Measuring Expectations

  • 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
General measurement of damages (p. 470)
  • (Formula A) damages = (loss in value + other loss) – (cost avoided – loss avoided)
  • (Formula B) damages = (cost of reliance + profit) – loss avoided + other loss
Vitex Manufacturing Corp. v. Caribtex Corp. (377 F.2d 795, 1967)
  • 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.
Laredo Hides v. H & H Meat Products
  • 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 RemediesSeller’s Remedies
General 2-711 General 2-703
"cover" 2-712
(actual subst. trans.)
"resale" 2-706
"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.
R.E. Davis Chemical Corp. v. Diasonics (826 F.2d 678, 1987)
  • 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.
United States v. Algernon Blair (479 F.2d 638, 1973).
  • 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.
View most interesting 'lawschool' photos on Flickriver

Related Notes

Related Commentary