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Victor P. Goldberg

Contract performance takes place over time and the nature of the parties’ future obligations can be deferred to take account of changing circumstances. If one party has the discretion to terminate, the other party can confront the decision maker with a price reflecting its reliance. The decision to breach can be viewed as the exercise of an option to abandon with the remedy being the implicit price of that option. By looking at the pricing of explicit termination options, we can get some insight into how the implicit option could be priced. The evidence from the explicit pricing of the termination option indicates that the price need bear no relation to the amount of money that would fully compensate the counterparty if the option were exercised.
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Victor P. Goldberg

This chapter argues that the market-contract price differential should be reckoned at the time of the breach. It examines four cases (two from the United States and one each from England and Israel) that raise the issue in different contexts. Two arise in cases involving anticipatory repudiation. The third was framed by the courts as whether the subject matter was unique which would justify a grant of specific performance. The final case was treated by the Israeli Supreme Court as an unjust enrichment claim for restitution. These both raise the question of whether the plaintiff would have the choice of basing its damage claim on the price at the time of breach or at some future date.
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Victor P. Goldberg

After WorldCom went bankrupt it rejected Michael Jordan’s endorsement contract. The bankruptcy court rejected Jordan’s claim that he was a “lost volume seller” and also held that he had failed to mitigate damages. This chapter argues that the lost volume claim was properly rejected but that the court misapplied the mitigation doctrine.
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Victor P. Goldberg

After the publisher reneged on a promise to publish, the author sued and won. However, he was only awarded nominal damages, six cents. The case stands for the proposition that speculative damages would not be awarded. This chapter examines the author’s damage theories. Analysis of the record reveals that his most plausible claim, for lost royalties, was never submitted to any court. The contract should have been interpreted as giving the publisher an option to publish with the price being the author’s advance. The breach would have been the publisher’s refusal to return the manuscript to the author.
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Victor P. Goldberg

After the publisher reneged on a promise to publish, the author sued and won. The court held that damages were too speculative and instead allowed the author to recover his reliance damages. He claimed that he should be compensated for the time he spent on the manuscript multiplied by his hourly rate as a lawyer. The jury rendered a compromise verdict which accepted the reliance theory and the court approved. Since the author did have the right to publish elsewhere and, in fact, did so, the damages should have been the costs of delayed publication. Had the contract made explicit that the publisher maintained an option to publish, there would have been no breach. Since the contract was on the publisher’s form, it should have been able to eliminate any ambiguity.
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Victor P. Goldberg

Lake River v. Carborundum is casebook favorite for exploring the liquidated damage–penalty clause distinction. I argue that the case was framed improperly. Had the litigators recognized that the contract afforded one party an option, the result should have been different. The contract was for the provision of a service—setting aside capacity—which was valuable to the buyer and costly to provide for the seller. The primary purpose of the minimum quantity clause was the pricing of that service. The case raised indirectly a significant damages issue: if there is an anticipatory repudiation of a contract that is take-or-pay or has a stipulated damage clause, should the promisee’s ability to mitigate be taken into account when reckoning damages?
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Victor P. Goldberg

This chapter defends the “tacit assumption” test for recovery of consequential damages. Critics of the notion ask: “would reasonable people have contemplated the possibility?” The test asks, even if they would have contemplated the possibility, how would reasonable people allocate the risks? The risks are, to some degree, endogenous—both parties contribute to the harm. The relevant question should be to what extent can one party run its business in reliance on the successful performance of the counterparty’s obligation? The widespread use of disclaimers suggests that the risk of consequential damages should typically be assigned to the non-breaching party. The chapter also considers some significant exceptions to that rule.
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Victor P. Goldberg

When Erie County breached its contract to build a domed stadium, it was sued for damages. In litigation lasting eighteen years the courts finally rejected most of the damage claims. Some claims were for the plaintiff’s lost appreciation on adjacent lands; other losses were for the lost management contract. Some of the claims were rejected because the court applied the new business rule; others were rejected because the court concluded that the county had not assumed the risk. This chapter concludes that the results were correct.
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Victor P. Goldberg

In The Achilleas, the House of Lords gave the most recent interpretation of Hadley v. Baxendale and the limits on the recovery of consequential damages. Lord Hoffmann rejected the emphasis on foreseeability and “the requisite degree of probability of loss,” focusing instead on the tacit assumption of the parties. This chapter examines how the tacit assumption framework applies to the particular facts of The Achilleas.
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Victor P. Goldberg

Professor Mel Eisenberg argued for an expansion of the excuse doctrines. He argued that performance should be excused in those instances when parties tacitly assume that a given kind of circumstance will not occur during the contract time (the shared-assumption test). In addition, he argued that there should be a partial excuse when a change in prices would be sufficiently large to leave the promisor with a loss significantly greater than would have reasonably been expected (the bounded-risk test). This chapter questions his first proposition by re-examining the Coronation cases and Taylor v. Caldwell. His bounded-risk analysis is badly flawed, resting on a dubious proposition, inconsistent with the cases he relies on, and, most importantly, recognizing the wrong set of circumstances in which parties would choose to limit their exposure to large cost changes.