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Victor P. Goldberg

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Victor P. Goldberg

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Victor P. Goldberg

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Victor P. Goldberg

This chapter argues that when assessing direct damages for breach, the contract is an asset and the problem is one of valuation of the change in value of that asset at the time of the breach. This provides a framework that will help clear up some conceptual problems in damage assessment. some commentators argue that there is a conflict between UCC §2-706 (cover) and 2-708(1) (contract/market differential). The conflict is resolved if, instead of viewing the two as alternatives, we view cover as evidence of the value at the time of the breach. Long-term contracts present two different issues, the breach of a single installment and the anticipatory repudiation of a contract with many years yet to run. The value of the contract at the time of the repudiation would reflect both the expected future stream of income (lost profits) and the efforts of the nonbreacher to adapt if performance ceased (mitigation).

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Victor P. Goldberg

In The Golden Victory the House of Lords held that when determining damages for a repudiatory breach, in a conflict between the compensatory principle and finality, the former trumped. The decision was ratified by the Supreme Court in Bunge SA v. Nidera BV. This was a mistake; properly conceived, there is no conflict. The contract should be viewed as an asset and compensation would entail determining the decline in value of that asset at the time of the breach. The value of the contract at that moment would reflect the possible effects of future events (e.g., the occurrence of the Gulf War in The Golden Victory and the lifting of the Russian wheat embargo in Bunge). This does not mean rejection of the compensatory principle; it simply entails defining more precisely what is being compensated-the value of the contract at the moment it had been repudiated.

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Victor P. Goldberg

If the buyer breaches a sales contract, and if the seller can be characterized as a lost volume seller, courts and commentators have argued that the seller should be made whole by compensation for its lost profits. This chapter argues that framing the problem in this way leads to an absurd result. The buyer has a termination option and the remedy should be the implicit option price. The lost profit remedy sets a price on that option, a price that bears no relation to reality. Examination of the case law suggests three conclusions: (a) the remedy often sets an excessive implicit option price; (b) courts sometimes give inadequate weight to the explicit option price; and (c) courts will sometimes leap to the lost profit remedy when an adequate remedy already exists.

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Victor P. Goldberg

If a buyer breaches a contract but the market price has remained unchanged, English courts and the treatises have treated the seller as a “lost volume seller.” The seller, it is argued, could have had two sales, not one, so it lost the profit on the second sale. This chapter recognizes that the buyer has an option to terminate and that the contract prices that option. The implicit option price of the lost volume remedy results in an absurd contract, setting the option price high when it should be low and vice versa. The default rule ought to be the contract-market differential (zero in these cases) with the parties determining the appropriate option price with a nonrefundable deposit or liquidated damages.

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Victor P. Goldberg

While both British Westinghouse and The New Flamenco have been analyzed in terms of mitigation, this chapter argues that in neither is mitigation relevant. In the former, the new, superior turbines would have been installed even had the Westinghouse turbines met the contractual specifications. It would therefore have been a mistake to compensate the buyer for the cost of the new (Parsons) turbines. In the latter, when a charterer repudiated its contract, the owner’s sale of the vessel was not caused by the repudiation and the subsequent fall in the vessel’s value was not relevant in determining damages.

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Victor P. Goldberg

If A promises to sell to B who, in turn, promises to sell to C and either A or C breaches should B receive the gain it expected had both transactions occurred (lost profits) or the larger market/contract differential? Recent case law and commentary argues for the lost profit remedy. The argument is that there is a conflict between awarding market damages and making the nonbreacher whole. This chapter argues that there is no conflict. If B were a broker, and C breached, then A would have an action against C for market damages. If B were party to the two related contracts A should also be liable for market damages. By being a party to the two contracts, B has taken on counterparty risk. This chapter provides a detailed critique of the case law.

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Victor P. Goldberg

When A sells to B and B sells to C, should the BC contract (the sub-sale) be taken into account when reckoning A’s liability to B? In Rodocanachi v Milburn, a case involving non-delivery, the English court said No. However, it carved out an exception for string contracts in Hall v Pim. In Bence Graphics v Fasson, the court recognized the sub-sale. This chapter argues that this is a mistake, that courts should ignore the sub-sales, regardless of how closely linked they are to the contract being litigated.