- Assumption in contracts is that parties act for gain, i.e., each party will be better off (measurable monetarily) at tend of contract
- Some remedies replicate full performance ("benefit of bargain," expectancy—not just benefit, but net result expected)
- Some restore status quo ante (SQA): reliance, restitution
- See Sullivan v. O'Conner (botched nose job)—see Farnsworth, p. 16
- (Formula A) damages = (loss in value + other loss) – (cost avoided – loss avoided)
- (Formula B) damages = (cost of reliance + profit) – loss avoided + other loss
- Contract breached, Caribtext wants to reduce damage award to Vitex for fixed overhead costs
- for: made whole w/o overhead recouped
- against (majority): not an actual cost of selling item (pro rata, analytical, planning device). Doesn’t really cost, for example $1 on a $10 sale of a book ($4 profit). Pass overhead onto another transaction, this all other transactions result in less profit, thus you have lost the dollar. Thus didn’t save it so can’t deduct it from damages.
- Output contract (flip side of requirements contract)
- Problem with payment due to rising costs of hides (“efficient breach” or “opportunistic” beach to allow selling elsewhere). Used pretext of late check to get out of deal.
- H & H found to be in breach and ordered to pay Laredo Hides (reversed trial court).
- See UCC (p. 83) – expectancy remedies:
|Buyer’s Remedies||Seller’s Remedies|
|General 2-711||General 2-703|
|"cover" 2-712 |
(actual subst. trans.)
|"K/market diff." 2-713 |
(hypothetical subst. trans.)
|"k/mkt diff" 2-708(1)|
2-708(2) "lost volume seller"
|2-716 (specific performance)||"price" 2-709|
- In case, "cover" damages (2-712) used. Want business to go on, thus encourage substitute transactions (cover or resale). Laredo gets actual money spent. Needed to find out how many hides would have been available from H & H during that time.
- Buyer (Davis) has breached.
- Davis: If we use 2-706 ("resale"), Diasonics entitled to difference between contract price and the resale price.
- Thus measure of damages is $0 ($1 mil and $1 mil).
- Diasonics: 2-708(2)—want profit lost from breach b/c thought they could have sold 2 machines, one to Davis one to other party, so lost profit on sale to Davis. (At end of fiscal year, would have sold fewer MRIs, and thus less profit.)
- All of these remedies premised on economically rational, self-interested actor.
- When that is not true, these remedies don’t work!
- Why might parties enter into these agreements?
- Love, altruism, business strategy (penetrate market, etc.), simple mistake.
- To prevent unjust enrichment, may in this anomalous situation (breach victim in economically irrational contract), will use restitution as the remedy (back to moral standards)—breach and benefit not allowed.