The Concept of “Present Value”

oTrinity Church majority rejected argument that P’s damages should be reduced to their present value – What is that?

• Present Value = the amount of money which if invested today would produce a future stream of payments sufficient to compensate plaintiff for future pecuniary loss resulting from a present injury.

oWhy did the Court reject the present value argument?

Present Value Problem

oAssume Linduh was injured by Buzz in an auto accident. Linduh had several operations for which Buzz’s insurance compensated her. But Linduh will need another operation in 7 years to finally repair the damage. It is estimated that the cost of this operation will be $100,000 in seven years.

oThe insurance company has agreed to give Linduh the present value of that future $100,000 operation. Use the present value table on p. 795-97 and assume Linduh invests the money she is given so that she receives a 3% return.

oHow much money must Buzz’s insurance company give Linduh now in order for her to have $100,000 in 7 years (or what is the present value of $100,000 using these assumptions)?

Present Value Problem – broken down

o Linduh must invest sum PV for 7 years at 3 percent interest to get $100,000 in 7 years.o Present value table shows how to get sum PV with that info – use appropriate

column/row to find multiplier to use.o Here present value (PV) of $100,000 = $81,309.15

o Note multiple assumptions made here:• 1) What the appropriate investment return will be (i.e., interest)• 2) What the cost of the operation in the future is likely to be (based on

inflation)• 3) What the timing of the operation is likely to be

This is a math calculation but is still based on some tenuous assumptions that could under- or overcompensate P.

Common Damages Measures in Contract Situations

• Contract damage measures typically use FMV or replacement cost measures

o BUT different rules under common law & UCC

• Common law: o FMV is preferred tool for measuring damages for breach of contract

• UCC :o Can use market value to measure damages – UCC 2-708/2-713o Can also use measures similar to replacement costs:

o Cover – UCC 2-712o Resale – UCC 2-706

Neri v. Retail Marine

o Neris enter K to buy boat from RM for $12,587.40. Neris gave $4,250 deposit; arranged for immediate delivery.

o Neris later backed out; ask for deposit back; RM refuses because boat has already been delivered to it. Boat later sold at same price to new buyer.

o Neri’s sued (in restitution) for return of deposit; RM counterclaimed for breach of contract.

What measure of damages did Neri court use – market value, resale value or something else? Why?

Implementing Ps Expectancy Interest

Expectancy measure of damages – puts P in position as if contract performed

◦ Compare “reliance” measure of damages – put P in position as if K was never made

Expectancy is the favored method of implementing rightful position for contracts

◦ FMV, replacement costs, or Neri measure all implement P’s expectancy – i.e., all put P in the position would have been in if K were performed

Why do courts prefer damages measures that implement expectancy rather than reliance measures in contract situations?

Clarifying the Various Damages in Neri:

Retail Marine received $2579 in lost profits and $674 in storage and other upkeep costs

Has the court awarded expectancy and reliance damages?

oAt first glance it seems as if RM is getting both because it is getting expectancy (lost profits) and out-of-pocket losses (which often fall into the “reliance” category).

oBut here O-O-P losses fall under the heading of “consequential damages” since they don’t overlap with the expectancy award of lost profits.

Chatlos and Excessive (?) Expectancies

What measure of damages gives the Chatlos P its expectancy?

Why does the court use this measure to implement P’s expectancy instead of the difference between the value of the thing delivered and the bargained-for contract price?

Has Chatlos P recovered too much – can there be an excessive expectancy?

Wouldn’t P have had to pay $208K to get the computer D promised regardless of D’s misrepresentations? Why shouldn’t P recover the difference between the value of the computer delivered ($6K) and the contract price ($46K)?

◦ Should P’s be limited to reasonable expectancies or are there reasons to award expectancy even when it’s huge?

What could D have done to lower P’s damage award in this case?

Bolles and Expectancy Damages

Like Chatlos, P wants difference between the value of the stock as described ($10/share X 4,000 shares) and value as delivered ($0) = $40,000

P gets the difference between his actual expenditure for the stock ($1.50/share x 4,000 shares) and value as delivered ($0) = $6,000

Why doesn’t court give P the expected benefit of his bargain?

Does it make sense to treat the Bolles & Chatlos P’s differently? When would you ever sue in tort as a result?

Changes to the Common Law Rule Against Implementing P’s Expectancy Interest in Tort Cases:

Some states allow P to elect between reliance & expectancy losses in all fraud cases (e.g. Texas)

Restatement 2d Torts § 549(2): Allows recovery of damages equivalent to benefit of the bargain in cases involving fraud in business transactions if damages proved w/ reasonable certainty.Majority of states apparently allow such recoveries

UCC §2-721: All remedies for “non-fraudulent breach” are also available for material misrepresentation or fraud cases involving the sale of goods.

Federal courts still tend to take approach similar to Bolles