Question

1.Party Animal

Charlie is throwing another wild party, so he hires Mike to arrange for the food, drink, entertainment, fireworks, and other arrangements. Charlie pays Mike $50,000 (it’s a wild party!), and Mike promises to have everything ready for the party on July 4^th. Because Charlie trusts Mike, he decides not to hire Peter, who would have done the job for $60,000.

Charlie spends $1,000 to advertise the party, and sells $80,000 worth of tickets. He also buys himself a fancy new suit for $4,000 because the host should always look sharp at a party. A group of trucks from California is arranged to bring all the party fixings to Maryland for the big night, and everything is set. Charlie pays a $2,000 fee for the truckers on their journey.

All seems good, but a week before the party, the trucks all get caught in a flooding Mississippi River. They call to tell Mike and Charlie that they won’t be there in time for the party. Panicked, Charlie calls Lifan, who says he can arrange for the party, but for $100,000. Charlie pays Lifan.

Meanwhile, Mike is stuck with the unused party goods. They arrive in Maryland, but too late for the 4^th of July. So Mike sells everything from the trucks for $5,000.

How would you measure expectation damages for Mike’s breach of contract with Charlie? Explain.

How would you measure reliance damages? Explain.

How would you measure opportunity-cost damages? Explain.

Discuss efficiency and what type of damages you would recommend and why.

Answer 1

Expectation damages are damages recoverable from a breach of contract by the non-breaching party . An award of expectation damages protects the injured party's interest in realizing the value of the expectancy that was created by the promise of the other party. In the given case breach of contract done by Mike, not providing party goods on time, that causes damages to Charlie. Due to Breach of contract, Charlie has to incur $100,000. While actual contracted price of managing party was $50,000. Hence, additional $50,000 paid by Charlie for arranging the party. Hence, expectation damage is $50,000.

Reliance damages is the measure of compensation given to a person who suffered an economic harm for acting in reliance on a party who failed to fulfill their obligationDamages awarded for losses suffered in reasonable reliance on a promise.  Reliance damages are calculated by asking what it would take to restore the injured party to the economic position occuppied before the party acted in reasonable reliance on the promise. Reliance damages may be awarded after a breach of contract or by way of promissory estoppel.

Opportunity Cost damages are damages suffered by party on reliance of other party ,otherwise party selected other opportunity. In given case  Opportunity Cost damages would be $40,000. Since inf Mike was not there then Charlie has to pay $60,000 for arranging party to Peter. And now after breach of contract Charlie paying $100,000 to Lifan. Thus, opportunity damages would be $40,000.

Types of Damages recommended :-

I) Compensatory Damages: These are damages for a monetary amount that is intended to compensate the non-breaching party for losses that result from the breach. The aim is to "make the injured party whole again". There are two types of compensatory damages:

• Expectation Damages: These are damages that are intended to cover what the injured party expected to receive from the contract. Calculations are usually straightforward as they are based on the contract itself or market values.

II) Reliance Damages is the measure of compensation given to a person who suffered an economic harm for acting in reliance on a party who failed to fulfill their obligationDamages awarded for losses suffered in reasonable reliance on a promise. So that net economic harm suffered by Charlie is $50,000. Hence this should be provided as damages to Charlie.