Remedies Wonnell Spring 2015
I. Remedies and Economics:
a. Private Law 4 Categories:
1. Property: area of law that governs forms of ownership and tenancy in real/personal property.
2. Contracts: area of law involving agreements and the duties that arise from their existence.
3. Torts: law that offers remedies to individuals harmed by unreasonable/wrong actions of others.
4. Restitution: recompense for injury or loss through the law of gains-based recovery
b. Types of Efficiency: Properties of Change- from one state of affairs to another.
1. Pareto Efficiency: Things are efficient if “some” people benefit, and “no-one” is harmed.
i. Thought to be fairly attractive and causes minimal harm.
2. Kaldor-Hicks efficiency: Things are efficient if the people who benefit from it could compensate the others who lose from the change and still benefit from it.
i. Redistribution doesn’t need to happen, just has to be possible.
ii. *may not always be as obviously attractive*
iii. *not always clear if wasteful or not.*
3. Comparison:
i. Pareto efficiency is always K-H, but K-H is not always Pareto.
ii. if the changes are somewhat random in incidence, then there’s a good change eventually everybody will wind up better off.
iii. There are more policies that are K-H than policies that are Pareto, and if you keep K-H overtime, more likely to have it than Pareto.
c. Property:
1. Why might one think of property to do with efficiency?
i. Ex: there is an investment in farmland and it will return a yield of crops. If $75 investment will yield $100 in crops, then it is “K-H”.
2. Will you invest?
i. If you can ensure that the investor will reap the return, then YES, if NOT, then they won’t have an incentive to invest the $75 if anyone can come take the benefit.
3. Disincentives:
i. Is disincentivizing property bad? Good?
a. Ex: destroying property to ensure that the property cannot grow plans on it.
ii. If you don’t keep something over time, you may not have incentive to treat it efficiently.
d. Contracts:
1. K’s are promises that are made from the promisee to promisor.
2. Ex: The OR benefits $50 and the cost to the EE is $30, if the value of OR’s benefit is $100, there can be a problem.
i. If the price is changed to $70, where the service to the EE is worth $100 and only costs OR $50, then its K-H efficient because the benefit exceeds the cost. Its Pareto because it’s a price in between the two figured of the EE and OR.
3. The spirit of K law is to enable to allow parties to find the price-in between the cost and benefit that is efficient.
e. Torts:
1. Negative Externality: occurs when one makes a decision that they don’t have to pay the full cost of the decision.
i. If you have to consider negative externalities, it may ruin efficiency.
ii. Ex: a Pig sty that causes harm to neighbors from the smell. Say it costs $50 for the neighbors and benefits you $75 overall, but it costs you $50 to not have it.
a. Overall it’s not K-H efficient because the benefit to me doesn’t exceed the cost.
2. Positive Externality: positive externalities are economic activities that are actually good for others. The individual making a decision doesn’t receive the full benefit of the decision, but others receive the benefit as well.
i. Ex: installing a garden for $50 gives you a benefit of $20, but a $50 to neighbors.
ii. You have no incentive to do this bc the cost outweighs benefits, but overall is K-H efficient to plant the flowers, but you may not do it because it’s not profitable for you.
a. *could set up restitution (charge neighbor for benefit).
f. Restitution: to restore or compensate for lost or stolen property.
1. Coase Theorem: economic efficiency in which when there are no transaxn costs. Bargaining will lead to an efficient outcome regardless of the initial allocation of property.
i. If there are 0 transaxn costs, then one will get an efficient result regardless of any legal rule.
ii. If the transaxn costs are low, parties will bargain it out. If the transaxn costs are high, then you may not be able to.
iii. Coase didn’t think that there were 0 transaxn costs, but prescribed one policy over another on the idea. Wanted to make the focus on “transaxn costs”.
Compensatory Damages
I. Property Damage or Destruction:
a. What is recoverable?
i. Damages to restore harmed party to the place they would had been had they not been wronged.
ii. Damages limited to injuries that are direct, natural, proximate result of tortfeasors actions.
iii. Special Purpose Property: may have little value to anyone but the owner, but cts sometimes permit recovery
b. United States v. Hatahley: Fed Gov unlawfully sold P’s livestock to a glue factory. P awarded damages of almost $200k by the fed district court and the US appealed.
i. H: The damages should have been the replacement cost because if there’s no market for the horses, then they’d replace them.
1. The court did not believe in “collective grief”. It’s too arbitrary to reward everyone the same amount. Consequential damages were too difficult to calculate because”
a. Damage was speculative
b. An offset by selling the goats/sheep/cattle accounted for some lost profits.
ii. R: damages are to restore the injured party as nearly as possible to the position he would have been in had it not been for the wrong of the other party.
c. Why restore to a time prior to harm?
i. Corrective Justice Story: if you commit a wrong, you owe compensation damages because you come related to that person through that wrong. Through your gain, you owe for their loss.
1. Look back to restore something that shouldn’t have been taken away.
2. The point is to manipulate incentives of potential defendants.
ii. Utilitarian/efficiency story: Gives incentive for people to take into consideration the negative externality they inflict onto someone else.
1. The law is said to be “efficient to the extent it encourages efficient activity and discourages inefficient activity.”
2. Alters incentives. More of a future argument.
3. Believe the law should generally encourage profitable activity, even activity that harms others and incurs liability for breach of contract or unintentional torts, so long as breachers and tortfeasors pay for the damage they cause.
d. In Re September 11th Litigation: (S.D.N.Y. 2008): Silverstein bought the world trade center and 2 months after he took possession the terrorists attack happened. He sought recovery of 16.2 billion and alleged replacement value of towers 1,2,4,5.
i. There was a complication because there was a term within the lease that states if the buildings were wrecked, he would rebuild them He claimed that as part of his damages because of his obligation.
ii. Lesser of two rule: P may recover the lesser of the diminution of the property’s MV or its replacement costs. (lesser of Diminution of property’s MV or Replacement cost)
of K where they would have incurred a provable loss.
b. 2. As a remedy if you’re the breaching party. (recovering down payment)
c. 3. As a sort of clean up remedy for busted Ks.
c. Usually for breach of K: expectancy is the most, restitution is the least.
i. Expectancy damages ensure parties don’t back out of K.
ii. K’s are more than economic exchanges and involve moral judgment, don’t want broken promise
d. Theory of efficient breach: argument for enforcing expectancy dmgs.
i. You can break K and make enough $ to compensate the expectancy loss of the other party in the K and benefit as well.
ii. It would ensure that you weren’t going to break the K unless the profit was high.
e. Why ever use restitution? Useful when transaxn, would have incurred a provable loss. Reliance interest in that case wouldn’t be given.
i. In K-H, sometimes expectancy interests may be inefficient.
ii. Sometimes Expectation interests aren’t reasonable.
1. Ex: a cancer pill or something nearly impossible.
2. It can be a problem of replacing MORE than what was contracted for. (EXCESSIVE)
f. Chatlos Systems, Inc. v. National Cash Register (3rd Cir 1982): EXPECTANCY DMGS IN K: D- Seller made representations about a computer system’s capabilities. P was promised a $200k machine for $46k. P had expert witnesses testify.
i. H: Court grants expectation interests. P was entitled under general rule of K to what they expected. (Cost of expected super computer- what he actually got)
ii. A: Correct measure of dmgs under NJ statute was the difference between FMV of goods accepted and the value they would have had if they had been warranted.
· §2-711: $ Back
· §2-712: CP- Kp
· §2-713: MP- KP
· §2-715: incidental damages + Consequential damages.
o Consequential damages: indirect consequences of not having product
o 2 limitations:
§ 1. Can’t avoid them by cover or otherwise
§ 2. They have to be foreseeable at the time of contract.
§2-714( value as warranted- value as is)
§2-715 (inc. +consequential dmgs)
III. Fraud Damages:
a. In the case of Fraud, P is liable for damages that proximately resulted from the fraud.
b. Smith v. Bolles (U.S. 125): EXPECTANCY DAMAGES IN TORT: Fraud Case, not K. P agreed to buy 4k shares of mining stock from D for $1.50/S. P alleged that D made false/fraudulent representations, that stock and mining property were worthless, but that D had represented that shared would have been worth at least $10 each. Alleged that he suffered $46k in damages
i. H: question was of what P lost by being deceived into the purchase, not what P might have gained. Not expectancy because not breach of K. If D did commit fraud, then he is liable for damages that proximately resulted from the fraud.
