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George Mason School of Law

George Mason School of Law. Contracts II Remedies 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. Next day. Specific Performance, Reliance, Restitution. A controversial extension of law-and-economics.

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George Mason School of Law

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  1. George Mason School of Law Contracts II Remedies 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

  2. Next day • Specific Performance, Reliance, Restitution

  3. A controversial extension of law-and-economics • Might efficiency concerns tell us something about the responsibilities of the parties after breach?

  4. Efficiency Pre-breach • Prior to breach or performance, the risks and duties to be assigned to the party best able to bear them: LCRA

  5. Efficiency Post-breach • Subsequent to breach, the parties still might usefully be given cost-reducing incentives • Otherwise, who pays?

  6. Efficiency Post-breach • Subsequent to breach, the parties still have to be given cost-reducing incentives • Mitigation • Anticipatory Repudiation • Remedies

  7. Mitigation • The innocent party’s recovery is limited to costs he could not reasonably have avoided post-breach

  8. 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

  9. 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

  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 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?

  12. Fuzzy Anticipatory Breaches • The innocent party to roll the dice? • Flatt: a clearly implied threat of non-performance required

  13. Fuzzy Anticipatory Breaches • The innocent party to roll the dice? • Flatt: a clearly implied threat of non-performance required • Otherwise chill efficient renegotiations

  14. Fuzzy Anticipatory Breaches • A modern trend? • Bonebrake at 812 • Decker at 811

  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

  16. 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

  17. 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?

  18. 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.

  19. Remedies for Breach of Contract

  20. Hobbes, Leviathan 14.18 (1651) 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.

  21. How Should Breach Be Punished?

  22. What if the punishment is specified in the contract? • Globe Refining at 93 Oliver Wendell Holmes 1841-1935

  23. 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

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

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

  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

  27. 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

  28. What happens when the contract is silent about the penalty, per Holmes?

  29. 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.”

  30. What happens when the contract is silent about the penalty? Which is to say, mimic the market And why does this make sense?

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

  32. 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

  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?

  34. 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?

  35. What is the purpose of damages?

  36. What is the purpose of damages? • Corrective justice? • Efficiency?

  37. What is the normal “measure” of damages

  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.

  39. 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?

  40. What is the normal measure of damages at common law? • When the wrong is a tort, one puts him in his pre-tort position

  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?

  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? • One makes him whole by putting in the position he would be in had the contract been performed

  43. 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

  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?

  45. 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?

  46. Freund at 95 • What are the three kinds of damages that are considered? • Fuller and Perdue at 97

  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 • And what’s that here?

  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

  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 • The Uncertainty Barrier

  50. 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

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