Understanding Court Decisions on Present Value and Damages Measures in Legal Cases

1. The Concept of “Present Value” • Trinity Church majority rejected argument that P’s damages should be reduced to their present value – What is that? • Present Value = the amount of money which if invested today would produce a future stream of payments sufficient to compensate plaintiff for future pecuniary loss resulting from a present injury. • Why did the Court reject the present value argument?

2. Present Value Problem • Assume Linduh was injured by Buzz in an auto accident. Linduh had several operations for which Buzz’s insurance compensated her. But Linduh will need another operation in 7 years to finally repair the damage. It is estimated that the cost of this operation will be $100,000 in seven years. • The insurance company has agreed to give Linduh the present value of that future $100,000 operation. Use the present value table on p. 795-97 and assumeLinduh invests the money she is given so that she receives a 3% return. • How much money must Buzz’s insurance company give Linduhnow in order for her to have $100,000 in 7 years (or what is the present value of $100,000 using these assumptions)?

3. Present Value Problem – broken down • Linduh must invest sum PV for 7 years at 3 percent interest to get $100,000 in 7 years. • Present value table shows how to get sum PV with that info – use appropriate column/row to find multiplier to use. • Here present value (PV) of $100,000 = $81,309.15 • Note multiple assumptions made here: • 1) What the appropriate investment return will be (i.e., interest) • 2) What the cost of the operation in the future is likely to be (based on inflation) • 3) What the timing of the operation is likely to be This is a math calculation but is still based on some tenuous assumptions that could under- or overcompensate P.

4. Common Damages Measures in Contract Situations • Contract damage measures typically use FMV or replacement cost measures • BUT different rules under common law & UCC • Common law: • FMV is preferred tool for measuring damages for breach of contract • UCC : • Can use market value to measure damages – UCC 2-708/2-713 • Can also use measures similar to replacement costs: • Cover – UCC 2-712 • Resale – UCC 2-706

5. Neri v. Retail Marine • Neris enter K to buy boat from RM for $12,587.40. Neris gave $4,250 deposit; arranged for immediate delivery. • Neris later backed out; ask for deposit back; RM refuses because boat has already been delivered to it. Boat later sold at same price to new buyer. • Neri’s sued (in restitution) for return of deposit; RM counterclaimed for breach of contract. What measure of damages did Nericourt use – market value, resale value or something else? Why?

6. Implementing Ps Expectancy Interest • Expectancy measure of damages – puts P in position as if contract performed • Compare “reliance” measure of damages – put P in position as if K was never made • Expectancy is the favored method of implementing rightful position for contracts • FMV, replacement costs, or Nerimeasure all implement P’s expectancy – i.e., all put P in the position would have been in if K were performed • Why do courts prefer damages measures that implement expectancy rather than reliance measures in contract situations?

7. Clarifying the Various Damages in Neri: Retail Marine received $2579 in lost profits and $674 in storage and other upkeep costs • Has the court awarded expectancy and reliance damages? • At first glance it seems as if RM is getting both because it is getting expectancy (lost profits) and out-of-pocket losses (which often fall into the “reliance” category). • But here O-O-P losses fall under the heading of “consequential damages” since they don’t overlap with the expectancy award of lost profits.

8. Chatlos and Excessive (?) Expectancies • What measure of damages gives the Chatlos P its expectancy? • Why does the court use this measure to implement P’s expectancy instead of the difference between the value of the thing delivered and the bargained-for contract price?

9. Has Chatlos P recovered too much – can there be an excessive expectancy? • Wouldn’t P have had to pay $208K to get the computer D promised regardless of D’s misrepresentations? Why shouldn’t P recover the difference between the value of the computer delivered ($6K) and the contract price ($46K)? • Should P’s be limited to reasonable expectancies or are there reasons to award expectancy even when it’s huge? • What could D have done to lower P’s damage award in this case?

10. Bolles and Expectancy Damages • Like Chatlos, P wants difference between the value of the stock as described ($10/share X 4,000 shares) and value as delivered ($0) = $40,000 • P gets the difference between his actual expenditure for the stock ($1.50/share x 4,000 shares) and value as delivered ($0) = $6,000 • Why doesn’t court give P the expected benefit of his bargain? • Does it make sense to treat the Bolles & Chatlos P’s differently? When would you ever sue in tort as a result?

11. Changes to the Common Law Rule Against Implementing P’s Expectancy Interest in Tort Cases: • Some states allow P to elect between reliance & expectancy losses in all fraud cases (e.g. Texas) • Restatement 2d Torts § 549(2): Allows recovery of damages equivalent to benefit of the bargain in cases involving fraud in business transactions if damages proved w/ reasonable certainty. • Majority of states apparently allow such recoveries • UCC §2-721: All remedies for “non-fraudulent breach” are also available for material misrepresentation or fraud cases involving the sale of goods. • Federal courts still tend to take approach similar to Bolles