George Mason School of Law
Contracts II
Remedies
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F.H. Buckley
fbuckley@gmu.edu
1
Next day
 Specific Performance, Reliance,
Restitution
2
A controversial extension of
law-and-economics
 Might efficiency concerns tell us
something about the responsibilities
of the parties after breach?
3
Efficiency Pre-breach
 Prior to breach or performance, the
risks and duties to be assigned to the
party best able to bear them: LCRA
4
Efficiency Post-breach
 Subsequent to breach, the parties still
might usefully be given cost-reducing
incentives
 Otherwise, who pays?
5
Efficiency Post-breach
 Subsequent to breach, the parties still
have to be given cost-reducing
incentives
 Mitigation
 Anticipatory Repudiation
 Remedies
6
Mitigation
 The innocent party’s recovery is
limited to costs he could not
reasonably have avoided post-breach
7
Which also explains Anticipatory Breach
 To put the innocent party on notice
and trigger his mitigation
requirements
 To let the party in breach start over
8
Fuzzy Anticipatory Breaches?
 What if the innocent party is unsure
whether there is an anticipatory
breach?
 UCC 2-609: Right to adequate assurance
of performance
9
Fuzzy Anticipatory Breaches
 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?
10
Fuzzy Anticipatory Breaches
 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
 The innocent party to roll the dice?
 Flatt: a clearly implied threat of nonperformance required
12
Fuzzy Anticipatory Breaches
 The innocent party to roll the dice?
 Flatt: a clearly implied threat of nonperformance required
 Otherwise chill efficient renegotiations
13
Fuzzy Anticipatory Breaches
 A modern trend?
 Bonebrake at 812
 Decker at 811
14
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
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
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
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
Remedies for Breach of Contract
19
If we don’t provide remedies?

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.
Hobbes, Leviathan 14.18 (1651)
20
How Should Breach Be Punished?
21
What if the punishment is specified
in the contract?
 Globe Refining at 93
Oliver Wendell Holmes
22
1841-1935
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
What if the punishment is specified
in the contract?
 In what circumstances do we not
enforce contracts?
24
What if the punishment is specified
in the contract?
 Where do we not enforce contracts?
 Paternalism and Penalty Clauses
25
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
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
What happens when the contract is
silent about the penalty, per Holmes?
28
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.”
29
What happens when the contract is
silent about the penalty?
Which is to
say, mimic
the market
And why does
this make sense?
30
Globe Refining p. 93
 What damages did the Π seek?
31
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
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
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
What is the purpose of
damages?
35
What is the purpose of
damages?
 Corrective justice?
 Efficiency?
36
What is the normal “measure”
of damages
37
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
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
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
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
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
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
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
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
Freund at 95
 What are the three kinds of damages
that are considered?
 Fuller and Perdue at 97
46
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
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
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
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
Uncertainty Limits Damages
 Dempsey p. 101
51
Uncertainty Limits Damages
 Dempsey p. 101
 No recovery for expected ticket revenues
52
Uncertainty Limits Damages
 Dempsey p. 101
 Does this undercompensate Π?
 And give Δ a temptation to breach?
53
Uncertainty Limits Damages
 Dempsey p. 101
 What recovery was awarded?
54
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
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 precontractual position
56
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
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
George Mason School of Law
Contracts II
Remedies
F.H. Buckley
fbuckley@gmu.edu
59
Next day
 Specific Performance
60
Remedies
 The Goals of Contract Law Remedies
 Substitutional Damages as
Compensation
 The Measure(s) of Damages:
 Expectation
 Reliance
 Restitution
61
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
The goals of contract law damages
 Compensation as Corrective Justice?
 Compensation and efficient
incentives?
 To perform
 To breach
63
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
Substitutional Justice as
Compensation
 The assumption that money damages
can cure all ills
 Presumptively, no specific
performance
65
Substitutional Justice as
Compensation
 The assumption that money damages
can cure all ills
 Presumptively, no specific
performance
 Presumptively, no punitive damages
66
Substitutional Justice as
Compensation
 The assumption that money damages
can cure all ills
 But this collides with an uncertainty
problem
67
Substitutional Justice as
Compensation
 The assumption that money damages
can cure all ills
 Presumptively, no remedy for
emotional distress in contract law
68
The Measure of Damages
 How does the common law measure
monetary damages in contract law?
 Restatement § 344
 Expectation Interest
 Reliance Interest
 Restitution Interest
69
Expectation Interest
 What’s the expectation interest in
Globe?
 In Freund?
70
Reliance Interest
 What’s the reliance interest in Globe?
71
Reliance Interest
 What’s the harm that is corrected
with a reliance award?
72
Restitution Interest
 What is the Restitution Interest in
Freund
 And what is the harm that is
corrected by a restitutionary award?
73
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
74
The interplay of the three
measures of damages
75
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
Awarding both expectation and
reliance damages as double-counting
 Expectation Interest = Net Profits =
Gross Profits less Reliance Expenses
 Gross Profits
 Reliance Expenses
 Net Profits
77
100
-60
40
Awarding both expectation and
reliance damages as double-counting
 Expectation Interest = Net Profits =
Gross Profits less Reliance Expenses
 Gross Profits
 Reliance Expenses
 Net Profits
100
-60
40
 Awarding both net profits plus
reliance expenses makes a party
better off with breach than
peformance
78
Could reliance damages be less
than the expectation interest?
79
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
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
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
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
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
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
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
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
Could reliance damages be less
than the expectation interest?
 The Uncertainty Barrier
 What does the court know about the
opportunities Globe had?
88
Could reliance or restitution damages
ever exceed expectation damages?
 What if they give us different
numbers?
89
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
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
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
Could reliance or restitution damages
ever exceed expectation damages?
 In these cases are reliance damages
required as a matter of corrective
justice?
93
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
Could reliance or restitution damages
ever exceed expectation damages?
 Reliance damages as an incentive
problem if they exceed the
expectation interest
95
Could reliance or restitution damages
ever exceed expectation damages?
 So far our intuitions about corrective
justice seem to line up with efficiency
criteria
96
Could a restitutionary award ever
exceed the expectation interest?
 Montgomery’s Estate at p.100?
97
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
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
99
The primacy of the expectation interest
 So the expectation interest places a
presumptive limit on reliance and
restitutionary awards
100
Expectation and Cover in Globe
 Cover: UCC § 2-711(1)(a)
 Incidental damages: UCC § 2-713(1)
101
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 damages would you award?
102
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
 Reliance damages = 30k
 120k less 100k for cover
 Plus 10k in consequential damages
103
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
 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
104
See problem 7 at p. 101
 What are the three possible kinds of
damages here?
105
See problem 7 at p. 101
 What are the three kinds of damages
that are considered?
 Reliance = $60,000
106
See problem 7 at p. 101
 What are the three kinds of damages
that are considered?
 Restitution = $40,000
107
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
See problem 7 at p. 101
 But what are the expectation
damages when the other party
breaches half way through?
109
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
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
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
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
See problem 7 at p. 101
 Expectation damages = 70K
 If we give him more than 70k, it’s like a
windfall
114
Why is the expectation interest the
contractual measure of damages?
 A contracts to build a custom made
machine for B for $100,000
115
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
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
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
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
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
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
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
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
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
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
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
Departures from the
Expectation Interest
 Departures from the expectation
interest invite opportunistic breaches
127
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
Departures from the
Expectation Interest
 Departures from the expectation
interest invite opportunistic breaches
 But what about non-opportunistic
breaches?
129
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
Efficient Breach
Richard Posner
131
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
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
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
Efficient Breach
 Cf. Casebook’s hypothetical at p. 104
 How might the goods end up with C?
135
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
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
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
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
Efficient Breach
 Suppose treble damages of $1500
were awarded to B?
 Will A sell to C?
140
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
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
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
Efficient Breach
 Casebook’s hypothetical at p. 104
 What about transaction cost
economies?
144
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
Efficient Breach: what we’re assuming
146
Efficient Breach: what we’re assuming
 Impossibility of a complete contingent
contract
 The parties can write the default
remedy in their contract
147
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
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
Do we have a good faith
problem here?
 Would good faith norms require
damages that exceed buyer’s lost
profits?
150
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
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
George Mason School of Law
Contracts II
Remedies
F.H. Buckley
fbuckley@gmu.edu
153
Next day
 Specific Performance
 Reliance Damages?
154
Exam
155
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
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
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
Just what do the parties expect from
performance?
 The ambiguity in the expectation
interest
159
Just what do the parties expect from
performance
 Where I bargain for an ounce of gold,
my claim is unquestionably fungible
with $$$
 And why is that?
160
Just what do the parties expect from
performance
 I buy a Picasso print from a gallery
for $15,000, which I think would look
nice in a bare spot in my living room.
Before delivery, the gallery decides to
sell it to a third party for $2,000
 What should I be awarded in damages?
161
Peevyhouse 872
162
Peevyhouse 872
163
Just what does it mean to provide
compensatory damages in contract?
164
Just what does it mean to provide
compensatory damages in contract?
 How do we put the Π in the same
position he would have been in had the
contract been performed?
 How would you calculate the damages?
165
Just what does it mean to provide
compensatory damages in contract?
 How do we put the Π in the same
position he would have been in had the
contract been performed?
 Cost of repairs: Give the Π enough $$$ 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
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 $$$ to
permit him to make the repairs
 Diminution of value: Give the Π the
diminution in the market value of the
property had the contract been performed
 Can you think of a third option?
167
Just what does it mean to provide
compensatory damages in contract?
 How do we put the Π in the same
position he would have been in had the
contract been performed?
 Cost of repairs: Give the Π enough $$$ 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
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
Peevyhouse 872
 Lease of farm for five years for
stripmining
 Cost of repair is $29,000
 Diminution of market value ≈ $300
170
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
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
Peevyhouse
 How valuable was the land?
 The Πs had a few years earlier bought 80
acres at $12 an acre ($960)
173
Peevyhouse
 Why do you think Garland agreed to
this crazy contract?
174
Peevyhouse
 Why do you think Garland agreed to
this crazy contract?
 Why didn’t it buy the land?
175
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
Peevyhouse
 Would it be economic waste to restore
the land?
177
Substantial Performance
 Remedies in Plante v. Jacobs at 688
 Diminished value preferred to cost of
repair
 Economic waste in this case
178
Peevyhouse
 Would it be economic waste to restore
the land in Peevyhouse?
 How would you define economic waste?
179
Peevyhouse
 Is there a principled way to choose
which measure of damages to adopt?
180
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.”
181
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
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
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
Peevyhouse
 Suppose the Peeveyhouse’s got the
$29,000. What do you expect they
would do with it?
185
Peevyhouse
 The dissent by Irwin:
 How would he have decided Jacob & Youngs
v. Kent?
186
Peevyhouse
 The dissent by Irwin:
 Is it helpful to note that Δs breach was
willful?
187
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
American Standard 868
Tonawanda!!!
189
American Standard 868
Tonawanda!!!
190
American Standard
 What was the Δ to do?
 And why did it breach?
191
American Standard
 Cost of completion was $110.5K
 Semble diminution of value was around
$3K
192
American Standard
 Cost of completion was $110.5K
 Semble diminution of value was around
$3K
 We sure about that?
193
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
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
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
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
American Standard
 Did the land have idiosyncratic or
sentimental value in Peevyhouse?
 Did subjective value > market value?
198
American Standard
 Did the land have idiosyncratic or
sentimental value in Peevyhouse?
 And here?
 Tonawanda!?!?!
199
George Mason School of Law
Contracts II
Specific Performance
F.H. Buckley
fbuckley@gmu.edu
200