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George Mason School of Law

George Mason School of Law. Contracts II Remedies F.H. Buckley fbuckley@gmu.edu. How Should Breach Be Punished?.

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George Mason School of Law

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

  2. How Should Breach Be Punished?

  3. Hobbes, Leviathan 14.18 (1651) And if we don’t punish? • 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.

  4. What if the punishment is specified in the contract?

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

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

  7. 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

  8. 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

  9. 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.” Oliver Wendell Holmes 1841-1935

  10. What happens when the contract is silent about the penalty? Which is to say, mimic the market Oliver Wendell Holmes 1841-1935

  11. Globe Refining p. 93 • What damages did the Π seek?

  12. Globe Refining p. 93 • What damages did the Π seek? • The difference between the contract price and the market price of oil at the time of breach, and… • The cost of sending the tank cars to Louisville

  13. 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?

  14. 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?

  15. Globe Refining p. 93 • What did Holmes award? • “It gets what represents the value of the oil in its hands”

  16. Globe Refining p. 93 • What did Holmes award? • Why not the difference between the contract price and the market price at the time of trial, if this was greater?

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

  18. Next day • Up to Liquidated Damages and Penalties

  19. What would efficiency norms mean? • Efficient incentives to perform prior to breach • Efficient breach • Efficient incentives after breach • Anticipatory repudiation • Mitigation of damages • The damages regime

  20. What is the normal measure of damages at common law?

  21. What is the normal measure of damages at common law? • Damages are compensatory • They are meant to put the innocent party in the position he would have been in had the wrong not been committed.

  22. What is the normal measure of damages at common law? • When the wrong is a tort, how does one compensate the Π? • Put the Π in the position he would have been in had the tort not been committed

  23. 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

  24. 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 Louisville in any event • Giving him both is double counting

  25. Freund v. Washington Square 95

  26. Freund v. Washington Square 95 • What are the three kinds of damages that are considered?

  27. Freund • What are the three kinds of damages that are considered? • Cf. Restatement 344

  28. 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

  29. 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 • Restatement 344, illustration1

  30. 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 • Restatement 344, illustration 2

  31. 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 • Royalties • Tenure • Reputation

  32. 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 • Royalties are too speculative to amount to anything

  33. 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 Freund, the royalties, which are too speculative to amount to anything • Nominal Damages

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

  35. 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 • Restatement 344 illustration 2

  36. 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 Tortous measure: Put the Π in his pre-contractual position

  37. 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

  38. Freund • What are the three kinds of damages that are considered? • The Expectation Interest • The Reliance Interest • Semble not to exceed the expectation interest, or else a windfall • Restatement 344, comment a

  39. Reliance damages a response to Uncertainty? • Dempsey p. 101

  40. Freund • What are the three kinds of damages that are considered? • The Expectation Interest • The Reliance Interest • Does the reliance interest approximate the expectation interest when account is taken of opportunity costs? P. 865

  41. Freund • What are the three kinds of damages that are considered? • The Expectation Interest • The Reliance Interest • Does the reliance interest approximate the expectation interest when account is taken of opportunity costs? P. 865 • If seller sells at $100 to buyer, does seller give up an alternative sale at $100 to another buyer?

  42. Freund • What are the three kinds of damages that are considered? • The Expectation Interest • The Reliance Interest • The Restitution Interest • Here the return of the MSS

  43. Freund • What are the three kinds of damages that are considered? • The Expectation Interest • The Reliance Interest • The Restitution Interest • Here the return of the MSS • Restatement 344 illustration 2

  44. Freund • What are the three kinds of damages that are considered? • The Expectation Interest • The Reliance Interest • The Restitution Interest • Here the return of the MSS • Restitution as unjust enrichment. See problem 7 at p. 101

  45. Freund • What are the three kinds of damages that are considered? • The Expectation Interest • The Reliance Interest • Semble not to exceed the expectation interest, or else a windfall • But see the quantum meruit claim in Montgomery’s Estate at p. 100

  46. Remedies for a Nation of Shopkeepers Napoleon at Boulogne

  47. Remedies for a Nation of Shopkeepers • We presume that every loss is fungible with $$$ • A presumption against specific performance

  48. Remedies for a Nation of Shopkeepers • We presume that every loss is fungible with $$$ • A presumption against specific performance • Where it’s not, uncertainty limits recovery

  49. Remedies for a Nation of Shopkeepers • We presume that every loss is fungible with $$$ • A presumption against specific performance • Where it’s not, uncertainty limits recovery • No solatium doloris in contract damages

  50. Remedies for a Nation of Shopkeepers • We presume that every loss is fungible with $$$ • A presumption against specific performance • Were it’s not, uncertainty limits recovery • No solatiumdoloris • No punitive damages in contract

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