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Contracts. Class 1 – Introduction to “Enforcement”. Enforcement = relief of promisees to redress breach, not punishment to compel performance. Contract law is commercial law Mostly about facilitating commercial exchange Expectations of promisee
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Contracts Class 1 – Introduction to “Enforcement”
Enforcement = relief of promisees to redress breach, not punishment to compel performance • Contract law is commercial law • Mostly about facilitating commercial exchange • Expectations of promisee • Contract remedy is to put promisee in position it would have been in had the promise been performed
Facts • Licence agreement • Berkley could sell paperback starting in 10/84 • But they breached agreement, shipped and started selling a month early • Damages = • How much money Berkley made during the month they were in violation of agreement? OR • How much money Naval Press lost during that month, because some people who would have bought hardcover bought paperback instead?
Damages = expectations (usually) • Naval Press put in position it would have been in had Berkley not shipped early • This is NOT the $724,300 Berkley made that month (Red October a HUGE bestseller) selling paperbacks in breach of agreement • It is the $35,380 lower court estimates Naval Press would have made in additional September hardcover sales, if no breach • Estimate based on August sales – close enough
When is disgorgements of profits an appropriate rememdy? • The interesting case of spy memoirs . . .
Frank Snepp, former CIA agent, and George Blake, Soviet Mole inside of British MI-5, each published books in violation of their employment contracts. Should they be able to keep the profits?
Not if their breach of contract was also a breach of fiduciary duty • But this disgorgement remedy is really not a contract remedy. • It’s a equitable remedy to prevent a wrongdoer from profiting from their wrong • Based on concept of unjust enrichment and restitution
Efficient Breach • Influential but controversial theory • Note that even after Berkley pays Naval Press the (apx.) $35K it lost, Berkley still has a net profit of roughly $690,000 • It is efficient for Berkley to breach • Naval Press as well off as if contract performed • Berkley better off • Damage rules should encourage “Pareto-superior” outcomes
Sullivan v. O’Connor (Mass. 1973)(above, before and after rhinoplasty pictures of Ashley Tisdale, star of High School Musical)
Facts –Sullivan v. O’Connor • Plaintiff professional entertainer • Before rhinoplasty, her nose was “straight, but long and prominent” • After 3 surgeries, “concave . . . Bulbous; flattened, broadened” and asymmetrical, and not improvable by further surgery • What should her damages be?
Some subtleties . . . • Courts reluctant to treat contracts for medical procedures as normal commercial contracts • Afraid strict enforcement of expectations will lead to underpromising by medical doctors • OTOH too weak enforcement will lead to overpromising by doctors • Ex post enforcement affects ex ante incentives!
Three contractual “interests” -- Introduction • Expectation interest – (amount of money damages necessary to put) promisee is as good a position as it would have been in, had promise been performed • Reliance interest – (amount of money damages necessary to put) promisee is as good a position as it would have been in, had promisor never made promise • Restitution interest – returning to promisee the benefit it conferred upon the promisor
Plaintiff’s expectations in Sullivan • = money damages such that plaintiff in as good a position as she would have been in had she got the nose she was promised • Strictly: indifferent between the money and the nose, ex ante
Problems . . . • Hard to measure that in money • Therefore, expectations work best in commercial settings, fungible goods, liquid markets • Policy concerns – too hard on doctors, might get defensive
Reliance interest in Sullivan • Put plaintiff back in position (so far as money can) she was in before she relied on the promise • Money back – that’s easy • Difference in money (if measurable) between nose she got, and nose she had before • Pain and suffering? • possibly
Problem, p. 16 Farnsworth • Assume: • Doctor’s fee $300 • Hospital fee $100/operation • P&S $3000/operation • Value promised nose $20,000 • Loss from disfigurment $10,000 • Plaintiff got 3 operations, and suffered disfigurement instead of getting promised nose • What is expectations interest? • Reliance interest? • Restitution interest?
