective should give pause.
But the complement of this conclusion is that the reason specific performance is difficult to enforce is, to a large extent, a result of the insensitivity of our doctrine and law to the question of enforceability. Rethinking doctrine through the prism of enforceability could make specific performance more enforceable, thus narrowing the gap between that that was promised and that that is granted.
Consider the method of enforcement. When scholarly attention was devoted to this aspect of the problem, which is rather atypical, the assumption was that enforcement should be done through monitoring; e.g., sending a special master to the construction site to oversee the construction of a new building. Monitoring is very costly and it is especially unappealing to fund monitoring out of the public fisc, thus making many cautious about granting specific performance and justifying the exceptional nature of enforcing specific performance.
But the emphasis on enforcement by monitoring is misguided, as the most common and cost-effective mode of enforcement is by what I call ‘validation’. When two parties enter into a sale contract, a breach is most easily detected by validating whether the received good conforms to the standard of quality promised. The party receiving the good, or the judge, will ask: does the table have four legs? Is the finishing proper? Does it support sufficient weight? These questions assume a benchmark, a common standard, and compare the product to that benchmark. The enforcement-by-validation is the enforcement method most commonly chosen by private parties in their contracts (often implicitly) and it is by no means obvious that the court should assume a different method just because the contract was breached.
In one of the cases I examined, a woman ordered a custom-made door to her new home from a company specializing in construction and design of such doors. Unfortunately, the door that was delivered opened in the wrong direction and was unusable. The woman sued and won a specific performance judgment. Consistent with the study design, I met her a few years after the fact to see whether the judgment was implemented. But I did not have to ask: when I came to her home, I saw the beautiful wooden door opening in the right direction. When I asked her about the process, she told me that no special master was appointed and that enforcement was quick and efficient. She was not worried at all that that the company would deliver sub-par door. The judge, already on her side, would be able to spot deviations immediately and sanction the company accordingly. In this case, enforcement by validation functioned smoothly.
And here is where doctrine manifests insensitivity to enforcement. According to the unique goods requirement, specific performance will only be awarded if the item in question is unique. But if it is unique, how can the judge adequately validate the quality of the product? When assessing the quality of the table, the judge can consult industry standards and Ikea catalogs; when assessing the quality of a painting—what can inform the judge?
Denying wider grant of specific performance judgments because they are difficult to enforce is therefore a problematic conclusion. To a degree, these judgments are difficult to enforce because they are given in the wrong context. Greater sensitivity to enforcement would greatly enrich our understanding of remedies and could narrow the gap between the content of promises and the content of remedies, which should be of interest not only to moralists but also to economists.