Beyond Ex Post Expediency—An Ex Ante View of Rescission and Restitution

It is commonly held that if getting a contractual remedy was costless and fully compensatory, rescission followed by restitution would not exist as a remedy for breach of contract. This claim, we will demonstrate, is not correct. Rescission and restitution offer more than remedial convenience. Rational parties, we argue, would often desire a right of rescission followed by restitution even if damages were fully compensatory and costless to enforce.

The mere presence of a threat to rescind, even if not carried out, exerts an effect on the behavior of parties. Parties can enlist this effect to increase the value of contracting.