HW5
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Boston University *
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Subject
Law
Date
Jan 9, 2024
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docx
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Uploaded by LieutenantLyrebird1924
Q
UESTION 8.8: Explain the gain in total payoffs from allowing the promisor to breach and pay expectation damages when performing is inefficient.
When performing is inefficient, it means promisor’s costs of performance is more than promisor’s
liability of breach. Allowing the promisor to breach will lead to an efficient resource allocation
because it encourages rational decision making. Breaching the contract can prevent the promisor
from wasting money and resource on the project. Promisee’s gain may not change a lot as they
can get compensation from expected damage. However, promisor will lost less, so the gain in
total payoffs increase, and the social welfare will also increase.
Q
UESTION 8.11: Suppose that Wabash completes the house one month later than promised. Inclement weather, which was no one’s fault, caused the tardiness. Explain how the court might compute efficient damages.
The court need to review the contract term first to make sure they include the clauses about bad weather or force majeure. And they need to check if
the delay are fully causing by the inclement weather or including other effects. Then they need to calculate the loss of the promisee, which is the loss in this one month. The court can calculate the financial amount of the loss due to the delay. However, the promisee may gain some benefits while the delay such as mitigating their losses or add new things to the house. And the court need to deduct those in the compensation. At the end, the court need to consider the equity of two parties to determine the final amount of compensation to prevent from harming one of the party.
Q
UESTION 9.1: Buyer B pays $10,000 to New Orleans grain dealer D in exchange for D
’s promise to deliver grain to buyer B
’s London office on October 1. As a result of signing this contract, B decides not to sign a similar contract with another dealer for $10,500. D contracts with shipping company S to transport the grain. Buyer B agrees to resell the grain on arrival in London for $11,000 to another party. B pays $100 in advance (nonrefundable) as docking and unloading fees for the ship’s projected arrival in London. The ship begins taking water several days out of New Orleans and returns to port. Inspection reveals that the grain is badly damaged by salt water, and D sells it as cattle fodder for $500. D conveys the news to B in London, who then purchases the same quantity of grain for delivery on October 1 at a price of
$12,000. a. How would you measure expectation damages for D’s breach of contract with B
?
From classnote we know that E
XPE
CTATION DAMAGE ---> make promise indifferent to breach & performance so 11000-10000-100 = 11000-12000-100-D
D = 2000
b. How would you measure reliance damages? If there is no contract
11000-12000-100-D = 0
D = 0
c. How would you measure opportunity-cost damages?
if B selects the other contract
11000-12000-100-D = 11000-10500-100
D = 1500
Q
UESTION 9.2: The actual choice of a damage measure often depends on practical problems, not theory. Give some examples of breached contracts
in which opportunity-cost damages are easier to implement than expectation
damages. When we are running a market, we have different vendors for different types of good. And we sign contracts with them. When one of the vendor, for example, a toiletries supplier, breach the contract. We can just find another vendor to do this and calculate the opportunity cost damages. It is
much easier than calculate the expectation damages as we need to estimate the benefit and loss in this case.
Give some examples of breached contracts in which reliance dam
ages are easier to implement than opportunity-cost damages.
If we are going to invest to build a restaurant, and we sign contracts with one construction crew. And we prepay them some money. When they already work for a month which means we already had a basis, however, their leader grab the money and leave which means the workers cannot get their salaries, and they stop working anymore. At this point, it’s easier for us the calculate reliance damages than opportunity-cost damages as calculating it need to involve time delays and other things.
Q
UESTION 9.5: Here is a timeline for breach of contract that leads to litigation. On Jan. 1, A contracts to deliver a widget to B on June 1 at a price of $2 to be paid on delivery.
On April 1, A renounces the contract. At that time, B can buy a widget for immediate delivery for $3, or B can contract with C to deliver a widget on June 1 at a price of $3.25. B does not buy a widget for immediate delivery or contract for future delivery. On June 1, B
’s suit against A succeeds. The court finds that A breached the contract on April 1. The court wants to give B perfect expectation damages. On June 1, B can buy a widget for $4. Question
: Should the court give damages of $1.25, $2, $3, $3.25, $4, or $5? $2-$4 - D = 0
D = $2 Question
: Should the award depend on whether B bought a widget on April 1, or signed a contract with C on April 1, or bought a widget on June 1?
The award should not depend on whether B bought a widget on April 1, or signed a contract with C on April 1, or bought a widget on June 1 as the court will rule this case based on the contract.
Q
UESTION 9.16: Assume that you have taken some very valuable photographs. You want to inform the developer so that he will be liable for extraordinary damages in the event that he harms the film. Instead, the developer makes you sign a contract stipulating damages at the ordinary level. If the developer subsequently loses the photographs, would you expect to recover damages at the extraordinary or the ordinary level?
I would expect to recover damages at the extraordinary level. However, based on the contract I already signed with the developer, I would probably just get an ordinary level. Nevertheless, I can check if the developer lied to me or this contract terms
disobey the law (inappropriate contract) to fight for my right.
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