1. Damages Revisited Party-designed damages Specific performance
Court-imposed damages
Expectations: promisee is indifferent between breach and performance
Reliance: promisee is indifferent between breach and no contract
Opportunity Costs: promisee is indifferent between breach and best alternative contract
Restitution: minimal remedy
Disgorgement: promisor must give up any profits earned from breach

2. Football Tickets
You promise me your OSU ticket for $50 but then breach
Expectations Damages
DE = Value - $50 = $150 - $50 = $100
Reliance Damages
DR = purchase of scarlet & gray face paint
Opportunity Cost Damages
DOC = Value - $80 = $150 - $80 = $70
Ranking: DE > DOC > DR
What if there aren’t many good substitutes?

3. Hawkins v McGee (1929) Hawkins scarred his hand in electrical accident
Dr. McGee promised to “make the hand a hundred percent perfect hand”
Skin from chest was grafted to hand, but was disaster
Hawkins successfully sued Dr. McGee, issue on appeal was appropriate damages

4. Hairy Hand Case $ DE DOC DRU1 U2 U3 DE
DOC DR
Hand’s Condition
Hairy
hand
Scarred
hand
Next-best-doctor hand
100%
good
Indifference Curve: combinations of $ and hand’s condition that give you constant utility

5. Williams v ABC’s Extreme Makeover
Deleese Williams was to get “makeover” surgery: face lift, chin and breast implants, dental surgery
ABC backed out hours before first surgery because recovery time wouldn’t fit their show schedule
Williams sued for breach of contract claiming that ABC humiliated her and goaded her sister into insulting her
Sister committed suicide
Petition (p22:64,66)
Settled out of court
Deleese Williams

6. Impact of Remedies on Efficiency
Performance?
Reliance?
Coase Theorem Revisited
Efficient breach will occur regardless of the law if TC are low

7. Airplane Sale You value my plane at $500,000
“Unfortunate contingency”
You value my plane at $500,000
My expected costs are $250,000 (but there is a chance my costs may rise to $1,000,000)
We agree on a sale price of $350,000
What happens to performance under
Expectations Damages
Specific Performance
Opportunity Cost Damages

8. Costs High (Breach/pay DE)
Airplane Sale: DE
You value my plane at $500,000
My expected costs are $250,000 (but there is a chance my costs may rise to $1,000,000)
We agree on a sale price of $350,000
Costs Low (Perform)
Costs High (Perform)
Costs High (Breach/pay DE)
I get
100
- 650
-150
You get
150
Total
250
- 500
Breach is efficient

9. Costs High (Renegotiate)
Airplane Sale: SP
You value my plane at $500,000
My expected costs are $250,000 (but there is a chance my costs may rise to $1,000,000)
We agree on a sale price of $350,000
Costs Low (Perform)
Costs High (Perform)
Costs High (Renegotiate)
I get
100
- 650
= - 400
You get
150
= 400
Total
250
- 500
Buy out the contract
Surplus from cooperation
Note: If TC are low, either remedy will lead to efficient breach.

10. Reconsider the plane sale example with high production costs
Reconsider the plane sale example with high production costs. If the transaction costs of renegotiating the contract are too high, then all of the following will occur:
Specific performance would lead to inefficient performance
Specific performance would lead to efficient performance
Expectation damages would lead to efficient breach
Expectation damages would lead to inefficient breach
(a) and (c)
(b) and (d) 1 2 3 4 5

11. Renegotiate and Perform
Airplane Sale: DOC
You value my plane at $500,000
My expected costs are $250,000 (but there is a chance my costs may rise to $460,000)
We agree on a sale price of $350,000
Next best contract price: $400,000
Perform
Breach/pay DOC
Renegotiate and Perform
I get
- 110
- 100
P - 460
You get
150
100
500 - P
Total 40
Breach is inefficient
But, renegotiation can fix this
P = 380

12. Investments in Reliance an Performance
Seller is liable for reliance
Seller will invest efficiently in performance
Buyer will over-invest in reliance
Seller is not liable for reliance
Seller will under-invest in performance
Buyer will invest efficiently in reliance
Expectation damages includes benefit due to reliance
Expectation damages do not include benefit due to reliance

13. Formation Defenses and Performance Excuses
Incompetence
Minors
Mentally handicapped
Drunk?
Duress
“give me $100 or I’ll shoot you”
Promisee threatens to destroy value
Necessity
Promisee threatens not to rescue
Fortuitous rescue
Anticipated rescue
Planned rescue
“intoxicated to the extent of being unable to comprehend the nature and consequences of the instrument he executed”
John Doe 1 and John Doe 2 v Borat
Deters threats
Reward rescue

14. Formation Defenses and Performance Excuses
Mutual mistakes about facts
Timber and fire
Mutual mistakes about identity
Rusty Chevy
Unilateral mistake
Laidlaw v Organ (1815)
Productive information
Redistributive information
Duty to Disclose
Promisee harms by withholding information
Fraud
Promisee knowingly provides false information
Encourage precaution and risk-spreading
Prevent involuntary trades
Unite knowledge and control

15. Formation Defenses and Performance Excuses
Unconscionability
Impossibility
Frustration of purpose
Adhesion contracts