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

2. Next day  Specific Performance, Reliance, Restitution 2

3. A controversial extension of law-and-economics  Might efficiency concerns tell us something about the responsibilities of the parties after breach? 3

4. Efficiency Pre-breach 4  Prior to breach or performance, the risks and duties to be assigned to the party best able to bear them: LCRA

5. Efficiency Post-breach 5  Subsequent to breach, the parties still might usefully be given cost-reducing incentives Otherwise, who pays?

6. Efficiency Post-breach 6  Subsequent to breach, the parties still have to be given cost-reducing incentives  Mitigation  Anticipatory Repudiation  Remedies

7. Mitigation 7  The innocent party’s recovery is limited to costs he could not reasonably have avoided post-breach

8. Which also explains Anticipatory Breach 8  To put the innocent party on notice and trigger his mitigation requirements  To let the party in breach start over

9. Fuzzy Anticipatory Breaches? 9  What if the innocent party is unsure whether there is an anticipatory breach? UCC 2-609: Right to adequate assurance of performance

10. Fuzzy Anticipatory Breaches 10  The onus on the innocent party? UCC 2-609: Right to adequate assurance of performance And what if the innocent party isn’t satisfied with that?

11. Fuzzy Anticipatory Breaches 11  The onus on the innocent party? UCC 2-609: Right to adequate assurance of performance And what if the innocent party isn’t satisfied with that?

12. Fuzzy Anticipatory Breaches 12  The innocent party to roll the dice? Flatt: a clearly implied threat of non- performance required

13. Fuzzy Anticipatory Breaches 13  The innocent party to roll the dice? Flatt: a clearly implied threat of non- performance required Otherwise chill efficient renegotiations

14. Fuzzy Anticipatory Breaches 14  A modern trend? Bonebrake at 812 Decker at 811

15. Insolvency  Might be treated as akin to a repudiation under Restatement § 252  Right to assurance of performance. Restatement § 251.  Seller’s Remedy in UCC § 2-702 15

16. Insolvency  Might be treated as akin to a repudiation under Restatement § 252  Right to assurance of performance. Restatement § 251.  Seller’s Remedy in UCC § 2-702  But see Koppelon at 815 16

17. Insolvency  You’re supplying goods or services to a party on credit. You’ve heard that he’s late on paying his bills. What do you do? 17

18. Executory Contracts in Bankruptcy  Bankruptcy Code Sec. 365  (a) The trustee, subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor. 18

19. Remedies for Breach of Contract 19

20. 20 Hobbes, Leviathan 14.18 (1651)  If a covenant be made wherein neither of the parties perform presently, but trust one another, in the condition of mere nature (which is a condition of war of every man against every man) upon any reasonable suspicion, it is void…  For he that performeth first hath no assurance the other will perform after, because the bonds of words are too weak to bridle men's ambition, avarice, anger, and other passions, without the fear of some coercive power; which in the condition of mere nature, where all men are equal, and judges of the justness of their own fears, cannot possibly be supposed. And therefore he which performeth first doth but betray himself to his enemy. If we don’t provide remedies?

21. How Should Breach Be Punished? 21

22. What if the punishment is specified in the contract?  Globe Refining at 93 22 Oliver Wendell Holmes 1841-1935

23. What if the punishment is specified in the contract?  You’re the buyer. You anticipate that on breach you’ll incur damages of $50,000. You specify that seller will pay this on breach Any problems enforcing this (and not awarding buyer anything more or less than $50K?) 23

24. What if the punishment is specified in the contract?  In what circumstances do we not enforce contracts? 24

25. What if the punishment is specified in the contract?  Where do we not enforce contracts? Paternalism and Penalty Clauses 25

26. What if the punishment is specified in the contract?  Where do we not enforce contracts? Paternalism and Penalty Clauses The third party judicial externalities of specific performance 26

27. What if the punishment is specified in the contract?  Where do we not enforce contracts? Paternalism and Penalty Clauses The third party judicial externalities of specific performance  But that apart, no reason not to enforce the contract 27

28. What happens when the contract is silent about the penalty, per Holmes? 28

29. What happens when the contract is silent about the penalty? 29 Give them what they “probably would have said if they had spoken about the matter.”

30. What happens when the contract is silent about the penalty? 30 Which is to say, mimic the market And why does this make sense?

31. Globe Refining p. 93  What damages did the Π seek? 31

32. Globe Refining p. 93  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 32

33. Globe Refining p. 93  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 Louisville? 33

34. Globe Refining p. 93  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 Louisville  Only the former—and why was that? 34

35. What is the purpose of damages? 35

36. What is the purpose of damages?  Corrective justice?  Efficiency? 36

37. What is the normal “measure” of damages 37

38. What is the normal “measure” of damages  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. 38

39. What is the normal “measure” of damages  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. That satisfies corrective justice norms. But what about efficiency norms? 39

40. What is the normal measure of damages at common law?  When the wrong is a tort, one puts him in his pre-tort position 40

41. What is the normal measure of damages at common law?  When the wrong is a breach of contract, how does one compensate the Π? 41

42. What is the normal measure of damages at common law?  When the wrong is a breach of contract, how does one compensate the Π? One makes him whole by putting in the position he would be in had the contract been performed 42

43. What is the normal measure of damages at common law?  When the wrong is a breach of contract, how does one compensate the Π? In Globe Refining, the Π would have had the oil, but would have had to send the tank cars to Texas in any event  Giving him both is double counting 43

44. 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? 44

45. 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? 45

46. Freund at 95  What are the three kinds of damages that are considered? Fuller and Perdue at 97 46

47. 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? 47

48. 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  In this case, the royalties, which are too speculative to amount to anything 48

49. 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  In this case, the royalties, which are too speculative to amount to anything  The Uncertainty Barrier 49

50. 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  In this case, the royalties, which are too speculative to amount to anything  Nominal Damages 50

51. Uncertainty Limits Damages  Dempsey p. 101 51

52. Uncertainty Limits Damages  Dempsey p. 101 No recovery for expected ticket revenues 52

53. Uncertainty Limits Damages  Dempsey p. 101 Does this undercompensate Π?  And give Δ a temptation to breach? 53

54. Uncertainty Limits Damages  Dempsey p. 101 What recovery was awarded? 54

55. Freund  What are the three kinds of damages that are considered? The Expectation Interest The Reliance Interest: Reimburse the Π for what he spent in reliance on the contract 55

56. Freund  What are the three kinds of damages that are considered? The Expectation Interest The Reliance Interest: Reimburse the Π for what he spent in reliance on the contract  A Tortious measure: Put the Π in his pre- contractual position 56

57. Freund  What are the three kinds of damages that are considered? The Expectation Interest The Reliance Interest  For costs actually incurred, not hypothetically incurred as here 57

58. Freund  What are the three kinds of damages that are considered? The Expectation Interest The Reliance Interest  Qu. The analogy to construction contracts at p. 97 58

59. 59 George Mason School of Law Contracts II Remedies F.H. Buckley fbuckley@gmu.edu

60. Next day  Specific Performance 60

61. Remedies  The Goals of Contract Law Remedies  Substitutional Damages as Compensation  The Measure(s) of Damages: Expectation Reliance Restitution 61

62. Remedies  The Goals of Contract Law Remedies  Substitutional Damages as Compensation  The Measure(s) of Damages:  The Interplay of the three measures and the paramountcy of the expectation interest 62

63. The goals of contract law damages  Compensation as Corrective Justice?  Compensation and efficient incentives? To perform To breach 63

64. Substitutional Justice as Compensation  The assumption that money damages can cure all ills Every loss is deemed fungible with money What follows from this? 64

65. Substitutional Justice as Compensation  The assumption that money damages can cure all ills  Presumptively, no specific performance 65

66. Substitutional Justice as Compensation  The assumption that money damages can cure all ills  Presumptively, no specific performance  Presumptively, no punitive damages 66

67. Substitutional Justice as Compensation  The assumption that money damages can cure all ills  But this collides with an uncertainty problem 67

68. Substitutional Justice as Compensation  The assumption that money damages can cure all ills  Presumptively, no remedy for emotional distress in contract law 68

69. The Measure of Damages  How does the common law measure monetary damages in contract law? Restatement § 344  Expectation Interest  Reliance Interest  Restitution Interest 69

70. Expectation Interest  What’s the expectation interest in Globe?  In Freund? 70

71. Reliance Interest  What’s the reliance interest in Globe? 71

72. Reliance Interest  What’s the harm that is corrected with a reliance award? 72

73. Restitution Interest  What is the Restitution Interest in Freund  And what is the harm that is corrected by a restitutionary award? 73

74. Bailey v. West 74  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

75. The interplay of the three measures of damages 75

76. Awarding both expectation and reliance damages as double-counting  What did Holmes award in Globe? The difference between the contract price and the market price at the time of breach The cost of sending the tank cars to Louisville  Only the former—and why was that? 76

77. Awarding both expectation and reliance damages as double-counting  Expectation Interest = Net Profits = Gross Profits less Reliance Expenses Gross Profits 100 Reliance Expenses-60 Net Profits 40 77

78. Awarding both expectation and reliance damages as double-counting  Expectation Interest = Net Profits = Gross Profits less Reliance Expenses Gross Profits 100 Reliance Expenses-60 Net Profits 40  Awarding both net profits plus reliance expenses makes a party better off with breach than peformance 78

79. Could reliance damages be less than the expectation interest? 79

80. Could reliance damages be less than the expectation interest?  The hypothetical at p. 99 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 80

81. Could reliance damages be less than the expectation interest?  The hypothetical at p. 99 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? 81

82. Could reliance damages be less than the expectation interest?  The hypothetical at p. 99 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? 82

83. Could reliance damages be less than the expectation interest?  Expectation ≈ reliance when opportunity costs are considered in competitive markets But not if reliance > expectation 83

84. Could reliance damages be less than the expectation interest?  Test this in Globe Suppose that Landa breached before Globe incurred any expenses, that Globe expected to spend 90k to make 100k. 84

85. Could reliance damages be less than the expectation interest?  Suppose that Landa breached before Globe incurred any expenses, that Globe expected to spend 90k to make 100k. What is the expectation interest? 85

86. Could reliance damages be less than the expectation interest?  Suppose that Landa breached before Globe incurred any expenses, that Globe expected to spend 90k to make 100k. What is the reliance interest 86

87. Could reliance damages be less than the expectation interest?  Suppose that Landa breached before Globe incurred any expenses, that Globe expected to spend 90k to make 100k. What is the reliance interest?  What assumptions are you making? 87

88. Could reliance damages be less than the expectation interest?  The Uncertainty Barrier What does the court know about the opportunities Globe had? 88

89. Could reliance or restitution damages ever exceed expectation damages?  What if they give us different numbers? 89

90. 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? 90

91. Is this inconsistent with the bargain?  Recall what Holmes said in Globe about what happens if the remedy is specified in the contract In return for $100,000 or such higher amount it may cost me to build the house 91

92. Could reliance or restitution damages ever exceed expectation damages?  A agrees to deliver 200 oz. of gold to B in a month for $100k. A estimates that it will cost him $90k to buy the gold in a month.  In fact, the price of gold unexpectedly increases and it costs A 120k.  Can he recover for 120k? 92

93. Could reliance or restitution damages ever exceed expectation damages?  In these cases are reliance damages required as a matter of corrective justice? 93

94. Could reliance or restitution damages ever exceed expectation damages?  A agrees to build a house for B for $100k. A expects that he will incur $90k in expenses in building the house.  A doesn’t control his costs and it costs him $120k.  Can A demand $120 from B for building the house? 94

95. Could reliance or restitution damages ever exceed expectation damages?  Reliance damages as an incentive problem if they exceed the expectation interest 95

96. Could reliance or restitution damages ever exceed expectation damages?  So far our intuitions about corrective justice seem to line up with efficiency criteria 96

97. Could a restitutionary award ever exceed the expectation interest?  Montgomery’s Estate at p.100? 97

98. Could restitution damages ever exceed expectation damages?  A agrees to deliver 200 oz. of gold to B in a month for $100k.  In fact, the price of gold unexpectedly increases and the gold is now worth 120k.  Does A have a restitutionary claim for 20k? 98

99. Recall what is needed to support a restitutionary claim 99  Benefit conferred on defendant by plaintiff  Appreciation by defendant of the benefit  It would be inequitable for defendant to retain the benefit

100. The primacy of the expectation interest 100  So the expectation interest places a presumptive limit on reliance and restitutionary awards

101. Expectation and Cover in Globe 101  Cover: UCC § 2-711(1)(a)  Incidental damages: UCC § 2-713(1)

102. Expectation and Cover in Globe 102  Suppose that the purchase price of the cotton oil is 100K, that Globe has spent 10k in reliance expenses on the railway cars, and that on breach Globe covers by buying substitute oil for 120k in Louisville What damages would you award?

103. Expectation and Cover in Globe 103  Suppose that the purchase price of the cotton oil is 100K, that Globe has spent 10k in reliance expenses on the railway cars, and that on breach Globe covers by buying substitute oil for 120k in Louisville Reliance damages = 30k  120k less 100k for cover  Plus 10k in consequential damages

104. Expectation and Cover in Globe 104  Suppose that the purchase price of the cotton oil is 100K, that Globe has spent 10k in reliance expenses on the railway cars, and that on breach Globe covers by buying substitute oil for 120k in Louisville Expectation = 30k.  Globe had to spend $130k (120k plus 10k) to be as well off as if the contract had been performed and he had paid 100k

105. See problem 7 at p. 101  What are the three possible kinds of damages here? 105

106. See problem 7 at p. 101  What are the three kinds of damages that are considered?  Reliance = $60,000 106

107. See problem 7 at p. 101  What are the three kinds of damages that are considered?  Restitution = $40,000 107

108. See problem 7 at p. 101  What are the three kinds of damages that are considered?  The expectation interest had the contract been performed: $100,000 - $90,000 = $10,000 Expectation interest = Gross profit less reliance expenses 108

109. See problem 7 at p. 101  But what are the expectation damages when the other party breaches half way through? 109

110. See problem 7 at p. 101  But what happens when the other party breaches half way through? Expectation damages = Gross Profit of 100k less remaining expenses of (90k less 60k =) 30k = 70K 110

111. See problem 7 at p. 101  Expectation damages = 70K John has mitigated by not spending 30K and that should be deducted from the 100K  Restatement 344, illus. 2 111

112. See problem 7 at p. 101  Expectation damages = 70K John would have spent 90K to make 100K, but has only spent 60K and thus has saved 30K. If we give him the profit he would have made of 10k and the costs he has incurred to date of 60k, he is in the same position as if the contract had been performed 112

113. See problem 7 at p. 101  Expectation damages = 70K If we give him less than 70k we leave him worse off than he would be had the contract been performed 113

114. See problem 7 at p. 101  Expectation damages = 70K If we give him more than 70k, it’s like a windfall 114

115. Why is the expectation interest the contractual measure of damages?  A contracts to build a custom made machine for B for $100,000 115

116. 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 116

117. 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 117

118. 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 118

119. 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 $60,000 119

120. 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 =) $40,000 120

121. 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 121

122. 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? 122

123. 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) 123

124. 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 124

125. 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 125

126. 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 126

127. Departures from the Expectation Interest  Departures from the expectation interest invite opportunistic breaches 127

128. Departures from the Expectation Interest  Departures from the expectation interest invite opportunistic breaches That’s inconsistent with our ideas about corrective justice From an efficiency perspective, how would you expect the possibility of opportunism to play out ex ante? 128

129. Departures from the Expectation Interest  Departures from the expectation interest invite opportunistic breaches  But what about non-opportunistic breaches? 129

130. Efficient Breach  Holmes’ Path of the Law p. 102 The common law is indifferent between the promisor’s choice either to perform or breach and pay damages 130

131. Efficient Breach 131 Richard Posner

132. Efficient Breach  Cf. Casebook’s hypothetical at p. 104 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 do both 132

133. Efficient Breach  Cf. Casebook’s hypothetical at p. 104 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 do both What would the economist want? 133

134. Efficient Breach  Cf. Casebook’s hypothetical at p. 104 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 do both The economist would want the goods to end up with C with a minimum of transaction costs 134

135. Efficient Breach  Cf. Casebook’s hypothetical at p. 104 How might the goods end up with C? 135

136. Efficient Breach  Cf. Casebook’s hypothetical at p. 104 How might the goods end up with C?  A might seek to enter into a termination agreement with B. Or he might just sell them to C 136

137. Efficient Breach  Casebook’s hypothetical at p. 104 Under expectation damages, A can make the goods for $500, pay damages of ($1,500 - $1000 =) $500 to B and sell them to C for $2,000 and make $1000 137

138. Efficient Breach  Casebook’s hypothetical at p. 104  This moves the goods to their most highly-valued user without the need for renegotiation between A and B 138

139. Efficient Breach  Casebook’s hypothetical at p. 104  But just how did we know that C valued the goods more than B Did some little bird tell us B’s valuation? 139

140. Efficient Breach  Suppose treble damages of $1500 were awarded to B? Will A sell to C? 140

141. Efficient Breach  Suppose treble damages of $1500 were awarded. A won’t sell to C  If he does he’ll pay damages of $1500 and would make a profit of only $1000 141

142. Efficient Breach  Suppose treble damages of $1500 were awarded. A won’t sell to C  If A doesn’t sell to C, will C buy them from B? 142

143. Efficient Breach  Suppose treble damages of $1500 were awarded. A won’t sell to C  If A doesn’t sell to C, will C buy them from B?  But will C know who B is? 143

144. Efficient Breach  Casebook’s hypothetical at p. 104  What about transaction cost economies? 144

145. Efficient Breach  Casebook’s hypothetical at p. 104  What about transaction cost economies?  With an “efficient breach,” we’ll still have litigation or a settlement between A and B 145

146. Efficient Breach: what we’re assuming 146

147. Efficient Breach: what we’re assuming  Impossibility of a complete contingent contract The parties can write the default remedy in their contract 147

148. Efficient Breach: what we’re assuming  Impossibility of a complete contingent contract  The goods might not get to C unless A breaches with B 148

149. Efficient Breach: what we’re assuming  Impossibility of a complete contingent contract  The goods might not get to C unless A breaches with B, or  If C buys from A, there is a transaction costs savings, in the sense that the cost of C’s negotiations with B exceeds the cost of C’s dealings with A plus those of B vindicating his rights against A 149

150. Do we have a good faith problem here?  Would good faith norms require damages that exceed buyer’s lost profits? 150

151. 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?) 151

152. 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?) Might we have more bad faith (by the innocent party) with good faith? 152

153. 153 George Mason School of Law Contracts II Remedies F.H. Buckley fbuckley@gmu.edu

154. Next day  Specific Performance  Reliance Damages? 154

155. Exam 155

156. No mistake  Zach Bodish, a 46-year-old University District resident, purchased what turned out to be an original Picasso print at a Volunteers of America thrift store in Clintonville for $14 156

157. Remedies  The Goals of Contract Law Remedies  Substitutional Damages as Compensation  The Measure(s) of Damages  The Interplay of the three measures and the paramountcy of the expectation interest 157

158. Remedies  The Goals of Contract Law Remedies  Substitutional Damages as Compensation  The Measure(s) of Damages  The Interplay of the three measures and the paramountcy of the expectation interest 158

159. Just what do the parties expect from performance?  The ambiguity in the expectation interest 159

160. Just what do the parties expect from performance  Where I bargain for an ounce of gold, my claim is unquestionably fungible with $$$ And why is that? 160

161. Just what do the parties expect from performance  I buy a Picasso print from a gallery for $15,000, which I think would look nice in a bare spot in my living room. Before delivery, the gallery decides to sell it to a third party for $2,000 What should I be awarded in damages? 161

162. Peevyhouse 872 162

163. Peevyhouse 872 163

164. Just what does it mean to provide compensatory damages in contract? 164

165. 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? How would you calculate the damages? 165

166. 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 166

167. 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? 167

168. 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? 168

169. 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? 169

170. Peevyhouse 872  Lease of farm for five years for stripmining Cost of repair is $29,000 Diminution of market value ≈ $300 170

171. Peevyhouse 872  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 171

172. Peevyhouse 872  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? 172

173. Peevyhouse  How valuable was the land? The Πs had a few years earlier bought 80 acres at $12 an acre ($960) 173

174. Peevyhouse  Why do you think Garland agreed to this crazy contract? 174

175. Peevyhouse  Why do you think Garland agreed to this crazy contract? Why didn’t it buy the land? 175

176. 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 176

177. Peevyhouse  Would it be economic waste to restore the land? 177

178. Substantial Performance  Remedies in Plante v. Jacobs at 688 Diminished value preferred to cost of repair Economic waste in this case 178

179. Peevyhouse  Would it be economic waste to restore the land in Peevyhouse? How would you define economic waste? 179

180. Peevyhouse  Is there a principled way to choose which measure of damages to adopt? 180

181. What happens when the contract is silent about the penalty? 181 Give them what they “probably would have said if they had spoken about the matter.”

182. 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? Maute at p. 878 182

183. 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? We know that the Πs wanted more than $3000. 183

184. 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? 184

185. Peevyhouse  Suppose the Peeveyhouse’s got the $29,000. What do you expect they would do with it? 185

186. Peevyhouse  The dissent by Irwin: How would he have decided Jacob & Youngs v. Kent? 186

187. Peevyhouse  The dissent by Irwin: Is it helpful to note that Δs breach was willful? 187

188. Willful deviations as Conditions  Cf Grun Roofing at 684 “Contractor must have intended to comply”  Material Movers at 687 Can you justify this on efficiency grounds? 188

189. American Standard 868 189 Tonawanda!!!

190. American Standard 868 190 Tonawanda!!!

191. American Standard  What was the Δ to do? And why did it breach? 191

192. American Standard  Cost of completion was $110.5K  Semble diminution of value was around $3K 192

193. American Standard  Cost of completion was $110.5K  Semble diminution of value was around $3K We sure about that? 193

194. American Standard  Cost of completion was $110.5K  Semble diminution of value was around $3K Suppose the parties knew that the diminution of value was $3,000. How would they have bargained? 194

195. American Standard  Cost of completion was $110.5K  Semble diminution of value was around $3K  So what did the Π bargain for? Money’s worth or full performance 195

196. 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 196

197. 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 The breach was “incidental” to the main purpose in Peevyhouse (?!?) 197

198. American Standard  Did the land have idiosyncratic or sentimental value in Peevyhouse? Did subjective value > market value? 198

199. American Standard  Did the land have idiosyncratic or sentimental value in Peevyhouse?  And here? Tonawanda!?!?! 199

200. 200 George Mason School of Law Contracts II Specific Performance F.H. Buckley fbuckley@gmu.edu