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 paper 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.
Contracts | Law | Law and Economics
Center for Contract and Economic Organization
Center for Law and Economic Studies
Victor P. Goldberg,
The Lost Volume Seller in English Law,
Columbia University School of Law, The Center for Law & Economic Studies Working Paper No. 594
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/2325