Why do we protect expectation interest in contracts? Forum

[Welp2277]

If this is how OP gets away from his outlines to take a study break, I feel sorry for him. Get a netflix account or something man

[Grizz]

If this is how OP gets away from his outlines to take a study break, I feel sorry for him. Get a netflix youporn account or something man

[Stanford4Me]

I'm reading this thread after finals because Contracts is my favorite class.

[Sogui]

This thread was designed to be ridiculous, everyone else in this forum is talking about exams or questions on their exams.

This is a way for me to break up the monotony of a torts outline. Plus I think it's fun.

Game theory and rudimentary economics would explain this entire principle you're having trouble grasping. You should brush up a bit.

Signed,
An Economics Major

Do all econ majors just leave cryptic claims while never substantiating an argument?

I spent an hour last night looking at advanced models created to weigh actual damages (ex-post) and expectation damages (ex-ante) on the efficiency of their outcomes, and even those weren't decisive and varied based on transaction costs, opportunities to renegotiate, and costs of obtaining/releasing what might be sensitive information.

In a perfect market, either remedy would lead to the same outcomes. The only real argument I've heard (and not from any of you econ majors posting in here) is:

Reducing deterrence of breach will reduce our ability to rely on contracts for obtaining outcomes, thus chilling useful economic transactions everywhere

v.

Reducing barriers to efficient breaching will allow parties to shift resources for more efficient outcomes (see the big-pharma example I gave, expectation damages help lock-in results, which can be bad when those results are bad for everyone except the promisee)


My counter-argument to the pro-expectation argument is that if you can obtain economic gains through contracts and your losses from breach will always be covered, reliance damages will never inhibit economically efficient behavior.



At least humor me econ majors. If it took someone someone 35 pages and some fancy 3-d models to reach inconclusive results, something tells me "rudimentary economics and a dash of game theory" will light the path.

[Sogui]

If this is how OP gets away from his outlines to take a study break, I feel sorry for him. Get a netflix youporn account or something man

I'm in the library, mental diversion are pretty much all you can hope for. Browse the news, check email/facebook, post on TLS, back to assumption of risk.

[Renzo]

At least humor me econ majors. If it took someone someone 35 pages and some fancy 3-d models to reach inconclusive results, something tells me "rudimentary economics and a dash of game theory" will light the path.

You gotta walk before you run, brah. Spend less time looking at fancy stochastic models, and more looking at fundamentals.

1) People bargain because it benefits both of the parties.

2) The parties themselves are better judges of what benefits them than anyone else.

3) There are risks and uncertainty in every contract

4) The parties themselves assign those risks when they make the contract, and see #2

5) we should protect the parties' intents only so long as it is efficient

6) by efficient, we mean Pareto efficiency, meaning everyone is as good of as if the deal went through.

7) we know a breach was efficient when the breaching party can put the non-breaching party in the same position as if there had been no breach--since this is definitionally Pareto efficient.

#7 is the definition of expectation damages, which in turn is definitionally efficient.

What part of this chain is it you think is wrong?

[BrownBears09]

At least humor me econ majors. If it took someone someone 35 pages and some fancy 3-d models to reach inconclusive results, something tells me "rudimentary economics and a dash of game theory" will light the path.

You gotta walk before you run, brah. Spend less time looking at fancy stochastic models, and more looking at fundamentals.

1) People bargain because it benefits both of the parties.

2) The parties themselves are better judges of what benefits them than anyone else.

3) There are risks and uncertainty in every contract

4) The parties themselves assign those risks when they make the contract, and see #2

5) we should protect the parties' intents only so long as it is efficient

6) by efficient, we mean Pareto efficiency, meaning everyone is as good of as if the deal went through.

7) we know a breach was efficient when the breaching party can put the non-breaching party in the same position as if there had been no breach--since this is definitionally Pareto efficient.

8) #7 is the definition of expectation damages, which in turn is definitionally efficient.

What part of this chain is it you think is wrong?

+1. I like you.

@Sogui: Forgive me if I don't want to teach a Game Theory or Intro to Econ course over TLS. Your view feels very micro-oriented and impersonal. I'm not sure if you're able to place yourself in the promisee's viewpoint.

[Sogui]

I studied finance, I had to take econ, ithe "econ" in "law and econ" is not rocket science.

I don't even know what you mean by "not being able to take the promisee's viewpoint" in bilateral agreements you are both a promisor and promisee. As the promisee of a breached promise perhaps?

That's what Craswell tries to tease out in his discussion on expectation and contract theory.

When you and I form a bilateral contract, we are exchanging "packages" of rights and entitlements. If you define "expectation interest" as "the economic outcome" of a contract, that is our current system. But that system isn't honest, we only consider expectation upon a breach, REAL expectation should represent how the plaintiff expected to be compensated for a breach.

Thus we should look to language and behavior, custom and context of a contract to determine what underlying entitlements were exchanged for how the parties would have wanted a breach to be treated at given points of performance.

My argument goes a little farther, that contract involving lay-people would rarely expect to protect lost profits/cost of cover of a counter-party early in a contract, and throwing some ancient legal doctrine on unsophisticated parties for the lost profits of a lost-volume retailers seems to be JUST LIKE the damages we barred in Hadley v. Baxendale.

Just look at any of my old examples, these are absurd, neither party intended to entitle the other to cost of cover or lost profits, but that's what the default rule does.

[Renzo]

Now you're not arguing against expectation interest at all. You're arguing for consumer-protection laws.

[Sogui]

At least humor me econ majors. If it took someone someone 35 pages and some fancy 3-d models to reach inconclusive results, something tells me "rudimentary economics and a dash of game theory" will light the path.

You gotta walk before you run, brah. Spend less time looking at fancy stochastic models, and more looking at fundamentals.

1) People bargain because it benefits both of the parties.

2) The parties themselves are better judges of what benefits them than anyone else.

3) There are risks and uncertainty in every contract

4) The parties themselves assign those risks when they make the contract, and see #2

5) we should protect the parties' intents only so long as it is efficient

6) by efficient, we mean Pareto efficiency, meaning everyone is as good of as if the deal went through.

7) we know a breach was efficient when the breaching party can put the non-breaching party in the same position as if there had been no breach--since this is definitionally Pareto efficient.

#7 is the definition of expectation damages, which in turn is definitionally efficient.

What part of this chain is it you think is wrong?

I'd start with the part of my gut that says anything claiming to be right "by definition" has the logical fortitude of wet toilet paper.

Sorry, I know some of these are nitpicky but I had to be thorough:

1) Because they perceive a benefit, not because it does or it will

2) Not always. Only in the subjective sense for that very moment. I could criticize this standard all day but I'm actually going to use it against you later so...

3) Ok

4) Ok this is where you really go off the tracks. How do they assign those risks, do they even realize they are assigning those risks, do they even comprehend all the risks that exist or all the risks they are allocating? If you say they do so, then it's only because the law is doing it for them without their notice or assent. Most of our cases are about the law stepping in and making its own determination about how the risks WOULD have been assigned because the parties failed to explicitly do so.

5) What? This is where you mince words, efficient in giving 2 people what they wanted or efficient for society? Yes you define this later on but you leave it open ended here. All this point needs to say is "We should protect the parties' intents" since efficient is just a redundant phrase you use to describe the parties' intents (specifically the intended outcome). This is where my mind starts seeing red flags of a logical fallacy. You can pretty much end your argument here:

"We should protect the parties' intents"

That's really all you're saying, you add efficiency as a way of bridging intent with intended outcome aka expectation. All I see are a bunch of assertions devoid of any logical validity or eloquence. Just a threadbare assertion that everyone is entitled to the outcome of a contract. Even our system doesn't try assert that broadly. By your statement even Plante or Jacob and Young v. Kent were bad legal decisions because efficiency dictated tearing down a housing to replace one set of pipes with another identical set.

6) Ok I you wanted to make an econ argument, that's fine. "Pareto efficiency, meaning everyone is as good of as if the deal went through."

Ok that set off some red flags, let's see just how wrong this is: Pareto efficient doesn't mean anything like that. Pareto efficiency means we can no longer make Pareto improvements. Pareto improvements mean:

"a change to a different allocation that makes at least one individual better off without making any other individual worse off is called a Pareto improvement."

Wow... let's read that again.

One party better off, One party NO LESS WORSE OFF

That sure sounds more like protecting reliance over expectations. But I haven't decisively proven you wrong yet. I could simply argue reliance here, by making one party break even and letting the other make an efficient breach, it would seem to be a pareto improvement. Case closed.

However you would argue, "No they are still worse off because they are deprived of the expected outcome." I could leave you with Fuller's famous question then, what value does your expectation have? Can you trade on the market? Can you sell it for something else? Can you use it for anything at all? No. It's a completely subjective psychological benefit. It has no present value. The only reason it will is because the law chooses to make it real, gives it form, and demands its fulfillment. So now you run into the circular logic that you would rely on. My expectation should be protected under the law because the law makes it valuable!

There are still countless problems outside of the circularity of the reasoning. What about promissory estoppel? If we trade a bike for a dog, you expect a dog, and the court values your expectation so highly that it will force me to give you the dog, or its money equivalent on the market (minus your value saved). But instead, if I simply promise you a dog and then renege, you get nothing. The court could care less about your expectations now, they are just feelings after all right? Since when does the law compensate for lost feelings? Oh right, expectation damages.

You might also argue that what you lost was the outcome itself. But that's fallacious too, you had no right to that outcome at this instant. Your entitlement to the outcome would come from your performance, only your full performance would truly entitle you to my full performance. No what you lost was the chance to perform, the chance to obtain the outcome, the loss of that chance is something that only manifests itself in your feelings. This is not opportunity cost because the only opportunity we have denied to you is the opportunity that only we had the liberty to give, and you had no right to demand.

7) Just an extension of #6. You are arguing that "putting them where they will be" is valuable because it lets them realize benefits and outcomes that they had no direct right to. The only thing you are actually protect, the only thing manifested in this world that this damage will protect is the warm fuzzy spot on your heart that you got from signing our contract, that great feeling of whatever benefit was bound to come your way someday.

The rest of my arguments follows pretty naturally, you have already dressed up pareto efficiency in the garbs of expectation damage, hence the circular appearance of your argument. Suppose we try being honest here and strip Pareto back down to its real meaning:

"a change to a different allocation that makes at least one individual better off without making any other individual worse off is called a Pareto improvement."

So me breaching leaves you worse off because you lose that warm feeling of entitlement. I've snatched that away from you, and even if my super-computer compensates you perfectly for any and all reliance in all manners, you still have that sad hole in your heart from a lost hope. Pareto and Mill's harm principle say I shouldn't even leave you with those immaterial harms, so how do I make it up to you old pal?

"OOOH OOH EXPECTATIONS DAMAGE OOH YEA!" You would cry out: my cost of cover.... lost profits.... all of it! I want to be RIGHT where you promised!

I'd say, right, you took contracts, you think you are entitled to that because the law says you are. Then I pull out my Men-in-Black memory flasher and delete all your legal, and for safe measure, economics knowledge. Then we play out the scenario again as innocents. I breach, and then ask you:

"So I'm sorry I can't cut your grass next month, changes in circumstances have altered my cost-benefit analysis and now it is clear that I would be better off visiting my dying grandfather, but in order to fulfill pareto efficiency I must leave you no worse off... what do I owe you?"

To which the logical reply would be "well you offered me a big discount as your neighbor, it will cost me more for a replacement service, but if it weren't for you I wouldn't have had the option of cheaper service the first place! So I guess you owe me $2 for the cell phone minutes and my time to leave me absolutely no worse off"

And then we go our separate ways, Pareto efficient, because you finally understand that you the damages needed to make someone "no worse off" are rarely full and complete expectation damages. It's highly context sensitive as to what entitlements the parties are actually exchanging. But sense we define economic costs and benefits in the subjective sense, your subjective "expectations" might only consist of remedies for reliance and restitution. Perhaps the nature of the bargain would make recovery for full expectation of the outcome a gross injustice that you are in no way entitled to, and you recognize that.

There are thousands of scenarios, and I imagine lay-persons contracting and then suffering a day 1 breach would NEVER need full expectation damages to leave them no worse off. It applies to businesses too in a similar reasoning but I don't have time for that now.

TL;DR if I can be better off without making you worse off: It's pareto efficient, and few people would actually & honestly require full expectation damages (in our legal definition) to leave them no worse off...




There, done and done. Econ sure is hard

[Renzo]

There, done and done. Econ sure is hard

This is what I mean; you're not trying to understand. If you were, you'd stop posting schizophrenic walls of text, and we could discuss the one core, fundamental problem with you rant. Ok, two, since you're a Stalinist.

[Sogui]

There, done and done. Econ sure is hard

This is what I mean; you're not trying to understand. If you were, you'd stop posting schizophrenic walls of text, and we could discuss the one core, fundamental problem with you rant. Ok, two, since you're a Stalinist.

I made the TL;DR line just for you, but I guess 2 sentences is still just too overwhelming. It would only take about 10 minutes to read through anyway, maybe then you could cut this stupid habit of talking past me and down to me at the same time. Do you really think it's me who's not trying to understand?

I post thick walls of text because I try to keep my logic airtight and my reasoning fluid. You post 8-lines that start with a logical progression and then break down into a "short list of things that Rezno says are true" completely disconnected from logic or facts.

Specifically, #4 your argument's new assumptions here completely invalidate any point you were trying to make for this line

and

#5 your arguments become conclusory, I gave a detailed explanation of why and I summed it up as "You are making up your own definition of Pareto efficiency". Try reading it at least.

[Renzo]

There, done and done. Econ sure is hard

This is what I mean; you're not trying to understand. If you were, you'd stop posting schizophrenic walls of text, and we could discuss the one core, fundamental problem with you rant. Ok, two, since you're a Stalinist.

I made the TL;DR line just for you, but I guess 2 sentences is still just too overwhelming. It would only take about 10 minutes to read through anyway, maybe then you could cut this stupid habit of talking past me and down to me at the same time. Do you really think it's me who's not trying to understand?

I post thick walls of text because I try to keep my logic airtight and my reasoning fluid. You post 8-lines that start with a logical progression and then break down into a "short list of things that Rezno says are true" completely disconnected from logic or facts.

Specifically, #4 your argument's new assumptions here completely invalidate any point you were trying to make for this line

and

#5 your arguments become conclusory, I gave a detailed explanation of why and I summed it up as "You are making up your own definition of Pareto efficiency". Try reading it at least.

I did read it. It was all but nonsensical. Despite that, I get the gist of your argument.

1) you doubt the fundamental premise that parties themselves are the best judges of value. Fine, but this is not an argument against expectation damages; it's an argument for a centrally-planned economy (or, if you actually think that parties can assign risk but in a minority of cases do so poorly, it's an argument for consumer protection laws that assign risk in those outlier cases).

2) you don't understand that people's "expectations" do have value, even if there isn't a market for them. This, in turn, is causing you to misunderstand efficiency. Maybe an example would help with this:

I hire you to work for me, and we agree that I will pay you $25/hr. After two weeks, you get a paycheck and see I have only paid you $18/hr. When you approach me about it I say, "well, bring me proof that if you had not been working here, you would have made more than $18/hr, and I'll pay you the difference (up to but not exceeding $25/hr). Otherwise, you're no worse off for having been tricked."

Your theory says this is an efficient breach.

Everyone else's theory recognizes that the employee has alternate uses of his time, even if those are non-market uses, and he knows better than anyone else what those uses are worth to him--and he factored that opportunity cost into the $25/hr wage he negotiated.

[JazzOne]

If this is how OP gets away from his outlines to take a study break, I feel sorry for him. Get a netflix youporn account or something man

I have my controversial "Fuck your hornbook" philosophy.

[JazzOne]

OP, I read the thread a little more carefully. I actually think it's an interesting topic, and you have some nice ideas for a journal note. My disagreement with you was based more on a definitional issue. I sort of agree with Dori Kimel. I think there is a better way to frame your argument. Let's not dispense with expectation damages as the default. However, your narrower argument is much more formidable: Certain doctrines of calculating damages tend to overcompensate non-breaching parties as compared to the parties' actual expectations. I particularly like the application of Hadley to Neri. Interesting thoughts. Thanks for the article citations.

[Sogui]

@Renzo I think my arguments would make a lot more sense if you stopped acting like the explanations are coming from a small child, when I hear you describe them I'm like "No way, did I say that?" and go back and double check.

I understand subjective value, I pointed that out, and I only pointed it out to make it clear that was the standard we are using.

@ your $25/hr argument:

At least this is getting closer to what I'm arguing. The whole points is that you change an essential fact. I am arguing about the problem of awarding expectation in cases with nearly 0 actual reliance, usually breaches that occur shortly after an agreement and before performance. My arguments don't NEED to fit this scenario but they highlight the problems with the law.

With this case, the presumption lies with someone who has completed their performance. Every hour of work they performed was in return for the promise of $25. Now you've worked many hours and expect pay. The boss changes his mind and says nah $18/hr and you won't be able to prove you deserve $25 under Sogui's crazy system. There are 3 ways I see the answer: (worst to best)

1. You relied on the wage to your detriment. What is the value of that detriment? We could just compensate you at market rate but that is silly. Instead we just agree that you were promised $25 and gave complete performance, the presumption lies against the breacher and he would have to prove that you were being paid some gratuitous sum that clearly wasn't justified. If that's true the result is still troubling, but at least it's closer to rationality. I can't remember the cases but there were some that emphasized that courts are hesitant to award additional damages if the plaintiff was already adequately compensated.

2. Valid contract with complete performance by one party? Well I never said we should remove expectation all-together. We both agree that Restitution would make a terrible default rule but that doesn't we should bar it from our legal system... it has its place. The world is complex and even a versatile rule should not be the universal one. So we make the principle that when one party has completed performance, or even considerable part-performance, expectation becomes the default absent any other concerns (certainty principle, etc...)

3. Craswell talks about "true" expectations. I started on "actual" reliance. Both arguments push away from their legal definition towards a more complex hazy middle ground. Actual reliance focuses on the true real-world harms suffered. "true" expectations focuses on the true real-world expectations of the parties when they entered the contract. The "entitlements" argument moves these two positions to an identical spots. If the contract is just an exchange of packaged rights, and we place real value on those rights, then "actual reliance" and "expectation" become the same thing.

Going from there, we ask... what did the parties intend to exchange for entitlements? The contract clearly shows you gave me a right to $25 for every hour I worked, therefore I had an entitlement to that arrangement. The key difference you miss that I've been challenging you over and over again on is "What is the present value of that lost entitlement?"

The worker's entitlement = I have the right to $25 for every hour I work
Now you breach and offer me $18/hour, that is a straight violation of that right. I worked the hours, nobody in their right mind would say that you didn't expect $25/hour for those hours worked. No question of what was expected here. You get full damages for $7/hr.

What about if I formed an agreement with you for a 40-hour contract for a service and then I breached before you begin work, you find that the best offer you could have ever gotten elsewhere was $20/hr, which is what you end up doing:

The entitlement you bargained for is still = I have the right to $25 for every hour I work
But the right comes with performance. You never performed, something different happened... I breached. So what did you expect for a breach? That's the tough question. You've clearly had your hopes disappointed but what did we intend to bargain for as your entitlement to a breach?(Read Craswell for a compelling argument as to why this is what "expectation damages" really ought to mean)

The trier of fact might then find that both parties recognized that anything beyond reliance damages or opportunity costs would be absurd before performance begins. Thus we would only award reliance damages and not the $5/hr the current rule would have given you.

[Sogui]

@Betasteve, I don't think Renzo has it

Legal Writing did this to me, I swear. Writing 10-page memos on something I can sum up in one paragraph causes me to write at least a page when trying to convey something I can't really sum up that well.

Though if I missed something in Neri please tell me, it could have been edited out in my version but despite the strange route of UCC rules my understanding is that the lost-volume rule exists in the Restatement as well.

[Renzo]

You started a thread by asking, "Why do we protect expectation interest in contracts?"

Now you are defending expectation interest and arguing for a slightly more searching judicial inquiry into what the parties expected from their bargain.

I can't for the life of me nail you down on a position, other than your opinion that Hornbooks are for losers and everyone else is wrong.

If you can sum up for me in 100 words what your position is, I might yet be persuaded that you actually have a position. As of now, however, I feel like you're just regurgitating critiques of contract theory that you like, but don't fully understand.

[Sogui]

You started a thread by asking, "Why do we protect expectation interest in contracts?"

Now you are defending expectation interest and arguing for a slightly more searching judicial inquiry into what the parties expected from their bargain.

I can't for the life of me nail you down on a position, other than your opinion that Hornbooks are for losers and everyone else is wrong.

If you can sum up for me in 100 words what your position is, I might yet be persuaded that you actually have a position. As of now, however, I feel like you're just regurgitating critiques of contract theory that you like, but don't fully understand.

You clearly aren't reading anything I type.

I just explained how my perspective can be equated with theirs.

If you even had a slight understanding of what I've been saying you'd know that the remedies I've been arguing for are not anything like expectation in the restatements/common law/UCC. The point has been consistent all along: traditional expectation damages overcompensate non-breaching parties.

Original argument, no real rebuttal or counter-point... in theory "Actual Reliance" is the remedy that gets closest to your "Pareto efficiency"

Developing argument, even if you don't like my alternative, my OP on expectation stands: it is a flawed and over-compensatory default rule

[Na_Swatch]

The problem in what u are arguing for can be summed up by saying: "why can't I go to the store, screw the lid off of a tin of peanut butter, scoop out one spoonful, then decide I don't want it? The store is being over compensated for my use of only one tiny portion/ the seal on the metal lid works fine/ my spoon was spotless so everything is clean... I should be able to give you a quarter and call it even..."

[D. H2Oman]

The biggest issue I have with this whole 200,000 word treatise you wrote is that you seem to think you undermined expectation damages as a default because you came up with some extreme examples in which there's gonna be some overcompensation. um so what? Do you really think that anyone is of the belief that expectation damages could never result in overcompensation? Why do think there's 'excuse' built in to contract law?



Start with your painter example

Because if I breached on day 1, in good faith, etc... I still end up paying you out the nose because I'm providing a valuable service (Cheap painting). If I weren't around you would be paying $700 or letting your paint bubble and chip away. The more unique or cheap my services get, the more of a chance that I get the shit beat out of me with expectation damages.

Why do you deserve $250 because I'm the cheapest player in the market? You didn't do anything except call me up and sign some papers. You aren't out anything. It make no intuitive sense unless you see contracts as the very definition of expectation interest. As soon as I put pen to paper I better get that house painted or the cash equivalent for cover amiright?

Yet nowhere in contracts, books, restatement, etc... do we paint contracts as having that kind of entitlement. We try to make sure nobody is "worse off", we want "efficient breaches", we don't want to add "morality to contracts". So why don't we just limit it to what we lose when a breach occurs? You didn't lose $250 when I breached, so I shouldn't have to pay you that just because someone down the only other painter in town charges more. Why does the rip-off painter get to walk away from his breaches because I'm always a cost-effective cover?

So what are the damages for breach here? It sounds like according to you it should be like $1 dollars for a cell phone bill and maybe the cost of a replacement pen. But dude, I don't think you get that by making the damages 0 you have completely ruined contracting for this type of service. As the the home owner why the fuck am I gonna sign a contract for which I can't be guaranteed that the work will be done at the price I'm signing for. But, as the home owner, I'm liable to be held to this because the contractor, well he has to by the paint!! So he has a reliance interest here. So basically, i'm bound, but the other party isn't. Why am I signing that? How is it fair that I'm signing that?

Take it a little further.


Homeowner X signs with a contractor to paint his house for $5000. It's a small local company that only has one crew of painters. They paint exactly half the house. The boss gets another job from homeowner Y across town, this guy is willing to sign up for what would be the same amount of work for $6000. But, oh guess what both X and Y are throwing shitty BBQ's next weekend and both jobs have to be done before that, so they have to start now or Y is going to hire another crew. So the contractor says fuck X, we're done here, we'll take the $2500 for half the job and go over and do Y's house. X can get someone to finish for $3000. But you're saying he's entitled to 0, because "hey, why should he benefit just cause he was getting a deal in the first place"? Well. I guess that's fine and all, but again you've completely destroyed the meaning of contracts here. Painting is now a spot price business Sogui's America. That would hurt economic efficiency. And what you're not getting is that is this scenario the contractor is not being penalized because we're saying breach is 'morally' wrong. It's because if we allow breaches like this to take place with no remedy, a contract is essentially meaningless.


Your point that the "cheaper the services are, the more of a chance you'd get screwed" is off base too. How is that an argument for dumping expectation damages? We shouldn't concentrate on the 1% of extreme cases when figuring out what the law should be. So what are you really arguing for there? Easier claim to something like commercial impracticably? I mean if you're really going to go after expectation damages here. You can't be showing us that in some unusual scenarios there can be overcompensation. You want to use mundane common breaches to make your point. And you need to factor in the macro effect on the formation of contracts.

[Sogui]

The biggest issue I have with this whole 200,000 word treatise you wrote is that you seem to think you undermined expectation damages as a default because you came up with some extreme examples in which there's gonna be some overcompensation. um so what? Do you really think that anyone is of the belief that expectation damages could never result in overcompensation? Why do think there's 'excuse' built in to contract law?

Start with your painter example

Because if I breached on day 1, in good faith, etc... I still end up paying you out the nose because I'm providing a valuable service (Cheap painting). If I weren't around you would be paying $700 or letting your paint bubble and chip away. The more unique or cheap my services get, the more of a chance that I get the shit beat out of me with expectation damages.

Why do you deserve $250 because I'm the cheapest player in the market? You didn't do anything except call me up and sign some papers. You aren't out anything. It make no intuitive sense unless you see contracts as the very definition of expectation interest. As soon as I put pen to paper I better get that house painted or the cash equivalent for cover amiright?

Yet nowhere in contracts, books, restatement, etc... do we paint contracts as having that kind of entitlement. We try to make sure nobody is "worse off", we want "efficient breaches", we don't want to add "morality to contracts". So why don't we just limit it to what we lose when a breach occurs? You didn't lose $250 when I breached, so I shouldn't have to pay you that just because someone down the only other painter in town charges more. Why does the rip-off painter get to walk away from his breaches because I'm always a cost-effective cover?

So what are the damages for breach here? It sounds like according to you it should be like $1 dollars for a cell phone bill and maybe the cost of a replacement pen. But dude, I don't think you get that by making the damages 0 you have completely ruined contracting for this type of service. As the the home owner why the fuck am I gonna sign a contract for which I can't be guaranteed that the work will be done at the price I'm signing for. But, as the home owner, I'm liable to be held to this because the contractor, well he has to by the paint!! So he has a reliance interest here. So basically, i'm bound, but the other party isn't. Why am I signing that? How is it fair that I'm signing that?

Take it a little further.


Homeowner X signs with a contractor to paint his house for $5000. It's a small local company that only has one crew of painters. They paint exactly half the house. The boss gets another job from homeowner Y across town, this guy is willing to sign up for what would be the same amount of work for $6000. But, oh guess what both X and Y are throwing shitty BBQ's next weekend and both jobs have to be done before that, so they have to start now or Y is going to hire another crew. So the contractor says fuck X, we're done here, we'll take the $2500 for half the job and go over and do Y's house. X can get someone to finish for $3000. But you're saying he's entitled to 0, because "hey, why should he benefit just cause he was getting a deal in the first place"? Well. I guess that's fine and all, but again you've completely destroyed the meaning of contracts here. Painting is now a spot price business Sogui's America. That would hurt economic efficiency. And what you're not getting is that is this scenario the contractor is not being penalized because we're saying breach is 'morally' wrong. It's because if we allow breaches like this to take place with no remedy, a contract is essentially meaningless.


Your point that the "cheaper the services are, the more of a chance you'd get screwed" is off base too. How is that an argument for dumping expectation damages? We shouldn't concentrate on the 1% of extreme cases when figuring out what the law should be. So what are you really arguing for there? Easier claim to something like commercial impracticably? I mean if you're really going to go after expectation damages here. You can't be showing us that in some unusual scenarios there can be overcompensation. You want to use mundane common breaches to make your point. And you need to factor in the macro effect on the formation of contracts.

Understand that before I started borrowing from Craswell's paper and as a consequence, his analysis on 5+ other approaches to a similar problem, my argument was for "actual reliance".

Actual reliance is my shitty name for TRUE DAMAGE. True damage is what, with complete omniscience, we would say a party has lost. With this understanding you have a million ways to push back against the counter-argument you made about the painters. I mean let's say I concede that if the painters can give a $6000 benefit to Y compared to the $2500-3000+ for X.

So yea, I might say $6000 compared to $2500-3000ish for a week's worth of work and material sounds like an efficient breach. Even expectation damages would only give $500 for cost of cover. A narrow definition of reliance might give $0 (there are complications though). My definition would ask "Ok how has X been harmed". He has been left with a half-painted house which is almost certainly a worse condition than he had before, or expected after the contract. This condition has forced the plaintiff to cover to remedy this wrong and thus the actual damage he suffered was equivalent to fixing this "condition", minus what he saved, thus actual reliance = expectation damages here.

The approach I use would also be highly sensitive to lost time, if you desperately need something by a certain date (i.e. a customized wedding cake) and the cake-maker breaches the day before the wedding, actual damages would be equivalent to expectation damages since we not only breached, but deprived you of the very outcome that you desire. That was my problem with the common law's use of reliance and why I wanted mine to be "different". In that stupid Chicago Coliseum v. Dempsey case that introduced reliance to us, it bothered me that a boxer could string the organization along for 6 months right up until the month before the match and breach, but not account for the fact that the late breach prevented any boxing matches from being organized in time. In my mind Dempsey breaching on day 1 is a world apart from breaching the night before, even if common law reliance would see no difference (if out of pocket costs were the same).

I'm trying to make it clear that my problem isn't that expectations is pure shit and an utterly useless standard. It's just that it is the default rule and thus extends into many situations where it just isn't appropriate. It is clearly appropriate when an expected outcome has been "frustrated" by the breach, it is clearly appropriate when one party has finished performance but the other breaches, and it is clearly appropriate in any context where the parties make it clear that they want the promised results to be absolutely guaranteed.

Lastly, the examples you two gives (half painted house, scoop of peanut butter) both differ from mine because you are pushing towards scenarios where expectation is more appropriate. With the peanut butter too, the hidden implication that triggers our gut rejection is that a partial performance and then breach leaves a can of peanut butter with a missing scoop to be worth far less than a pristine can, and there would be even further damages not compensated by reliance in remedying the "flawed" can or house. This standard would always try to avoid it, where a breach is a damage beyond itself, that should be compensated as well since it was endured in reliance of your promise and the trust extended to you.

My argument is we need to:
1- Make reliance "smarter"
2- Shrink back the area of law where expectation interest is the default rule, carve out more exceptions and consider "entitlement theory" to analyze the areas of contracts where parties clearly do not intend to exchange expectation entitlements and use a smarter reliance for these areas.

Even if 1% of the law is flawed, judge's have intuition too and if they keep seeing those flawed outcomes enough they will think of new doctrines just like the dozens of others that have been conjured up and shaped across the law to prevent flawed outcomes.

[Renzo]

Ugh.

So, your argument now has morphed into "There are one or two outlier cases where the very sensible and brilliant default rule doesn't work out so hot."

[Sogui]

Ugh.

So, your argument now has morphed into "There are one or two outlier cases where the very sensible and brilliant default rule doesn't work out so hot."

More like there are a couple areas where is clearly doesn't work out so hot, and a fascinating gray area that would be interesting to analyze. Keep in mind I'm doing my own very limited research here, basically digging out one good paper and then searching for any interesting citations that the paper makes. I think it's shaped my opinion since I made the OP but my basic question is the same:

Why do we protect expectation interest? Just like you tried to define expectation as the DEFINITION of Pareto efficiency, that's how I see "actual reliance" damage. Actual reliance is trying to make a breaching party understand the FULL costs and benefits to the system, if, understanding that, still sees an efficient breach then "by definition" the breach is efficient for maximizing the joint benefit of the parties.

There are also a ton of interesting arguments as to why contracts "deserve" more than "tort-based" reliance, and others saying the opposite, all a whole mess of philosophical justifications for all of em.

Either way my subject line still doesn't have a settled answer nor does the ensuing debate on how far "default" rules for expectation should go.

[Sogui]

You started a thread by asking, "Why do we protect expectation interest in contracts?"

Now you are defending expectation interest and arguing for a slightly more searching judicial inquiry into what the parties expected from their bargain.

I can't for the life of me nail you down on a position, other than your opinion that Hornbooks are for losers and everyone else is wrong.

If you can sum up for me in 100 words what your position is, I might yet be persuaded that you actually have a position. As of now, however, I feel like you're just regurgitating critiques of contract theory that you like, but don't fully understand.

You clearly aren't reading anything I type.

I just explained how my perspective can be equated with theirs.

If you even had a slight understanding of what I've been saying you'd know that the remedies I've been arguing for are not anything like expectation in the restatements/common law/UCC. The point has been consistent all along: traditional expectation damages overcompensate non-breaching parties.

Original argument, no real rebuttal or counter-point... in theory "Actual Reliance" is the remedy that gets closest to your "Pareto efficiency"

Developing argument, even if you don't like my alternative, my OP on expectation stands: it is a flawed and over-compensatory default rule

Doesn't your approach rely on more fact-intensive determinations of what is "reasonable" and what was "relied upon"?

Depends on the context but, yea I'd say so.

Which is one of the reasons why I've been tempering my thoughts on expectation. At first reliance seems like the "no brainer" for a more efficient world, but there's a lot of costs that might go into finding reliance damages. I don't think it would be a problem if the parties were honest and non-adversarial, but there's a lot of room for abuse in reliance and courts would need to expand "good faith" to new areas to make sure companies don't abuse it. I mean, it really shouldn't be a problem for corps. to calculate their reliance damages, but when they have an incentive to inflate or over-rely, issues start popping up.