George Mason School of Law
Contracts II
Remedies II: Expectation Interest
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may not be shared by them
F.H. Buckley
fbuckley@gmu.edu
1
Efficiency Pre-breach
 Prior to breach or performance, the
risks and duties to be assigned to the
party best able to bear them
2
Efficiency Post-breach
 Subsequent to breach, the parties
might still usefully be given costreducing incentives
3
Efficiency Post-breach
 Subsequent to breach, the parties still
are given cost-reducing incentives
 Mitigation
 Anticipatory Repudiation
 Remedies
4
What if the remedy is specified in
the contract?
 Globe Refining at 94
Oliver Wendell Holmes
5
1841-1935
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 happens when the contract is
silent about the remedy, per Holmes?
7
What happens when the contract is
silent about the remedy?
Give them
what they
“probably
would have
said if they
had spoken
about the
matter.”
8
Globe Refining p. 94
 What damages did the Π seek?
9
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
10
Globe Refining
 What did Holmes award?
11
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?
12
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
13
Calculating profits on purchase
of commodities
 Gross profits = Contract price less
market price
 Net profits = Contract price less
(market price plus expenses)
14
Globe Refining
 Assume that had the contract been
performed Globe would have made
gross profits of 100 and net profits of
90 (after spending 10 in expenses)
 What should Globe’s recovery be if
breach occurred after the rail cars were
shipped to Louisville?
15
Globe Refining
 Assume that had the contract been
performed Globe would have made
gross profits of 100 and net profits of
90 (after spending 10 in expenses)
 Damages of $100 puts Globe in the same
position as had the contract been
performed
 Gross profits of 100 plus expenses of 10
would be overcompensation
16
Globe Refining
 Assume that had the contract been
performed Globe would have made
gross profits of 100 and net profits of
90 (after spending 10 in expenses)
 What should Globe’s recovery be if
breach occurred before the rail cars
were shipped to Louisville?
17
Globe Refining
 Assume that had the contract been
performed Globe would have made
gross profits of 100 and net profits of
90 (after spending 10 in expenses)
 What should Globe’s recovery be if
breach occurred before the rail cars
were shipped to Louisville?
 Damages of $90 puts Globe in the same
position as had the contract been
performed
18
The purpose of damages in
contract law
19
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.
20
Compensation
as Substitutional Justice
 The assumption that money damages
can cure all ills
 Presumptively no specific performance
21
How does one compensate?
 When the wrong is a tort, one puts
the injured party in his pre-tort
position
22
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
23
How does one compensate
 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
24
The measure of damages at
common law
25
The measure of damages at
common law?
 § 2-713(1) The measure of damages for nondelivery 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.
26
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?
27
Why the price of oil at breach?
 § 2-713(1) The measure of damages for nondelivery 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.
28
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?
29
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
fbuckley@gmu.edu
30
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.
31
Damages in Freund at 96
 What was the contract?
32
Freund at 96
 What damages remedies did Freund
seek?
33
Freund
 What damages remedies did Freund
seek?
 Damages for delay of promotion
 Lost royalties
 Potential cost of vanity publication
34
Freund
 Fuller and Perdue at 97
 Expectation
 Reliance
 Restitution
35
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.
36
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?
37
Ebenezer promises to gives 100 but breaches
Time 1
What do we need to give David to
make him as well off as he would
have been had he not relied?
C 100,0 D
B 100, 100
A 50, 50
50
I100
I DR
0
50
38
100
Ebenezer promises to gives 100 but breaches
Time 1
The Expectation Interest is
CB, or $100
C 100,0 D
B 100, 100
A 50, 50
50
I100
I DR
0
50
39
100
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
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
 The royalties were too speculative to
amount to anything
 The reputational loss was not quantified (or
quantifiable)
41
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?
42
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
43
Uncertainty Limits Damages
 Dempsey p. 102
 No recovery for expected ticket revenues
(lost profits)
44
So would you fight Harry Wills?
 79-10-4
45
Uncertainty Limits Damages
 Does the uncertainty barrier
undercompensate Π?
 And give Δ a temptation to breach?
46
Uncertainty Limits Damages
 Dempsey p. 102
 What recovery was awarded?
47
Uncertainty Limits Damages
 Dempsey p. 102
 What recovery was awarded?
 Reliance Damages
48
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)
49
Freund
 The Reliance Interest in Freund:
Reimburse the Π for what he spent in
reliance on the contract
50
Ebenezer promises to gives 100 but breaches
Time 1
What do we need to give David
to make him as well off as he
would have been had the
promise been performed?
C 100,0 D
B 100, 100
A 50, 50
50
I100
I DR
0
50
51
100
Ebenezer promises to gives 100 but breaches
Time 1
The Reliance Interest is CD,
or about $25
C 100,0 D
B 100, 100
A 50, 50
50
I100
I DR
0
50
52
100
Freund
 The Reliance Interest: A Tortious
measure: Put the Π in his precontractual position
53
Freund
 The Reliance Interest in Freund
 For costs actually incurred, not
hypothetically incurred as here
54
Freund
 Qu. The analogy to construction
contracts at p. 97-98
 How might they be different?
 Cf. Grun Roofing at 670
55
Restitution Interest
 What is the harm that is corrected by
a restitutionary award?
56
Bailey v. West
 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
57
The interplay of the three
measures of damages
58
Could reliance damages be less
than the expectation interest?
59
What about opportunity costs?
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?
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 expectation interest?
 John has to spend an extra $10,000 for
the wheat
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?
64
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
65
Could reliance damages be less
than the expectation interest?
 Expectation ≈ reliance when
opportunity costs are considered in
competitive markets
66
Could reliance or restitution damages
ever exceed expectation damages?
 P. 102, problem 7
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.
68
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?
69
Could reliance or restitution damages
ever exceed expectation damages?
 Reliance damages as an incentive
problem if they exceed the
expectation interest
70
Could a restitutionary award ever
exceed the expectation interest?
 Montgomery’s Estate at p.101?
71
Recall what is needed to support a
restitutionary claim
 Benefit conferred on defendant by
plaintiff
 Appreciation by defendant of the
benefit
 It would be inequitable for defendant
to retain the benefit
72
The primacy of the expectation interest
 So the expectation interest places a
presumptive limit on reliance and
restitutionary awards
73
Expectation and Cover in Globe
 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 reliance and expectation damages
would you award?
74
Expectation and Cover in Globe
 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;
75
Expectation and Cover in Globe
 Incidental damages: UCC § 2-713(1)
 Subject to the provisions of this Article with respect to
proof of market price (Section 2-723), 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
76
Expectation and Cover in Globe
 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 Texas
 What reliance damages would you
award?
77
Expectation and Cover in Globe
 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 Texas
 Reliance damages = 30k
 [120k less 100k] for cover
 Plus 10k in consequential damages
78
Expectation and Cover in Globe
 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 Texas
 What expectation damages?
79
Expectation and Cover in Globe
 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 Texas
 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
80
Cover
 Suppose that in Freud the plaintiff
had actually spent money on a vanity
press? Would that have been a
“cover”?
81
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
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
 What are the reliance damages?
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]
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
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
 Another way of thinking of this: Give him
Gross Profits of 100 less remaining
expenses of (90 – 60 =) 30 less deposit
94
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 has mitigated by not spending
30K and that should be deducted from
the 100K: Restatement 344, illus. 2
95
Why is the expectation interest the
contractual measure of damages?
 A contracts to build a custom made
machine for B for $100,000
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
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 A breaches, B’s expectation interest is
the value of the machine less the $100K
purchase price
98
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
99
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
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
($100,000 - $60,000 =) $40,000
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
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
 How might B exploit this?
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 only
$20K in damages
 “If I breach, you get $20K, so I’ll offer you
$90,000 (= cost of construction plus $30k)
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 only
$20K in damages
 This invites opportunistic renegotiation by B
when the machine is half built
105
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
106
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
107
Departures from the
Expectation Interest
 Departures from the expectation
interest invite opportunistic breaches
108
Departures from the
Expectation Interest
 Departures from the expectation
interest invite opportunistic breaches
 That’s inconsistent with our ideas about
corrective justice and efficiency
109
Departures from the
Expectation Interest
 Departures from the expectation
interest invite opportunistic breaches
 But what about non-opportunistic
breaches?
110
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
111
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
112
Efficient Breach
 The limitation to expectation
damages can give one an incentive to
breach
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 do both
114
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 do both
 What will A gain if he sells to C and pays
damages to B?
115
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 would make (2,000 – 500 =) 1,500 on
the sale to C, pay damages of (1,500 –
1,000 = ) 500 to B and be 1,000 to the
good
116
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 A sells to B he’ll make only (1,000 –
500 =) 500, which is 500 less than if he
sells to C and pays B damages
117
Efficient Breach
 Cf. Casebook’s hypothetical at p. 105
 So A is net 500 better off if he breaches
118
Efficient Breach
 Cf. Casebook’s hypothetical at p. 105
 So A is net 500 better off if he breaches
 What assumptions are we making?
119
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?
120
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?
121
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?
122
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?
123
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?
124
Efficient Breach
 Casebook’s hypothetical at p. 105
 An efficient breach is thought to
move the goods to their most highlyvalued user without the need for
renegotiation between B and C
125
Efficient Breach
 Suppose treble damages of $1500
were awarded to B?
 Will A sell to C?
126
Efficient Breach
 Suppose treble damages of $1500
were awarded to B.
 A won’t sell to C
 If he does he’ll make (2,000 – 500 =)
1,500 on the sale to C but will pay
damages of $1500 to B and would not have
an incentive to sell to C
127
Do we have a good faith
problem here?
 Would good faith norms require
damages that exceed buyer’s lost
profits?
128
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?)
129
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?
130
Just what do the parties expect from
performance?
 The ambiguity in the expectation
interest
131
Just what do the parties expect from
performance
 Where I bargain for an ounce of gold,
my claim is unquestionably fungible
with $$$
132
Just what do the parties expect from
performance
 I buy a Picasso print from a gallery
for $15,000, which I think would look
nice in a bare spot in my living room.
Before delivery, the gallery decides to
sell it to a third party for $20,000
 What should I be awarded in damages?
133
Just what do the parties expect from
performance
 The problem of subjective value
134
Peevyhouse 846
135
Peevyhouse 846
136
Peevyhouse 846
137
Just what does it mean to provide
compensatory damages in contract?
 How do we put the Π in the same
position he would have been in had the
contract been performed?
 How would you calculate the damages?
138
Just what does it mean to provide
compensatory damages in contract?
 How do we put the Π in the same
position he would have been in had the
contract been performed?
 Cost of repairs: Give the Π enough $$$ 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
139
We saw this before
 Plante v. Jacobs at 675
140
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?
141
Peevyhouse 846
 Lease of farm for five years for
stripmining
 Cost of repair is $29,000
 Diminution of market value ≈ $300
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
143
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?
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 $$$ to
permit him to make the repairs
 Diminution of value: Give the Π the
diminution in the market value of the
property had the contract been performed
 Can you think of a third option?
145
Just what does it mean to provide
compensatory damages in contract?
 How do we put the Π in the same
position he would have been in had the
contract been performed?
 Cost of repairs: Give the Π enough $$$ 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?
146
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?
147
Peevyhouse
 Why do you think Garland agreed to
this crazy contract?
148
Peevyhouse
 Why do you think Garland agreed to
this crazy contract?
 Why didn’t it buy 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
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?
Give them
what they
“probably
would have
said if they
had spoken
about the
matter.”
152
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?
 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 854
 Why a different result?
160
American Standard 852
Tonawanda!!!
161
American Standard
 Cost of completion was $110K
 Semble diminution of value was around
$3K
 We sure about that?
162
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?
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
 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 (?!?)
166
American Standard
 Did the land have idiosyncratic or
sentimental value in Peevyhouse?
 Did subjective value > market value?
167
American Standard
 Did the land have idiosyncratic or
sentimental value in Peevyhouse?
 And here?
 Tonawanda!?!?!
168
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?
169