1 George Mason School of Law Contracts II Remedies II: Expectation Interest This file may be downloaded only by registered students in my class, and may not be shared by them F.H. Buckley

Efficiency Pre-breach 2  Prior to breach or performance, the risks and duties to be assigned to the party best able to bear them

Efficiency Post-breach 3  Subsequent to breach, the parties might still usefully be given cost- reducing incentives

Efficiency Post-breach 4  Subsequent to breach, the parties still are given cost-reducing incentives  Mitigation  Anticipatory Repudiation  Remedies

What if the remedy is specified in the contract?  Globe Refining at 94 5 Oliver Wendell Holmes

What if the remedy is specified in the contract?  Globe Refining  “The parties themselves, expressly or by implication, may fix the rule by which the damages are to be measured” 6

What if the remedy is specified in the contract?  Globe Refining  “The parties themselves, expressly or by implication, may fix the rule by which the damages are to be measured”  Is that what happened in Peevyhouse? 7

What happens when the contract is silent about the remedy, per Holmes? 8

What happens when the contract is silent about the remedy? 9 Give them what they “probably would have said if they had spoken about the matter.”

Globe Refining p. 94  What damages did the Π seek? 10

Globe Refining  What damages did the Π seek? The difference between the contract price and the market price of cotton oil at the time of breach, and… The cost of sending the tank cars from Louisville to Texas 11

Globe Refining  What did Holmes award? 12

Globe Refining  What did Holmes award? The difference between the contract price and the market price at the time of breach The cost of sending the tank cars to Texas  Only the former—and why was that? 13

Globe Refining  Let’s say the plaintiff paid 100 for goods he expected to sell for 150: a gross profit of 50. But he had to spend 10 in marketing expenses to make this profit. So he expected to make net profits of (150 – 100) – 10 =

Globe Refining  Let’s say the plaintiff paid 100 for goods he expected to sell for 150: a gross profit of 50. But he had to spend 10 in marketing expenses to make this profit. So he expected to make net profits of (150 – 100) – 10 = 40.  Suppose the breach occurs before he spends the 100 and before he spends the 10. What should his damages be? 15

Globe Refining  Let’s say the plaintiff paid 100 for goods he expected to sell for 150: a gross profit of 50. But he had to spend 10 I marketing expenses to make this profit. So he expected to make net profits of (150 – 100) – 10 = 40.  Suppose the breach occurs before he spends the 100 and before he spends the 10. What should his damages be?  40—not 50 16

Globe Refining  Let’s say the plaintiff paid 100 for goods he expected to sell for 150: a gross profit of 50. But he had to spend 10 I marketing expenses to make this profit. So he expected to make net profits of (150 – 100) – 10 = 40.  Suppose the breach occurs after he spends the 100 and after he spends the 10. What should his damages be? 17

Globe Refining  Let’s say the plaintiff paid 100 for goods he expected to sell for 150: a gross profit of 50. But he had to spend 10 I marketing expenses to make this profit. So he expected to make net profits of (150 – 100) – 10 = 40.  Suppose the breach occurs after he spends the 100 and after he spends the 10. What should his damages be? 

Globe Refining  Let’s say the plaintiff paid 100 for goods he expected to sell for 150: a gross profit of 50. But he had to spend 10 I marketing expenses to make this profit. So he expected to make net profits of (150 – 100) – 10 = 40.  Suppose the breach occurs after he spends the 100 and after he spends the 10. What should his damages be?  What it shouldn’t be is 150 plus 10—which is what Globe wanted 19

Globe Refining  Had the contract been performed, Globe would have spend the money to send the tank cars to Louisville to make the profit associated with the difference between the contract price and the market price at the time of breach Giving Globe both would give it more in breach than on performance 20

The purpose of damages in contract law 21

Damages are compensatory They are meant to put the innocent party in the position he would have been in had the wrong not been committed. 22

Compensation as Substitutional Justice  The assumption that money damages can cure all ills Presumptively no specific performance 23

How does one compensate?  When the wrong is a tort, one puts the injured party in his pre-tort position 24

How does one compensate?  When the wrong is a breach of contract, one makes the injured party whole by putting in the position he would be in had the contract been performed  The wrong was the breach 25

The measure of damages at common law 26

The measure of damages at common law?  § 2-713(1) The measure of damages for non- delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages provided in this Article (Section 2-715), but less expenses saved in consequence of the seller's breach. 27

Why the price of oil at breach?  Why was the measure of damages the difference between the contract price and (1) the price of oil at breach, rather than (2) the prince of oil at the time stipulated for performance? 28

Why the price of oil at breach?  § 2-713(1) The measure of damages for non- delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages provided in this Article (Section 2-715), but less expenses saved in consequence of the seller's breach. 29

What is the normal measure of damages at common law?  Why was the measure of damages the difference between the contract price and (1) the price of oil at breach, rather than (2) the prince of oil at the time stipulated for performance?  What’s the innocent party supposed to do on breach? 30

Damages in Freund at 96  What was the contract? 31

Freund at 96  What damages remedies did Freund seek? 32

Freund  What damages remedies did Freund seek? Damages for delay of promotion Lost royalties Potential cost of vanity publication 33

Freund  Fuller and Perdue at 97  Expectation  Reliance  Restitution 34

Restatement § 344  Judicial remedies under the rules stated in this Restatement serve to protect one or more of the following interests of a promisee: (a) his "expectation interest," which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed, (b) his "reliance interest," which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made, or (c) his "restitution interest," which is his interest in having restored to him any benefit that he has conferred on the other party. 35

Freund  What are the three kinds of damages that are considered? The Expectation Interest: Put the Π in the same position he would have been in had the contract been performed  And what’s that here? 36

B 100, 100 I 100 I DR Ebenezer promises to gives 100 but breaches C 100,0 D A 50, Time 1 What do we need to give David to make him as well off as he would have been had the contract been performed? 37

B 100, 100 I 100 I DR Ebenezer promises to gives 100 but breaches C 100,0 D A 50, Time 1 The Expectation Interest is CB, or $100 38

Freund  What are the three kinds of damages that are considered? The Expectation Interest: Put the Π in the same position he would have been in had the contract been performed  And what’s that here? Royalties Reputational gains 39

Freund  What are the three kinds of damages that are considered? The Expectation Interest: Put the Π in the same position he would have been in had the contract been performed  The royalties were too speculative to amount to anything  The reputational loss was not quantified (or quantifiable) 40

Freund  What are the three kinds of damages that are considered? The Expectation Interest: Put the Π in the same position he would have been in had the contract been performed  What happens when the Π runs into the Uncertainty Barrier? 41

Freund  What are the three kinds of damages that are considered?  What happens when the Π runs into the Uncertainty Barrier?  Here nominal (contemptuous) damages 42

Uncertainty Limits Damages  Dempsey p. 102 No recovery for expected ticket revenues (lost profits) 43

So would you fight Harry Wills? 

Uncertainty Limits Damages  Does the uncertainty barrier undercompensate Π?  And give Δ a temptation to breach? 45

Uncertainty Limits Damages  Dempsey p. 102 What recovery was awarded? 46

Uncertainty Limits Damages  Dempsey p. 102 What recovery was awarded? Reliance Damages 47

Uncertainty Limits Damages  When uncertainty bars recovery for the expectation measure, a court might either bar relief (Freund) or award damages to vindicate the reliance interest (Dempsey) 48

Freund  The Reliance Interest in Freund: Reimburse the Π for what he spent in reliance on the contract 49

B 100, 100 I 100 I DR Ebenezer promises to gives 100 but breaches C 100,0 D A 50, Time 1 What do we need to give David to make him as well off as he would have been had he not relied? 50

B 100, 100 I 100 I DR Ebenezer promises to gives 100 but breaches C 100,0 D A 50, Time 1 The Reliance Interest is CD, or about $25 51

Freund  The Reliance Interest: A Tortious measure: Put the Π in his pre- contractual position 52

Freund  The Reliance Interest in Freund  For costs actually incurred, not hypothetically incurred as here 53

Restitution Interest  What is the harm that is corrected by a restitutionary award? 54

Bailey v. West 55  When is quasi-contractual liability imposed? Benefit conferred on defendant by plaintiff Appreciation by defendant of the benefit It would be inequitable to permit the defendant to retain the benefit

The interplay of the three measures of damages 56

Could reliance damages be less than the expectation interest? 57

Could reliance damages be less than the expectation interest?  Suppose that Globe expected to make net profits of $50 and the defendant had breached the day after the contract was made? 58

What about opportunity costs? 59

Could reliance damages be less than the expectation interest?  The hypothetical at p. 100 John orders 10,000 bushels of wheat for delivery in two months at $1 per bushel Mary breaches on the date of delivery, when the price is $2 per bushel  What is the expectation interest? 60

Could reliance damages be less than the expectation interest?  The hypothetical at p. 100 John orders 10,000 bushels of wheat for delivery in two months at $1 per bushel Mary breach on the date of delivery, when the price is $2 per bushel  What is the expectation interest? John has to spend an extra $10,000 for the wheat 61

Could reliance damages be less than the expectation interest?  The hypothetical at p. 100 John orders 10,000 bushels of wheat for delivery in two months at $1 per bushel Mary breach on the date of delivery, when the price is $2 per bushel  What is the expectation interest? John has to spend an extra $10,000 for the wheat 62

Could reliance damages be less than the expectation interest?  The hypothetical at p. 100 John orders 10,000 bushels of wheat for delivery in two months at $1 per bushel Mary breach on the date of delivery, when the price is $2 per bushel  What is the reliance interest? 63

Could reliance damages be less than the expectation interest?  The hypothetical at p. 100 John orders 10,000 bushels of wheat for delivery in two months at $1 per bushel Mary breach on the date of delivery, when the price is $2 per bushel  What is the reliance interest? If John had not ordered from Mary he would have ordered from someone else 64

Could reliance damages be less than the expectation interest?  Expectation ≈ reliance when opportunity costs are considered in competitive markets 65

Could reliance or restitution damages ever exceed expectation damages?  P. 102, problem 7 66

Could reliance or restitution damages ever exceed expectation damages?  A agrees to build a house for B for $100k. A estimates that he will incur expenses of 90k in doing so. 67

Could reliance or restitution damages ever exceed expectation damages?  A agrees to build a house for B for $100k. A estimates that he will incur expenses of 90k in doing so.  In fact, A unexpectedly and without fault incurs expenses of 120k. Can he recover for 120k if B breaches? 68

Could reliance or restitution damages ever exceed expectation damages?  Reliance damages as an incentive problem if they exceed the expectation interest 69

Could a restitutionary award ever exceed the expectation interest?  Montgomery’s Estate at p.101? 70

Recall what is needed to support a restitutionary claim 71  Benefit conferred on defendant by plaintiff  Appreciation by defendant of the benefit  It would be inequitable for defendant to retain the benefit

The primacy of the expectation interest 72  So the expectation interest places a presumptive limit on reliance and restitutionary awards

Expectation and Cover in Globe 73  Suppose that the unpaid purchase price of the cotton oil is 100K, and that on breach Globe covers by buying substitute oil for 120k in Louisville What reliance and expectation damages would you award?

Expectation and Cover in Globe 74  Cover: UCC § 2-711(1)(a) Where the seller fails to make delivery or repudiates or the buyer rightfully rejects or justifiably revokes acceptance then with respect to any goods involved, and with respect to the whole if the breach goes to the whole contract (Section 2-612), the buyer may cancel and whether or not he has done so may in addition to recovering so much of the price as has been paid (a) "cover" and have damages under the next section as to all the goods affected whether or not they have been identified to the contract;

Expectation and Cover in Globe 75  Suppose that the unpaid purchase price of the cotton oil is 100K, and that on breach Globe covers by buying substitute oil for 120k in Texas What reliance damages would you award?

Expectation and Cover in Globe 76  Suppose that the unpaid purchase price of the cotton oil is 100K, and that on breach Globe covers by buying substitute oil for 120k in Texas Reliance damages = 20k  [120k less 100k] for cover

Expectation and Cover in Globe 77  Suppose that the (unpaid) purchase price of the cotton oil is 100K, and that on breach Globe covers by buying substitute oil for 120k in Texas What expectation damages?

Expectation and Cover in Globe 78  Suppose that the unpaid purchase price of the cotton oil is 100K, and that on breach Globe covers by buying substitute oil for 120k in Texas Expectation damages =$20k. Globe had to spend an extra $20k to be as well off as if the contract had been performed and he had paid 100k

Expectation and Cover in Globe 79  Suppose that the unpaid purchase price of the cotton oil is 100K, and that on breach Globe covers by buying substitute oil for 120k in Texas What if the purchase price had been paid?

Expectation and Cover in Globe 80  Suppose that the unpaid purchase price of the cotton oil is 100K, and that on breach Globe covers by buying substitute oil for 120k in Texas What if the purchase price had been paid? Expectation or reliance damages of $120k

See problem 7 at p. 102  What are the three possible kinds of damages here?  Builder to build a house for 100, owner pays deposit of 15, expected costs of 90, repudiation by owner when builder has spent 60 and property has increased in value by 40 81

See problem 7 at p. 102  Builder to build a house for 100, owner pays deposit of 15, expected costs of 90, repudiation by owner when builder has spent 60 and property has increased in value by 40  What are the reliance damages? 82

See problem 7 at p. 102  Builder to build a house for 100, owner pays deposit of 15, expected costs of 90, repudiation by owner when builder has spent 60 and property has increased in value by 40  Reliance damages = 60 [less deposit] 83

See problem 7 at p. 102  Builder to build a house for 100, owner pays deposit of 15, expected costs of 90, repudiation by owner when builder has spent 60 and property has increased in value by 40  Reliance damages = 60 [less deposit]  Qu. Foregone opportunities 84

See problem 7 at p. 102  Builder to build a house for 100, owner pays deposit of 15, expected costs of 90, repudiation by owner when builder has spent 60 and property has increased in value by 40  What is the restitution interest? 85

See problem 7 at p. 102  Builder to build a house for 100, owner pays deposit of 15, expected costs of 90, repudiation by owner when builder has spent 60 and property has increased in value by 40  Restitution interest = 40 [less deposit?] 86

See problem 7 at p. 102  Builder to build a house for 100, owner pays deposit of 15, expected costs of 90, repudiation by owner when builder has spent 60 and property has increased in value by 40  What is the expectation interest? 87

See problem 7 at p. 102  Builder to build a house for 100, owner pays deposit of 15, expected costs of 90, repudiation by owner when builder has spent 60 and property has increased in value by 40  Suppose first that owner defaults before builder incurs any expenses 88

See problem 7 at p. 102  Builder to build a house for 100, owner pays deposit of 15, expected costs of 90, repudiation by owner when builder has spent 60 and property has increased in value by 40  Builder expected profits of 10, and simply keeps the deposit of 15 89

See problem 7 at p. 102  Builder to build a house for 100, owner pays deposit of 15, expected costs of 90, repudiation by owner when builder has spent 60 and property has increased in value by 40  What is the builder’s expectation interest after he has spent 60 in expenses? 90

See problem 7 at p. 102  Builder to build a house for 100, owner pays deposit of 15, expected costs of 90, repudiation by owner when builder has spent 60 and property has increased in value by 40  What do we need to give him to make him as well off as if the contract had been performed? 91

See problem 7 at p. 102  Builder to build a house for 100, owner pays deposit of 15, expected costs of 90, repudiation by owner when builder has spent 60 and property has increased in value by 40  He’ll need the forgone net profits of 10 plus his expenses of 60 less the deposit  = 55 92

See problem 7 at p. 102  Builder to build a house for 100, owner pays deposit of 15, expected costs of 90, repudiation by owner when builder has spent 60 and property has increased in value by 40  If we give him less than 55 he is worse off than he would have been had the contract been performed 93

Why is the expectation interest the contractual measure of damages?  A contracts to build a custom made machine for B for $100,000 94

Why is the expectation interest the contractual measure of damages?  A contracts to build a custom made machine for B for $100,000 We are permitted to infer that, ex ante, the machine was worth at least $100K to B and would cost less than $100K for A to build 95

Why is the expectation interest the contractual measure of damages?  A contracts to build a custom made machine for B for $100,000 We are permitted to infer that, ex ante, the machine was worth at least $100K to B and would cost less than $100K for A to build If A breaches, B’s expectation interest is the value of the machine less the $100K purchase price 96

Why is the expectation interest the contractual measure of damages?  A contracts to build a custom made machine for B for $100,000 We are permitted to infer that, ex ante, the machine was worth at least $100K to B and would cost less than $100K for A to build If B breaches, A’s expectation interest is $100K less the cost of construction 97

Why is the expectation interest the contractual measure of damages?  A contracts to build a custom made machine for B for $100,000 We are permitted to infer that, ex ante, the machine was worth at least $100K to B and would cost less than $100K for A to build If B breaches, A’s expectation interest is $100K less the cost of construction  Let’s assume that that is $60,000 98

Why is the expectation interest the contractual measure of damages?  A contracts to build a custom made machine for B for $100,000 If B breaches, A’s expectation interest is ($100,000 - $60,000 =) $40,000 99

Why is the expectation interest the contractual measure of damages?  A contracts to build a custom made machine for B for $100,000 If B breaches, A’s expectation interest is $40K Suppose that contract law awards A only $20K in damages 100

Why is the expectation interest the contractual measure of damages?  A contracts to build a custom made machine for B for $100,000 If B breaches, A’s expectation interest is $40K Suppose that contract law awards A only $20K in damages  How might B exploit this? 101

Why is the expectation interest the contractual measure of damages?  A contracts to build a custom made machine for B for $100,000 If B breaches, A’s expectation interest is $40K Suppose that contract law awards A only $20K in damages  “If I breach, you get $20K, so I’ll offer you $90,000 (= cost of construction plus $30k) 102

Why is the expectation interest the contractual measure of damages?  A contracts to build a custom made machine for B for $100,000 If B breaches, A’s expectation interest is $40K Suppose that contract law awards A only $20K in damages  This invites opportunistic renegotiation by B when the machine is half built 103

Why is the expectation interest the contractual measure of damages?  A contracts to build a custom made machine for B for $100,000 If B breaches, A’s expectation interest is $40K Suppose that contract law awards A $80K in damages 104

Why is the expectation interest the contractual measure of damages?  A contracts to build a custom made machine for B for $100,000 If B breaches, A’s expectation interest is $40K Suppose that contract law awards A $80K in damages  Now A has an incentive to declare a breach 105

Departures from the Expectation Interest  Departures from the expectation interest invite opportunistic breaches 106

Departures from the Expectation Interest  Departures from the expectation interest invite opportunistic breaches  But what about non-opportunistic breaches? 107

Efficient Breach  Holmes’ Path of the Law p. 103, n. 71 The common law is indifferent between the promisor’s choice either to perform or breach and pay damages 108

Efficient Breach  Holmes’ Path of the Law p. 103 The common law is indifferent between the promisor’s choice either to perform or breach and pay damages Which is a corollary of the principle that damages fully compensate 109

Efficient Breach  The limitation to expectation damages can give one an incentive to breach 110

Efficient Breach  Cf. Casebook’s hypothetical at p. 105 A agrees to sell widgets to B for $1,000 They would cost A $500 to make and so he expects a profit of $

Efficient Breach  Cf. Casebook’s hypothetical at p. 105 A agrees to sell widgets to B for $1,000 They would cost A $500 to make and so he expects a profit of $500 They are worth $1,500 to B, who would pay $1,000 for them and lose $500 if he can’t get them 112

Efficient Breach  Cf. Casebook’s hypothetical at p. 105 A agrees to sell widgets to B for $1,000 They would cost A $500 to make and so he expects a profit of $500 They are worth $1500 to B, who loses $500 if he can’t get them C subsequently asks A to sell widgets to him for $2,000  A can’t sell to both 113

Efficient Breach  Cf. Casebook’s hypothetical at p. 105 A agrees to sell widgets to B for $1,000 They would cost A $500 to make and are worth $1500 to B C subsequently asks A to sell widgets to him for $2,000 A can’t sell to both If he sells to A he makes (1,000 – 500 =)

Efficient Breach  Cf. Casebook’s hypothetical at p. 105 A agrees to sell widgets to B for $1,000 They would cost A $500 to make and are worth $1500 to B C subsequently asks A to sell widgets to him for $2,000 If he sells to C he makes (2,000 – 500 =) 1,500, from which he can pay damages to B of 500 and have a profit of 1,

Efficient Breach  Cf. Casebook’s hypothetical at p. 105 If he sells to C he makes (2,000 – 500 =) 1,500, from which he can pay damages to B of 500 and have a profit of 1,000 So he makes $500 if he performs and $1,000 if he breaches and sells to C 116

Efficient Breach  Cf. Casebook’s hypothetical at p. 105 So A is net 500 better off if he breaches 117

Efficient Breach  Cf. Casebook’s hypothetical at p. 105 So A is net 500 better off if he breaches What assumptions are we making? 118

Efficient Breach  Cf. Casebook’s hypothetical at p. 105 What assumptions are we making? How did we know that B’s damages would only be (1,500 – 1,000 =) 500? Where did we get the $1,500 figure from?  Could it have been $3,000? 119

Efficient Breach  Cf. Casebook’s hypothetical at p. 105 What assumptions are we making? Can we be sure that C is the most highly valued user? 120

Efficient Breach  Cf. Casebook’s hypothetical at p. 105 Can we be sure that C is the most highly valued user? Why not—wouldn’t we expect an auction? 121

Efficient Breach  Cf. Casebook’s hypothetical at p. 105 What assumptions are we making? Suppose C is the most highly valued user (after all, he paid more for it). Couldn’t C buy the widgets from B? 122

Efficient Breach  Cf. Casebook’s hypothetical at p. 105 Suppose C is the most highly valued user (after all, he paid more for it). Couldn’t C buy the widgets from B? We know that C knew of A. Would C know of B? 123

Efficient Breach  Casebook’s hypothetical at p. 105  An efficient breach is thought to move the goods to their most highly- valued user without the need for renegotiation between B and C 124

Efficient Breach  Suppose treble damages of $1500 were awarded to B? Will A sell to C? 125

Efficient Breach  Suppose treble damages of $1500 were awarded to B. A won’t sell to C  If he does he’ll make an extra $500 on the sale to C but will pay damages of $1500 to B and would not have an incentive to sell to C 126

Do we have a good faith problem here?  Would good faith norms require damages that exceed buyer’s lost profits? 127

Do we have a good faith problem here?  Would good faith norms require damages that exceed buyer’s lost profits? How much higher (since there is always a theoretical incentive for seller to breach?) 128

Just what do the parties expect from performance?  The ambiguity in the expectation interest 129

Just what do the parties expect from performance  Where I bargain for an ounce of gold, my claim is unquestionably fungible with $$$ 130

Just what do the parties expect from performance  I buy a Picasso print from a gallery for $15,000, which I think would look great in a bare spot in my living room. Before delivery, the gallery decides to sell it to a third party for $20,000 Why is this different? 131

Just what do the parties expect from performance  The problem of subjective value 132

Peevyhouse

Peevyhouse

Peevyhouse

What was the breach?  Would specific performance be ordered?  If not what is the measure of damages? 136

Just what does it mean to provide compensatory damages in contract?  How do we put the Π in the same position he would have been in had the contract been performed? 137

Just what does it mean to provide compensatory damages in contract?  How do we put the Π in the same position he would have been in had the contract been performed? Cost of repairs: Give the Π enough $$$ to permit him to make the repairs Diminution of value: Give the Π the diminution of the market value of the property had the contract been performed 138

We saw this before  Plante v. Jacobs at

We saw this before  Jacob & Youngs v. Kent How was the cost of repair different from diminution of value, and how did that figure into Cardozo’s judgment? 140

Peevyhouse 846  Lease of farm for five years for stripmining Cost of repair is $29,000 Diminution of market value ≈ $

Peevyhouse  Lease of farm for five years for stripmining Cost of repair is $29,000 Diminution of value ≈ $300 Jury awarded $5,000, which was more than the market value of the land even if the repair work had been done 142

Peevyhouse  Lease of farm for five years for stripmining Cost of repair is $29,000 Diminution of value ≈ $300 Jury awarded $5,000, which was more than the market value of the land even if the repair work had been done And on appeal? 143

Just what does it mean to provide compensatory damages in contract?  How do we put the Π in the same position he would have been in had the contract been performed? Cost of repairs: Give the Π enough $$$ to permit him to make the repairs Diminution of value: Give the Π the diminution in the market value of the property had the contract been performed Can you think of a third option? 144

Just what does it mean to provide compensatory damages in contract?  How do we put the Π in the same position he would have been in had the contract been performed? Cost of repairs: Give the Π enough $$$ to permit him to make the repairs Diminution of value: Give the Π the diminution in the market value of the property had the contract been performed Diminution of subjective value? 145

Just what does it mean to provide compensatory damages in contract?  How do we put the Π in the same position he would have been in had the contract been performed? Cost of repairs: Give the Π enough $$$ to permit him to make the repairs Diminution of value: Give the Π the diminution in the market value of the property had the contract been performed Diminution of subjective value?  Any problems here? 146

Peevyhouse  Why do you think Garland agreed to this crazy contract? 147

Peevyhouse  Why do you think Garland agreed to this crazy contract? Why didn’t it buy the land? 148

Peevyhouse  Why do you think Garland agreed to this crazy contract? Why didn’t it buy the land? Why didn’t it offer a flat amount for the damages to the land? 149

Peevyhouse  Why do you think Garland agreed to this crazy contract? Why didn’t it buy the land? Why didn’t it offer a flat amount for the damages to the land?  The contract gave the Πs the option of $3000 versus repairing the hole.  Why didn’t they take it? 150

Peevyhouse  Is there a principled way to choose which measure of damages to adopt? 151

What happens when the contract is silent about the penalty? 152 Give them what they “probably would have said if they had spoken about the matter.”

Peevyhouse  Suppose the facts of the case had been put to the parties at the time of contracting. What do you think they would they have bargained for? 153

Peevyhouse  Suppose the facts of the case had been put to the parties at the time of contracting. What do you think they would they have bargained for? Do we know that the Πs wanted more than $3000? 154

Peevyhouse  Suppose the facts of the case had been put to the Π at the time of contracting. What would he have bargained for? I can see the possibility of undercompensation. But can you see the possibility of overcompensation? 155

Peevyhouse  Suppose the Peeveyhouse’s got the $29,000. What do you expect they would do with it? 156

Peevyhouse  The dissent by Irwin: How would he have decided Jacob & Youngs v. Kent? 157

Peevyhouse  The dissent by Irwin: Is it helpful to note that Δs breach was willful? 158

Willful deviations as Conditions  Cf Grun Roofing at 670 “Contractor must have intended to comply”  Material Movers at 675 Can you justify this on efficiency grounds? 159

American Standard  Why a different result?

American Standard Tonawanda!!!

American Standard  Cost of completion was $110K  Semble diminution of value was around $3K 162

American Standard  Cost of completion was $110K  Semble diminution of value was around $3K We sure about that? 163

American Standard  Cost of completion was $110K  Semble diminution of value was around $3K  So what did the Π bargain for? Money’s worth or full performance 164

American Standard  So what did the Π bargain for? Money’s worth or full performance Disparity in economic benefits is not the equivalent of economic waste in Jacob and Youngs v. Kent 165

American Standard  Did the land have idiosyncratic or sentimental value in Peevyhouse? Did subjective value > market value? 166

American Standard  Did the land have idiosyncratic or sentimental value in Peevyhouse?  And here? Tonawanda!?!?! 167

American Standard  The parties might have (but didn’t) provide that damages were to be paid on a cost of replacement basis. Can one draw an inference from that? 168