Implications and Normative Analysis of Remedies for Breach

This chapter studies how expectation and disgorgement damages, as well as specific performance, perform different economic functions, inducing promisors to perform and dissuading promisees to retaliate to breaches of contract and their impact on social welfare. It considers situations where the promisor breaches to avoid incurring losses and situations where the promisor breaches to achieve higher profits from a substitutive transaction, both in the presence and in the absence of the possibility to renegotiate. Lastly, the chapter assesses, from a normative perspective, recent developments in American, French, German, and English law. Courts and legal scholarship have insisted on the primacy of expectation damages (USA), expanded the scope of specific performance under astreintes even upon obligations to do (France), allowed promisees to recover disgorgement damages in cases of breach to make profits, in an extensive interpretation of § 285 I BGB (Germany), and expanded the scope of an award of damages at the common law in awarding, in certain cases, total or partial disgorgement damages (UK). The chapter compares the contribution of these legal developments both to induce trade and to reduce retaliation from the perspective of social welfare maximization.