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Expectation Damages: Contracts - Prof. Merges April 5, 2011
Expectation Damages: Contracts - Prof. Merges April 5, 2011
Expectation Damages: Contracts - Prof. Merges April 5, 2011
Expectation in depth
Loss in value plus other loss
Rest. 2d formula
Concepts:
Loss in value
Other loss,
Minus cost avoided (i.e., saved by breach)
Example
K from S to B to split and sell firewood for $100
B breaches before S has done any work
Would have cost S $40 to split the wood; no
other loss to S
S gets (100 + 0) 40 = 60
Vitex v. Caribtex
CARIBTEX
Vitex
What was the deal?
Vitex
What was the deal?
Wool processing to escape import
tariffs; quota system
125,000 yds cloth, 25 cents per yard
Uncertainty in amounts?
Who gets the benefit of the
doubt?
P. 610
Caribtexs
What is Caribtexs argument re:
overhead expenses
Why do they argue this?
Profit
Revenue
Costs
Costs
Numerical example
Revenue cost = profit (damages)
$31,250 10,136 = 21,114
$31,250 15,136 = 16,114
Add $5000 in costs, save $5000 in
damages owed
Opinion
IF a portion of overhead should be
allocated to the K, then Vitex tacitly
recovered these expenses as part of its
damages award
Overcompensates Vitex for the breach,
p. 610, bottom
Breach economics
The more costs the breaching
party can attribute to the
contract, the lower the
aggrieved partys damages
And vice versa . . .
Overhead
What is the difference between
overhead and direct costs?
Why does reallocating an expense
from overhead to direct costs
have the effect of lowering
damages?
K2
K3
K4
Overhead
expenses
Overhead
K2
Overhead
K3
K4
H&H Foods
Salvadore
Papa
Hinojosa
UCC 2-711
2-712
2-713
Basic principles
Loss in value plus other loss
Rest. 2d formula
Concepts:
Loss in value
Other loss,
Minus cost avoided (i.e., saved by breach)
Laredo Hides
What was H&Hs argument?
What did the court say?
Why no requirement to prove that
aggrieved party paid only market
price?
Diasonics argument
UCC 2-718: Liquidation or Limitation of
Damages; Deposits
(1)[Liquidated damages]
(2) [Return of deposit, less $500]
(3) [Less sellers offset for other damages]
Holding, p. 622-23
We agree with Diasonics that under some
circumstances the measure of damages
[under 2-708(1)] will not put a reselling
seller in as good a position as it would
have been had the buyer performed . . .
Issues on remand