A buyer repudiates a fixed-price contract to purchase goods, and the seller sues for damages. How should a court measure the seller's loss? The answer seems simple: The seller should be awarded damages sufficient to place it in the same economic position it would have enjoyed had the buyer performed the contract. But the seductive conceptual simplicity of the compensation principle disguises substantial practical problems in measuring seller's damages.
Contract law has traditionally minimized measurement difficulties by basing damages in most cases on the difference between the contract price and market value of the repudiated goods. The common law courts generally limited the seller to such market damages whenever the seller had a resale market for the contract goods. These courts assumed that combining this damage award with proceeds from a resale would give the seller the profits that performance would have earned it.
Contracts | Law | Law and Economics
Charles J. Goetz & Robert E. Scott,
Measuring Sellers' Damages: The Lost-Profits Puzzle,
Stan. L. Rev.
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