Why do we protect expectation interest in contracts?

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Sogui
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Re: Why do we protect expectation interest in contracts?

Postby Sogui » Wed Dec 15, 2010 9:52 am

betasteve wrote:Was that wall of text an actual question or just an attempt to work in economic concepts and terms to show the "haters?"


I tried to answer you in a separate "wall of text lite" at the bottom of page 1. And no it's hella-sweet financial theory, fuck economics.

@renzo

Lost volume manufacturers/retailers have no duty to "mitigate" or "cover". See: Neri. Even when the lost-volume seller manages to cover they still get to recover full profits under the UCC.

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Re: Why do we protect expectation interest in contracts?

Postby Renzo » Wed Dec 15, 2010 12:40 pm

Na_Swatch wrote:Duty to minimize? what do u mean? (or did u mean mitigate?)

Yeah, sorry, imprecise language. Duty to mitigate

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Re: Why do we protect expectation interest in contracts?

Postby Renzo » Wed Dec 15, 2010 4:11 pm

Sogui wrote: And no it's hella-sweet financial theory, fuck economics.

This here's the breakdown. You gotta understand economics before you can fuck economics.

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Re: Why do we protect expectation interest in contracts?

Postby Sogui » Sat Dec 18, 2010 5:52 am

betasteve wrote:
Sogui wrote:
betasteve wrote:Was that wall of text an actual question or just an attempt to work in economic concepts and terms to show the "haters?"


I tried to answer you in a separate "wall of text lite" at the bottom of page 1. And no it's hella-sweet financial theory, fuck economics.

@renzo

Lost volume manufacturers/retailers have no duty to "mitigate" or "cover". See: Neri. Even when the lost-volume seller manages to cover they still get to recover full profits under the UCC.

Re: breaches early on in performance - doctrines of conditions, forfeiture and duty to mitigate serve to counter nearly all of what you are bitching about.


lol I'm not bitching about it, just trying to have a discussion. I understand all those doctrines but using a bunch of ad-hoc stuff the common law has come up with to prevent the most absurd results doesn't fix all of them.

Point being: Contracts and Torts are all about risk-allocation. The "theory" has judges thinking about "what did the parties think about allocating risk in this relationship" is a frequent question visited by judges in both areas of law.

Conclusion being: Why the fuck do we charge an old guy who cancels his boat order because of a heart attack? You go in, order a boat, put down a deposit, nearly die, cancel the order, store sells the boat to someone else the next day.

No harm no foul right? No rational person would expect the old guy to be liable for any serious damages here right?

Wrong, UCC & Common law say the guy owes the store its lost profit. Sorry old man but that store REALLY needs your surgery money to make up for all the profit you owe them.

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Sogui
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Re: Why do we protect expectation interest in contracts?

Postby Sogui » Sat Dec 18, 2010 6:53 am

Renzo wrote:
Sogui wrote: And no it's hella-sweet financial theory, fuck economics.

This here's the breakdown. You gotta understand economics before you can fuck economics.


I'm sure you'll find some of that in my post too.

The basics of economics are pretty intuitive, and even the advanced stuff is just smart people coming up with paper theories about how to make smart decisions absent any context. Usually it's just easier to fill in the context and ask what the smart decision is within that scenario. That's pretty much finance. How corporations/businesses make "economic" decisions accounting for the demands of all stakeholders (society, shareholders, management, lenders, customers, competitors). This allows you to "color in" these contexts with financial theories about cost of capital and required rate of return that are much more relevant to understanding decisions and how to shape law.

I loved my econ classes too, and it's an immensely useful field. But too many theories, while profound, are based on assumption piled on assumption, i.e. X Theory is based on the assumption that the player has a perfect understanding of the strategies of other players, and that players cannot threaten each other with non-rational strategies, and that the player knows exactly what the outcome of his strategy will be...."

That's why Law and Economics, while a fascinating new way to view law, doesn't ever go beyond the basic stuff, externalities, cost-benefit analysis, and fundamental insights into market behavior (i.e. hey if we award an injunction, market players will NEGOTIATE - OMG!!!). After contracts one day a friend of mine was in a tizzy about how apparently that days discussion was based on "coase" theorem and efficient bargaining. His long explanation just boiled down to "people will do cost-benefit analysis", and the law forms an important part of the 'cost' and 'benefit' of decisions that grant a cause of action. ok. In one sense that is what makes Law and economics so valuable, the real world impact of how a law allocates risk and shapes behavior, in another sense though... that is the only economic insight you really need to understand in law, if you are smart you can work out the rest of the implications.

Plus finance is just applied economics, you know, economics applied to the entities whose cumulative decisions affect us more than anything else and make them in such a way that we can make useful predictions about how one decision can affect another?

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Re: Why do we protect expectation interest in contracts?

Postby Renzo » Sat Dec 18, 2010 2:49 pm

Sogui wrote:In one sense that is what makes Law and economics so valuable, the real world impact of how a law allocates risk and shapes behavior, in another sense though... that is the only economic insight you really need to understand in law, if you are smart you can work out the rest of the implications.


You've been proving this wrong for several pages now.

Contract makes a lot of sense, if you understand a little econ and a little game theory. But it isn't something you'd necessarily intuit, and when you you start to muddle it with morality (like who ought to bear a loss, an old guy with a heart attack or a boat builder), it really won't make sense.

Really, I promise you that all the smart lawyers, judges, and academics in the world aren't wrong, making you the only person to have found a better way. Rather than spending your energy insisting it doesn't make sense, why not try and figure why everyone else in the world agrees it does make sense.

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Re: Why do we protect expectation interest in contracts?

Postby Sogui » Sun Dec 19, 2010 12:49 am

It bears repeating that it is extremely difficult to fathom what is the best "law" for society, I wouldn't even begin to assert that protecting "actual" reliance is better for society.

The spark that got this started was the endless chorus you see in the books and lectures, "Contracts in America are seen through an amoral lense"

Holmes says there is nothing inherently good about a contracted promise, just "Perform or Pay Damages", we are indifferent, really!

Posner says that we shouldn't inhibit efficient breaches. The whole point is that the law "chills" efficient breaching the more costly the legal remedy becomes. In Civil Law countries, a remedy for specific performance is far less unusual for a breach of contract.

So if Civil law is on one end, moralizing and proselytizing about the inherent good of keeping promises.... our law is depicted as being the polar opposite. The calculating businessman who cares more about efficient results than petty promises.

So then, even while I find debate about the two to be interesting, the question is... if efficiency is the ultimate goal, why are we so reluctant to knock the standard for damages down a notch so we don't include our own legal "barriers" to efficient breaching.

If they described American law as a hybrid of inducing performance while allowing for some efficient breaching, then I would never have made this post. The only strike against expectation v. reliance that I could make is that while expectation encourages performance with weightier penalties for breaching, if we restrict our application to businesses and keep the other remedies and doctrines around as back-up, why would it be so bad to allow more breaching if we gave an utterly complete compensation for all losses? Businesses could make more efficient decisions, other doctrines make manipulating partners illegal, and the default behavior is still performance due to some transaction costs, reputation for performing v. breaching, and the fact that both parties want mutual performance at the time of agreement. So if it leads to more efficient outcomes, and the law is applied strictly between sophisticated parties, why is expectation the better choice?


p.s. yes the poor old guy invokes morality and emotions, but it should also invoke a feel of wrongness in your gut. There are a million economic reasons for why the lost-volume rule is terrible for consumers and businesses. Unfortunately most of them are irrelevant since businesses figured out that the law stupid anyway and nobody will survive as the retailer/manufacturer known for suing people over canceled orders. But it's sad when even the most heartless corporation would see the UCC as bad business.

p.p.s. the "kajillions of scholars whose brains dwarf yours have meditated 1000 years on the subject and delivered their final, resounding wisdom upon the masses" line is getting old. They don't need to be wrong, they just need to be apathetic, uncaring, or settled in their mindset of the law as fixed and the only changes will never be coming from their desk anyway. Law is by its nature bound up it obsolete doctrines, ancient precedents, etc... the whole system encourages baby steps every time. You are never taught to think about where we should just throw out the law and start over, we need the consistency right?! Even a little shift towards common sense is seen as an act of genius, isn't that nearly every special rule in contracts? Some person was getting fucked in the ass by a contract or the legal lack thereof so the court finds some way to extend another area of the law to get the right results without too much slippery slope stuff. The only "genius" part was finding the right logic and legal language to justify it. There are probably 5 easy intuitive changes to the law, for the better, that any of us could come up with in an hour of brainstorming (*cough* torts *cough*).

The established law, even the foundations of common law, is not infallible. I don't think the 18th century happened to nail the perfect remedy to breach of contract on the first try, or that such a remedy will forever remain superior in a rapidly evolving society. There is healthy debate about strict liability v. negligence in torts. There is debate about efficiency v. security of contracts, we see scenarios where each trumps the other when shaping new rules and limitations all the time. We've seen the straw-man for "team security" in civil law countries, is it so far off to think sophisticated multi-billion dollar multinational corporations might want to avoid the uncertainty of the other party's expectations every time a contract is written up? Maybe corporations will see that as a preferable alternative, each side lays out cost schedules with formulas for all reliance damages over time, and with that understanding the parties can get closer to reaching efficient results with less transaction costs than ever. I think it's far more arrogant for you to say the matter is foreclosed and settled from any further discussion, than it is for someone to point at the cracks in the wall, the obvious absurdities, and say "Hey I wonder if there is a way to do this better?"

Even the casebook cites some academic arguments made for broadened reliance damages, though the book frames reliance in its more simplistic current form (show me receipts and I'll show you your legal remedy). The fact that the book refuses to use its imagination for reliance beyond a remedy with easier evidence requirements is a fair sign that not many people even think law outside of the box. The only legit argument I even heard against "relying on reliance" is that one party that deeply desires its expected profits ASAP will undertake unprofitable yet expensive clients on in reliance of the contract just to "secure" the outcome. Though at that point it raises other issues about "reasonable" reliance and in a world where reliance attempts to "lock-in" actual damages, if there would even be a case where it makes sense for one side to pay anything more than the cost of lawsuit to "spur" the other party on. Yet that argument flies for cases where outcomes aren't certain either, yet we don't see those contracts throwing money into a pit just to "induce" performance from the other party.


also if you read this sentence, please do some game theory for me!

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Sogui
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Re: Why do we protect expectation interest in contracts?

Postby Sogui » Sun Dec 19, 2010 2:21 am

I'm not even sure you're reading the posts but I googled some keywords and got this on my first search. Apparently some nutjob at Stanford is making some similar points. Key difference is that for him all damages should be "expectation" in the same nominal sense to my "reliance". He argues that there is no "right" theory of damages beyond what the parties want to contract for and that we should look at context of the contract to determine what entitlements that the parties intended to transfer. It's not the same argument but it's still a fundamental attack on expectation damages as the default and a recognition that there are situations (see: my blocks of text) where clearly the parties did not intend to contract our entitlements to future profits or cost of cover.

I found this theory in other papers as well, the "actual reliance damages" I've been talking about it the functional equivalent of what academia refers to as:
AD - Ex post expectation damages; or Actual Damages.

So I'm not off on a limb here, they just view actual damages as being ex-post expectation where the non-breaching party expects to be fully compensated for all the damages they've absorbed as a consequence of the breach.

Also just a comment from another paper he wrote:

"it is often said that the ideal penalty (insofar as deterrence is concerned) equals the harm caused by the violation multiplied by one over the probability of punishment."
[he goes on to test various outgrowths of this theory with different calculations for probability based on real-world legal systems]

I'm genuinely curious where someone in this man's position can say something like this, and yet if I repeat similar reasoning it's complete hogwash.


Expectation Damages and Contract Theory Revisited

Richard Craswell
Stanford Law School


August 16, 2006

Stanford Public Law Working Paper No. 925980
Stanford Law and Economics Olin Working Paper No. 325

Abstract:
Autonomy-based theories of contract law hold (roughly) that people should be free, over some range, to choose the commitments that they make; and that promises are binding on a party precisely because they represent that party's voluntary choice. In 1989, I argued that these theories had no implications for contract law's choice of default rules, including its remedies for breach. Recently, however, various scholars have challenged this thesis by arguing that autonomy-based theories do require (or rule out) some default remedies.

This paper responds to several of those arguments - in particular, to those offered by Dori Kimel, Jody Kraus (reconstructing an argument of Charles Fried's) and Daniel Markovits, among others. In brief, Kimel's argument asserts that expectation damages best protects the entitlement that was transferred by an enforceable contract - but if the parties' contract is silent as to remedies, the actual application of this principle requires a default rule to interpret the contract itself, to decide what entitlement has actually been transferred. As a result, Kimel's argument justifies expectation damages only in a purely formal sense: a sense that allows any amount of damages to be called expectation damages, depending on how we interpret the underlying contract. The arguments of Kraus and Markovits, by contrast, assert that some obligations backed by remedies other than expectation damages should be classified as obligations in tort rather than in contract. But these, too, are merely claims about the labeling or classification of obligations, which do not speak to the question of which obligation should be adopted as the law's default rule in cases where the parties are silent.

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Re: Why do we protect expectation interest in contracts?

Postby D. H2Oman » Sun Dec 19, 2010 4:50 am

Bro, give it a rest. You're not nearly as smart as you think.

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Re: Why do we protect expectation interest in contracts?

Postby Sogui » Sun Dec 19, 2010 5:36 am

I've just been bored to death outlining, visited every site on the internet, and now all that's left is to post on TLS about contracts and economics.

I did more research instead of finishing this torts outline. Turns out I wasn't really off base. Many heavyweight scholars think there are areas where reliance need to be expanded as the default rule. Some discussion of default rules v. drafting rules and sticky-ness of default rules, and whether the expectation default rule should be more like a gap filler absent any clear clues about what rights the parties wished to swap.

Epstein and Craswell both think we should improve freedom of contract and have court's consider party's behavior & language when determining the remedy. They both thought the expectation interest rule should serve only as a last resort gap filler. Many of their push backs against the current damages system validated my own concerns with some of the absurd cases. Courts would be highly unlikely to find Neri consenting to a retailer's lost profit even when cover was available. For those unfamiliar with the law they only intend to offer up reliance or restitution entitlements against them, which seems much more intuitive than these cases from the past.

Lastly there was some good discussion about the actual answer to my subject line besides "because that's what contracts are for". Fuller and Perdue had the same question in their day, and made the same argument 70 years ago after the first restatement. They saw reliance as over-marginalized and expectation as essentially giving "windfalls" aka "affirmative benefits" to non-breaching parties in return for no actual losses. Reliance = Corrective justice, Expectation = Distributive. The modern rebuttal is entitlement theory, that the expectations you form when entering a contract form a real entitlement that can suffer actual harms when a promise is breached, it's not an absolute right, but it's still a right to an outcome that should be protected. Craswell counters that this just proves some exchange of rights took place, but we have no idea what those rights were, could just as easily have been two parties exchanging a right to reliance or restitution recovery after striking a bargain. There are also concerns that people treating expectations as entitlements are only doing so because that's what the law tells use we are entitled to and forms circular logic.

(The End)

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Re: Why do we protect expectation interest in contracts?

Postby jas5076 » Sun Dec 19, 2010 8:55 am

Sogui wrote:I've just been bored to death outlining, visited every site on the internet, and now all that's left is to post on TLS about contracts and economics.

I did more research instead of finishing this torts outline. Turns out I wasn't really off base. Many heavyweight scholars think there are areas where reliance need to be expanded as the default rule. Some discussion of default rules v. drafting rules and sticky-ness of default rules, and whether the expectation default rule should be more like a gap filler absent any clear clues about what rights the parties wished to swap.

Epstein and Craswell both think we should improve freedom of contract and have court's consider party's behavior & language when determining the remedy. They both thought the expectation interest rule should serve only as a last resort gap filler. Many of their push backs against the current damages system validated my own concerns with some of the absurd cases. Courts would be highly unlikely to find Neri consenting to a retailer's lost profit even when cover was available. For those unfamiliar with the law they only intend to offer up reliance or restitution entitlements against them, which seems much more intuitive than these cases from the past.

Lastly there was some good discussion about the actual answer to my subject line besides "because that's what contracts are for". Fuller and Perdue had the same question in their day, and made the same argument 70 years ago after the first restatement. They saw reliance as over-marginalized and expectation as essentially giving "windfalls" aka "affirmative benefits" to non-breaching parties in return for no actual losses. Reliance = Corrective justice, Expectation = Distributive. The modern rebuttal is entitlement theory, that the expectations you form when entering a contract form a real entitlement that can suffer actual harms when a promise is breached, it's not an absolute right, but it's still a right to an outcome that should be protected. Craswell counters that this just proves some exchange of rights took place, but we have no idea what those rights were, could just as easily have been two parties exchanging a right to reliance or restitution recovery after striking a bargain. There are also concerns that people treating expectations as entitlements are only doing so because that's what the law tells use we are entitled to and forms circular logic.

(The End)


Now that would be impressive and worth writing about

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Re: Why do we protect expectation interest in contracts?

Postby jas5076 » Sun Dec 19, 2010 1:40 pm

betasteve wrote:
I tried to answer you in a separate "wall of text lite" at the bottom of page 1. And no it's hella-sweet financial theory, fuck economics.

@renzo

Lost volume manufacturers/retailers have no duty to "mitigate" or "cover". See: Neri. Even when the lost-volume seller manages to cover they still get to recover full profits under the UCC.

Re: breaches early on in performance - doctrines of conditions, forfeiture and duty to mitigate serve to counter nearly all of what you are bitching about.[/quote]

lol I'm not bitching about it, just trying to have a discussion. I understand all those doctrines but using a bunch of ad-hoc stuff the common law has come up with to prevent the most absurd results doesn't fix all of them.

Point being: Contracts and Torts are all about risk-allocation. The "theory" has judges thinking about "what did the parties think about allocating risk in this relationship" is a frequent question visited by judges in both areas of law.

Conclusion being: Why the fuck do we charge an old guy who cancels his boat order because of a heart attack? You go in, order a boat, put down a deposit, nearly die, cancel the order, store sells the boat to someone else the next day.

No harm no foul right? No rational person would expect the old guy to be liable for any serious damages here right?

Wrong, UCC & Common law say the guy owes the store its lost profit. Sorry old man but that store REALLY needs your surgery money to make up for all the profit you owe them.[/quote]
Th' fuck are you talking about? If you think this scenario is what would happen, you don't really understand contracts. Thanks, though.[/quote]

I think he is basing this loosely on the Neri case where the court did keep most of the down payment to cover for the lost profit that they would have made by selling 2 boats instead of just the one.

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Re: Why do we protect expectation interest in contracts?

Postby Sogui » Sun Dec 19, 2010 2:05 pm

betasteve wrote:

Th' fuck are you talking about? If you think this scenario is what would happen, you don't really understand contracts. Thanks, though.


http://www.lawnix.com/cases/neri-retail-marine.html

You're welcome. Did they never teach you about lost-volume rules in contracts?

It's a silly rules where manufacturers/retailers/contractors are seen as having "unlimited" supply and so any breach can't be mitigated just by selling to someone else. Breaching again a Lost-Volume party means you've deal a unique harm to their profits and paying those profits is the only proper compensation under expectation interests.

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Re: Why do we protect expectation interest in contracts?

Postby nygrrrl » Sun Dec 19, 2010 2:23 pm

Sogui wrote:
betasteve wrote:

Th' fuck are you talking about? If you think this scenario is what would happen, you don't really understand contracts. Thanks, though.


http://www.lawnix.com/cases/neri-retail-marine.html

You're welcome. Did they never teach you about lost-volume rules in contracts?

:lol: :lol: :lol: Wait, you're taking BETA on, on a Contracts question?
This'll be good.... [Gets popcorn}

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Re: Why do we protect expectation interest in contracts?

Postby JazzOne » Sun Dec 19, 2010 2:27 pm

Sogui wrote:
betasteve wrote:

Th' fuck are you talking about? If you think this scenario is what would happen, you don't really understand contracts. Thanks, though.


http://www.lawnix.com/cases/neri-retail-marine.html

You're welcome. Did they never teach you about lost-volume rules in contracts?

It's a silly rules where manufacturers/retailers/contractors are seen as having "unlimited" supply and so any breach can't be mitigated just by selling to someone else. Breaching again a Lost-Volume party means you've deal a unique harm to their profits and paying those profits is the only proper compensation under expectation interests.

I think your conception of contracts law is flawed in several respects. For one, sellers don't need "unlimited" supply for the lost volume doctrine to make sense. They just need a supply that exceeds their volume.

Really, I just wanted to tag this thread because it's about to get fun.

Also, you keep using the term profit in a slightly incorrect way. All aggrieved sellers are entitled to sue for lost profit. The profit is the benefit of the bargain. The difference is that some sellers have the capacity to profit from multiple sales of a fungible product whereas others do not.

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Re: Why do we protect expectation interest in contracts?

Postby Renzo » Sun Dec 19, 2010 2:41 pm

JazzOne wrote:Really, I just wanted to tag this thread because it's about to get fun.



I wouldn't get your hopes up. If you look at the past posts it's clear that there's no convincing the OP of his wrongness, and I don't think BetaSteve's gonna fall for that trap.

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Re: Why do we protect expectation interest in contracts?

Postby JazzOne » Sun Dec 19, 2010 2:43 pm

Renzo wrote:
JazzOne wrote:Really, I just wanted to tag this thread because it's about to get fun.



I wouldn't get your hopes up. If you look at the past posts it's clear that there's no convincing the OP of his wrongness, and I don't think BetaSteve's gonna fall for that trap.

If the thread wasn't littered with so much nonsense, I think I could point OP in the right direction. He knows the BLL. He just doesn't understand the policies that animate it.

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Re: Why do we protect expectation interest in contracts?

Postby Renzo » Sun Dec 19, 2010 2:46 pm

JazzOne wrote:
Renzo wrote:
JazzOne wrote:Really, I just wanted to tag this thread because it's about to get fun.



I wouldn't get your hopes up. If you look at the past posts it's clear that there's no convincing the OP of his wrongness, and I don't think BetaSteve's gonna fall for that trap.

If the thread wasn't littered with so much nonsense, I think I could point OP in the right direction. He knows the BLL. He just doesn't understand the policies that animate it.

But he has no desire to, either. That's the real breakdown.

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Re: Why do we protect expectation interest in contracts?

Postby Sogui » Sun Dec 19, 2010 3:39 pm

Renzo if you aren't going to contribute anything nobody is forcing you to post here, all you've done is post 3-4 sentences with incredibly useful statements like:

"You really think all the lawyers and scholars in the world got this wrong?" and "You don't understand econ, I do, I don't even have to explain my points, you are wrong".

Seriously, I threw out a few heavyweight legal scholars who have all challenged the notions of expectation damages as our default rule for damages. One of the most groundbreaking contracts papers of all time asked the same question that I wanted to know in my OP (why do we give positive value to one's expectations?) and it took over 40 years of academic debate and emerging theories to even give a solid rebuttal to the claim by Fuller that expectation interest is basically distributive justice that hands out "windfalls" in return for nothing.

I could go on but I think you'll just offer another post about how stupid and naive I am without even attempting to address substance.

You haven't even attempted to make a contribution, let alone explain the flaws in my reasoning. I know it's not perfect but at least the JazzOne is including useful comments with his condescending statements.

JazzOne wrote:I think your conception of contracts law is flawed in several respects. For one, sellers don't need "unlimited" supply for the lost volume doctrine to make sense. They just need a supply that exceeds their volume.

Really, I just wanted to tag this thread because it's about to get fun.

Also, you keep using the term profit in a slightly incorrect way. All aggrieved sellers are entitled to sue for lost profit. The profit is the benefit of the bargain. The difference is that some sellers have the capacity to profit from multiple sales of a fungible product whereas others do not.


I'm not using precise language here given the quality of replies so far. I used "lost profit" as a statement of their nearly absolute right to lost profits under the rule. Even if someone steps into the store and buys your boat half a second later, you still owe them profit where a small shop that builds 1 boat a year would have no recourse against you.

I would disagree that supply > volume is enough. You could extend the doctrine to a lot of unqualified parties using this definition, I'm pretty sure cases have made it clear that rule only applies to merchants who have a "nearly inexhaustible". Sure smaller businesses can collect lost profits when supply > volume but that might be because they just aren't able to "cover" with another sale. Then again I feel like you are using a vague definition of supply and volume here so I'm not exactly sure how to respond. Either way it's just clarification, at least you acknowledge the rule exists.


@Betasteve and others,

I don't care if the mod is the demi-god of contracts, I gave my Neri example and he said it would never happen in the real world. Where's all this "ooooooh he challenged betasteve!!!! zomg /popcorn" coming from?

I even pointed out a few posts ago that it isn't common in real transactions because no business wants the trouble or the reputation for suing people on canceled orders, but the fact that it's legal and has been done before was my part of my argument where expectation gets absurd results.

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Re: Why do we protect expectation interest in contracts?

Postby Renzo » Sun Dec 19, 2010 5:31 pm

Sogui wrote:Renzo if you aren't going to contribute anything nobody is forcing you to post here, all you've done is post 3-4 sentences with incredibly useful statements like:

"You really think all the lawyers and scholars in the world got this wrong?" and "You don't understand econ, I do, I don't even have to explain my points, you are wrong".

Seriously, I threw out a few heavyweight legal scholars who have all challenged the notions of expectation damages as our default rule for damages. One of the most groundbreaking contracts papers of all time asked the same question that I wanted to know in my OP (why do we give positive value to one's expectations?) and it took over 40 years of academic debate and emerging theories to even give a solid rebuttal to the claim by Fuller that expectation interest is basically distributive justice that hands out "windfalls" in return for nothing.

I could go on but I think you'll just offer another post about how stupid and naive I am without even attempting to address substance.

Look, I'm not trying to make this personal. But, I don't think you want an answer to your question; you want an argument.

I tried to explain why we protect expectation interests, and you are essentially arguing that instead we ought to look for post-hoc fairness in adjudicating contract disputes. That's an entirely tenable moralistic position--BUT--it's incompatible with any economic analysis, because economics is inherently amoral. The question you are asking isn't about expectation damages, rather it's closer to, "why don't we have a civil justice system?" Throwing terms like "efficiency" and "windfall," which have very tidy economic definitions, into a moral argument doesn't make it an economic argument.

Pointing to Epstein, who actually thinks you should be able to negotiate essentially unbreachable contracts, and that penalties should be enforceable actually undermines your point--he essentially thinks that expectation damages should be a fallback, and if people want to agree to really terrible, usurious contracts they should be allowed to do so. His philosophy is expectation damages on steroids.

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Re: Why do we protect expectation interest in contracts?

Postby Sogui » Sun Dec 19, 2010 6:46 pm

I'll just add that it's a pretty extreme fallacy to call my arguments based on morality just because I sprinkled some morality into my hypos.

My conclusion that I got was, (partially a confirmation bias I'm sure, I'd hate to admit I'm wrong here) that cases like Neri, and "discount house painters", and so on wasn't just the "morality" of it, and to be clear I couldn't get through a single 'landmark' discussion of contracts without fairness popping up at least once in a serious discussion, but rather it was a gut instinct that the law was malfunctioning, something just didn't pass the "smell test". Even great legal minds aren't afraid to admit that "something just ain't right" even if they can't explain exactly why.

So that was my basis and my concerns were affirmed by several legal scholars who are still asking the same questions. The idea is that we have cases like HADLEY because contract law does not like shifting risk onto parties without them having notice. Furthermore we always ask ourselves what the parties INTENDED to exchange.

So the basis of my "discomfort" with the law was when you had lay-persons being held for expectation damages that clearly surpassed what they expected to be contracting for. Just like we all (hopefully) had a gut reaction against letting Hadley win, we should be skeptical about Marine Retail Co. winning under the UCC.

Scholars have the same discomfort and so even the "cutting edge" theories only go as far as to say that we should expand freedom of contract and have a more sophisticated system. Perhaps reliance as the default for lay-person contracts, while expectation is the default for commercial transactions between merchants; but with emphasis on the ability to negotiate on the legal remedy as well.

After all if you take the basic principles of bargained-for exchange and the cautionary tales of Hadley or Globe, why not extend it to Neri v. Marine Retail? Would a lay person really understand the lost volume doctrine? Would they really "expect" to compensate full profits to a corporation that managed to "cover" by selling the boat to another customer later on?

The obvious answer seems no. If we protect "expectations" because they are actually "entitlements" formed at the time of agreement, what entitlements were actually being bargained for? If both parties thought the "entitlement" that was being exchanged was simply a promise not to leave the other party worse-off than before, why should the legal system step in and tell them what their REAL expectations were simply because they didn't expressly write it out? Again lay-persons aren't exactly the type to write up the clearest types of contracts.

That's what many of my hypos were getting at, if I offer you a "grand opening deal" for my new lawn-mowing business at $10/yard and the next week's worth of business I sign-up is at the typical $30/yard ---- but then a family emergency forced me to cancel weeks in advance.

Did either party see the customer as entitled to an extra $20 for hiring the typical market lawn services at $30/yard? But my 2nd week's customers are entitled to $0. Why is there a difference between the two? Is there ANY rational reason for the difference? During negotiations did either side realize that Week 1 customers were not only getting a great deal, but they were also getting a highly lucrative legal remedy? Was this even realized or acknowledged?

The reality seems that most lay-persons in these situations would not have expected to hand over any entitlement to their contract partner beyond reliance or restitution damages, perhaps opportunity cost but I include that in my definition of reliance. This is what the parties wanted, it's what common sense tells us they "bargained for", yet expectation damages will apply in these circumstances.

Edit: Epstein brought in primarily to show that this is not a settled area of law by any stretch of the imagination.

Welp2277
Posts: 70
Joined: Sun Jan 17, 2010 10:41 am

Re: Why do we protect expectation interest in contracts?

Postby Welp2277 » Sun Dec 19, 2010 6:55 pm

Sogui wrote:I'll just add that it's a pretty extreme fallacy to call my arguments based on morality just because I sprinkled some morality into my hypos.

My conclusion that I got was, (partially a confirmation bias I'm sure, I'd hate to admit I'm wrong here) that cases like Neri, and "discount house painters", and so on wasn't just the "morality" of it, and to be clear I couldn't get through a single 'landmark' discussion of contracts without fairness popping up at least once in a serious discussion, but rather it was a gut instinct that the law was malfunctioning, something just didn't pass the "smell test". Even great legal minds aren't afraid to admit that "something just ain't right" even if they can't explain exactly why.

So that was my basis and my concerns were affirmed by several legal scholars who are still asking the same questions. The idea is that we have cases like HADLEY because contract law does not like shifting risk onto parties without them having notice. Furthermore we always ask ourselves what the parties INTENDED to exchange.

So the basis of my "discomfort" with the law was when you had lay-persons being held for expectation damages that clearly surpassed what they expected to be contracting for. Just like we all (hopefully) had a gut reaction against letting Hadley win, we should be skeptical about Marine Retail Co. winning under the UCC.

Scholars have the same discomfort and so even the "cutting edge" theories only go as far as to say that we should expand freedom of contract and have a more sophisticated system. Perhaps reliance as the default for lay-person contracts, while expectation is the default for commercial transactions between merchants; but with emphasis on the ability to negotiate on the legal remedy as well.

After all if you take the basic principles of bargained-for exchange and the cautionary tales of Hadley or Globe, why not extend it to Neri v. Marine Retail? Would a lay person really understand the lost volume doctrine? Would they really "expect" to compensate full profits to a corporation that managed to "cover" by selling the boat to another customer later on?

The obvious answer seems no. If we protect "expectations" because they are actually "entitlements" formed at the time of agreement, what entitlements were actually being bargained for? If both parties thought the "entitlement" that was being exchanged was simply a promise not to leave the other party worse-off than before, why should the legal system step in and tell them what their REAL expectations were simply because they didn't expressly write it out? Again lay-persons aren't exactly the type to write up the clearest types of contracts.

That's what many of my hypos were getting at, if I offer you a "grand opening deal" for my new lawn-mowing business at $10/yard and the next week's worth of business I sign-up is at the typical $30/yard ---- but then a family emergency forced me to cancel weeks in advance.

Did either party see the customer as entitled to an extra $20 for hiring the typical market lawn services at $30/yard? But my 2nd week's customers are entitled to $0. Why is there a difference between the two? Is there ANY rational reason for the difference? During negotiations did either side realize that Week 1 customers were not only getting a great deal, but they were also getting a highly lucrative legal remedy? Was this even realized or acknowledged?

The reality seems that most lay-persons in these situations would not have expected to hand over any entitlement to their contract partner beyond reliance or restitution damages, perhaps opportunity cost but I include that in my definition of reliance. This is what the parties wanted, it's what common sense tells us they "bargained for", yet expectation damages will apply in these circumstances.

Edit: Epstein brought in primarily to show that this is not a settled area of law by any stretch of the imagination.

This is beginning to get ridiculous

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Sogui
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Re: Why do we protect expectation interest in contracts?

Postby Sogui » Sun Dec 19, 2010 7:46 pm

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.

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BrownBears09
Posts: 330
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Re: Why do we protect expectation interest in contracts?

Postby BrownBears09 » Sun Dec 19, 2010 7:59 pm

Sogui wrote: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

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thesealocust
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Re: Why do we protect expectation interest in contracts?

Postby thesealocust » Sun Dec 19, 2010 8:12 pm

edit: n/m
Last edited by thesealocust on Mon Dec 20, 2010 7:07 pm, edited 1 time in total.




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