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When a contract is breached, both U.S. and U.K. law provide that the non-breaching party should be made whole. The Uniform Commercial Code (“UCC”) provides that “[t]he remedies provided by this Act shall be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed.” The English version, going back to Robinson v. Harman, is “that where a party sustains a loss by reason of breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.” 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 – i.e., 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 does not add much. It becomes more useful as we move away from that extreme – e.g., 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.


Contracts | International Law | Law | Law and Economics


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