IV. Contracts
    E. Breaking contracts
    2. The law regarding breach of contract
    c. Liability for damages (cont'd.)

    Groves v John Wunder. 205 Minn. 163  (1939)

1. P: What were the facts of the case?
2. D: Do you deny that you breached the contract?
3. D: Why did you breach it?
4. P: Why do you feel entitled to more damages than you have been awarded?
5. D: Why do feel that you should not have to pay those extra damages?
6. D: To clarify: How much will it cost to grade the land? 
7. P: If you receive the damages you are requesting, will you use the money to grade the land? Why not?
8. D: At the time you made the contract, how much more would you have been willing to pay plaintiff to avoid the clause requiring you to grade the land?
9. P: Why did you include the clause for grading the land instead of the higher amount you could have charged the defendant?
10. D: If you do have to pay those extra damages, then how do you feel about paying damages compared to fulfilling the original contract?
11. D: Is it efficient to grade the land?
12. P: What did the court decide?
13. P: What did the dissent assert was wrong about the majority opinion?
14. E: What year was the contract signed? What year did it expire?

    Illustrates an efficient breach

    Posner criticizes the size of this award. Why?
    The entire gain from the breach was awarded to Groves
    Makes the defendant (assuming he had anticipated the result) indifferent between breaching and (inefficiently) performing. (F162-3)

    The case raises the issue of timing in measuring damgages:
    The dissent: argues that the victim should receive value "when the breach occurred."
    But in that case, the promisor would receive the entire gain from the breach.
    Contrast with Hawkins v. McGee: "The only losses that can be said fairly to come within the terms of a contract are such as the parties must have had in mind when the contract was made"

    Which award puts the parties closer to where they expected to be at the time the contract was made?

    Damages of $60K puts both parties closest to where they expected to end up
    Disadvantage per Posner: discourages efficient breach
    Disadvantage of awarding $12K: frustrates and therefore discourages making contracts
        Besides: Groves has the option of renegotiating to let John Wunder out of his contract

    A pretty strong case could be made in general for damages based on expectations at the time of the contract, in the absence of evidence that those expectations were flawed
    Avoids incentives for opportunistic behavior ex post.
    A complication in this case was the Great Depression which depressed property values--unforeseen event

    Peevyhouse v. Garland Coal. 382 P. 2d 109 (1963)

1. P: What were the facts of the case?
2. D: Do you deny that you breached the contract?
3. D: Why did you breach it?
4. D: How much did the breach reduce the value of the farm?
5. P: How much were you awarded in the lower court?
6. P: Is that more or less than the value of your farm?
7. P: Why do you feel entitled to such substantial damages?
8. D: Did the contract explicitly state that you would carry out restorative work after strip mining the coal?
9. D: What did the majority decide?
10. P: What did the dissent argue on your behalf?
11. E: Based on Groves v. John Wunder, how much should you pay in damages?

    Illustrates the reverse outcome of Groves v. John Wunder

    The case suggests that courts will not award damages based on costs of performance if they are substantially disproportionate to the value of performance to the victim

    Do courts usually base contract decisions on efficiency or intent of the parties?

    Do courts usually second-guess subjective valuations?

    Were any unforeseen developments discussed in this case?

    What are some of the incentives that result from this case?

    The case seems to open a can of worms regarding efficiency, freedom of contract, and opportunism

    Which option puts the parties closest to the welfare levels they bargained for?
    specific performance has efficiency advantages
    See Ulen, Thomas S. "The efficiency of specific performance: toward a unified theory of contract remedies." Michigan Law Review 83 (1984): 341.

    irony: cost allowed in Groves v. John Wunder, a commercial property but not in Peevyhouse v. Garland Coal, a residential property where aesthetics and subjective value are likely more important

    Hadley v Baxendale, 9 Ex. 341 (1854) Moral hazard pulls in opposite direction of risk spreading. [this basically illustrates that liability is limited to what damages can in general be anticipated, not special damages such as lost profits, unless specifically warned of special circumstances]

1. P: What were the facts of the case?
2. D: Do you deny that you breached the contract?
3. P: What sorts of damages are you asking for in this case?
4. D: Why do you think the lost profits are unreasonable to ask for?
5. D: What else could the plaintiffs have done to mitigate the damages?
6. P: What did the court decide with respect to the consideration of your lost profits?
7. P: What could you have done to increase the likelihood that the court would have allowed consideration of your lost profits in the award of damages?

    Illustrates consequential damages, which are not traditionally awarded under the common law
    "The general principle is that if a risk of loss is known to only one party to the contract, the other party is not liable for the loss if it occurs." (P127)

    What incentive does this create during the contracting process?

    Promotes disclosure of information

    Example: the film from a trip to the Himalayas
    Request special handling, but then expect to pay extra for the extra care

    But note that it does result in an asymmetry:
    Without specific disclosure, damages are capped by average circumstances, but there is no floor to damages, so contract damage payments have a downward bias.