Goals of Contract Damages
Why Compensate?
•	Why compensate at all?
•	It is administratively cheapest to let the loss lie where is falls
Why Compensate?
•	You have just purchased a parcel of land on Perley Ave on the north side in Fredericton (just off Canada St.) for $30,000.  It is now fully treed.  You enter into a contract to pay Marysville Tree Services $5,000 clear the land so that you can build a house for sale.  MTS will have to pay $3,000 in labour, and will make $2,000 in profit.
Why Compensate?
•	On the appointed day the MTS crew shows up.  You tell the supervisor that they can’t come onto the property.  You still want the work done, but you have decided to find another contractor who will clear the land for less money.   
•	Because of the short notice MTS will not be able to find other work that day.  The crew has been hired and MTS will be $3,000 out of pocket if you do not pay them for the work.  Also, because of the short notice, they will unable to find other work.  
Why Compensate?
•	You suggest that you will allow them to proceed if they are willing to take $2,000.
•	This the problem of opportunistic breach
•	Suppose there is no remedy for breach of contract
•	What is the net social harm from opportunistic breach?
Why Compensate?
•	What is the net social harm from opportunistic breach?
•	The harm is that people will not enter into beneficial contracts for fear of subsequent breach
•	Ex ante perspective
•	What will the effect of a damages rule be on willingness to enter into beneficial contracts?
Quantum of Compensation
•	From a deterrence perspective, what is the minimum measure of damages required to avoid opportunistic breach? 
•	What will happen if:
•	The remedy is reliance damages ($3,000)?
•	The remedy is expectation damages ($5,000)?
Quantum of Compensation
•	From a deterrence perspective, what is the minimum measure of damages required to avoid opportunistic breach? 
•	“But for” causation 
•	Put MTS in the same position it would have been in but for the breach
•	Expectation damages
Over-Compensation
•	How much is too much?
•	Is there anything wrong with over-compensation?
Efficient Breach
•	You have just purchased a parcel of land on Perley Ave on the north side in Fredericton (just off Canada St.) for $30,000.  It is now fully treed.  You enter into a contract to pay Marysville Tree Services $5,000 clear the land so that you build a house for sale.  You expect an overall profit of $10,000 profit.  Before MTS performs, the City of Fredericton approaches you and offers to buy the land for $60,000.
Efficient Breach
•	Before MTS performs, the City of Fredericton approaches you and offers to buy the land for $60,000.  The City wishes to use the land and the ‘back entrance’ to the expanded Killarney Lake Park.  You had anticipated a profit of $10,000 from development.  It is a condition of the sale that the land be treed. 
•	Should the parcel be cleared?
Efficient Breach
•	Will the parcel be cleared:
•	If the remedy for a breach is compensatory?
•	That is, you pay MTS $5,000
•	If the remedy is specific performance
•	That is, if you must permit MTS to clear the land or be held in contempt and liable to a fine of $100,000
•	If the remedy for a breach is punitive?
•	(a) You are required to pay MTS $100,000
•	(b) You are required to pay the government $100,000
Efficient Breach
•	What terms would you have put into the contract if you had known that the city was deciding between 10 parcels as the ‘back entrance’ to the park, and yours was one of them?
Efficient Breach
•	From a ex ante perspective, expectation damages are all that are required for planning
•	Damages higher than expectation increase contract risk
•	MTS would have a share of the profits from any unexpected price increase
•	Partial equity stake
•	See Wigsell’s case
Efficient Breach
•	Problem of incomplete contracts
•	Damages as default terms are a solution to this problem
Expectation damages
•	Expectation damages
•	Optimal Deterrence & Compensation
•	No disincentive to entering into contract for future performance
•	Avoids problem of opportunistic breach
•	Contract will be performed only when efficient
•	Subject to judicial error in determination of quantum
Specific Performance
•	Avoids problem of opportunistic breach
•	Can fully commit to future performance
•	Permits efficient breach
•	Subject to problem of bargaining breakdown
•	Increases riskiness of incomplete contracting
Radford v DeFroberville
•	Defendant breaches a contract to build a fence to certain specifications
•	The evidence indicates that the lack of a fence does not reduce the value of the plaintiff’s property
•	On the facts of the case, specific performance is not available
Radford v DeFroberville
•	What is the correct measure of damages?
•	The cost of erecting a wall of the contract specification on the plaintiff’s land: £ 3,400
•	Plaintiff’s submission
•	Reduction in value of the plaintiff’s land: £ 0 
•	Defendant’s submission
•	Cheapest functional fence: £ 880
•	Defendant’s alternative submission
Radford v DeFroberville
•	The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.
Radford v DeFroberville
•	But, in either case, viewed realistically, the answer to the question: what has the plaintiff actually lost by the breach? seems to me to be, as a practical matter, the same. The plaintiff contracted for the supply of a wall bounding his property  . . .Why should he not now be compensated by awarding him the sum which is required to enable him to carry out, as nearly as possible, for himself what the defendant has failed to do for him!
•	What if the plaintiff did not really want the fence?
•	Would he be over-compensated?
Radford v DeFroberville
•	What is the value of the fence to the plaintiff?
•	Is the value of the fence equal to the amount by which the fence increases the property value?
•	What if the plaintiff occupied his property himself?
•	For example, “a recluse who sold part of his land on terms that the purchaser would enclose the retained land with a high wall.”
Radford v DeFroberville
•	What is the value of the fence to the plaintiff?
•	Is the value of the fence equal to the amount by which the fence increases the property value?
•	What if the plaintiff occupied his property himself?
•	Problem of subjective value
Radford v DeFroberville
•	In fact, the plaintiff owned the property purely as an income property.
•	Does the problem of subjective value arise?
•	Thirdly, does it make any difference that the plaintiff is not personally in occupation of the land but desires to do the work for the benefit of his tenants? 
•	Answer: No. Why not?
Radford v DeFroberville
•	In fact, the plaintiff owned the property purely as an income property.
•	Does the problem of subjective value arise?
•	Problem of proof of damages
•	(Uncertain objective damages)
Information
•	Subjective value, uncertain objective value
•	= Problem of inadequate information
•	The plaintiff always knows the value of performance better than a court does a court
•	Whether the value is subjective or objective
•	Information provable in litigation is always less than information available to the plaintiff
Information
•	Inadequate information implies risk of under-compensation
•	‘Objective’ expectation damages may not equal actual expectation damages
•	Objectively calculated expectation damages may under-compensate
•	Cost of specific performance may over-compensate
Wigsell’s case
•	We know on the facts that the plaintiff did not want the fence built
•	Contrast Radford where on the facts the plaintiff probably did want the fence built
•	Should this make any difference?
•	In Wigsell’s case an award of the cost of the fence would be greater than the harm to the plaintiff
Wigsell v Radford
•	Wigsell – P didn’t really want the fence
•	Radford – P did really want the fence
•	Remedial possibilities
•	Distinguish
•	Try to determine whether P really wanted the fence and award damages accordingly
•	Don’t distinguish
•	Award remedy that will do the least harm if wrong
Overcompensation & Efficient Breach
•	Suppose the defendant had still owned the property, so that an order of specific performance would have been possible
•	Would the fence have been built according to the contractual specification had specific performance been ordered?
•	If the plaintiff did not really want the fence?
•	If the plaintiff did really want the fence?
Efficient Breach
•	Suppose the defendant knew that she would be liable for the full cost of building the fence according to the contractual specification.
•	Would the defendant have built the fence before selling
•	If the plaintiff did not really want the fence?
•	If the plaintiff did really want the fence?
Efficient Breach
•	Suppose the defendant knew that she would be liable only for the provable diminution in property value 
•	Would the defendant have built the fence before selling
•	If the plaintiff did not really want the fence?
•	If the plaintiff did really want the fence?
Commitment
•	Would the plaintiff have entered into the contract on the same terms if the remedy were
•	Specific performance or damages equal to performance?
•	Objective damages?
Over-Compensation / 
Efficient Breach
•	Should the fence be built?
•	Would the fence be built if:
•	The plaintiff were awarded damages equal to the cost of the fence?
•	Specific performance were ordered?
Wigsell’s case
•	What terms would the parties have included in the contract had they anticipated the possibility that the land would not be used as originally intended?
•	What term gives P the highest price?
Intent
•	First, am I satisfied on the evidence that the plaintiff has a genuine and serious intention of doing the work? 
•	Should intent be relevant?
•	What are the disadvantages?
•	What are the advantages?
Intent - Disadvantage
•	(1) Increased litigation cost
•	(2) Problem of proof
•	[T]here can, in most cases, be no absolute certainty that the work will be done, for supervening events may alter the position. . . I do not think that the plaintiffs' rights are affected by any such absence of certainty.
•	In effect, the requirement is for a clever lawyer
Intent - Advantages
•	Closer to actual harm to the victim
•	Decreases contract risk
•	What terms would the parties have agreed to
Undertaking
•	Suppose P obtains an award equal to the cost of putting up the fence, conditional on an undertaking that the work actually be done
•	Will the fence be put up if P doesn’t really want it?