Document Type

Working Paper

Publication Date



When a contract is breached both US and UK law provide that the non-breaching party should be made whole. I propose a general principle that should guide implementation – the contract is an asset and the problem is one of determining the change in value of that asset at the time of the breach. In the simplest case, the breach of a contract for the sale of a commodity in a thick market, the change in the value of the asset is simply the contract-market differential; the contract-as-asset notion doesn’t add much. It becomes more useful as we move away from that extreme – imperfect substitutes, future deliveries, or long-term contracts. Thus, for example, it makes little sense to talk of the contract-market differential if the buyer repudiated a 20-year take-or-pay contract in the third year. The damage rule should be viewed as the price of the option to terminate. Parties might choose to make that price explicit, perhaps with liquidated damages. In the absence of an explicit exit price, the make-whole rule becomes the default option price.

The paper considers the implications of this framing for a number of questions in US and UK contract law: (1) the relation between cover and market damages in the US; (2) the English analog: the concept of the available market; (3) the measurement date following an anticipatory repudiation; (4) the relevance of post-repudiation facts (The Golden Victory problem).


Contracts | International Law | Law | Law and Economics


Center for Law and Economic Studies