Market value vs. replacement costs in tort cases

o Court said replacement (repair) cost measure of damages is appropriate even though it’s quite high – this is “special purpose” property with no discernible market value

o Even though the rule is clear, it can still raise lots of questions in cases like this:• What is a reasonable replacement?• When is replacement reasonable necessary?

Trinity 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.

Why did the Court reject the present value argument?

Assume that Linduh was reasonably severely injured by Buzz in an auto accident. Linduh has had several operations for which Buzz’s insurance has agreed to compensate her. But Linduh’s doctors tell her she 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.

The insurance company has agreed to give Linduh the present value of that future $100,000 operation. Use the present value table on p. 1010-11 and assume Linduh invests the money she is awarded so that she receives a 3% return. How much money will Buzz’s insurance company have to 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)?

Linduh needs to invest sum PV for 7 years at 3 percent interest in order to get $100,000 in seven years.

The present value table tells you that the appropriate multiplier is .81309151.

So the present value (PV) of $100,000 is reached using the formula $100,000 X .81309151 = $81,309.15

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

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

o This is a mathematic calculation but it is still based on a lot of very tenuous assumptions that might not get P full recovery or might overcompensate P.

Like tort damages, contract damage measures typically use FMV or replacement cost measures◦ BUT the rules differ under common law & UCC

Common law: ◦ FMV is preferred tool for measuring damages for breach

of contract

UCC :◦ Can use market value to measure damages – UCC 2-

708/2-713

◦ Can also use measures similar to replacement costs Cover – UCC 2-712 Resale – UCC 2-706

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

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.

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

What measure of damages did Neri use – market value or resale value? Why?

Expectancy – puts P in same position as if contract performed

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

Expectancy is the favored method of implementing rightful position

◦FMV, replacement costs or the Neri measure all try to implement P’s expectancy – i.e., all try to 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 in contract situations?

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

o Has the court awarded expectancy and reliance damages?

• At 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).

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