Substitutionary Damages

Abstract:     
An award of damages for a breach of contract or a tort is normally comprised of two elements: (1) a sum representing the cost of repairing, replacing or obtaining a substitute for whatever was damaged, destroyed, lost, taken or not provided as a result of the breach (the 'cost of cure'); and (2) a sum representing the abstract or 'consequential' value of whatever was damaged, destroyed, lost, taken or not provided as a result of the defendant's breach (the 'value of loss'). Thus, in a successful claim for non-delivery of goods, the buyer is typically awarded a sum equal to the cost of purchasing the goods elsewhere and a sum (often styled 'consequential damages') equal to any costs or lost profits caused by the delay. In the orthodox common-law treatment, both these sums are presented as different aspects of 'ordinary' damage awards. In contrast to punitive, nominal, and other adjectival damages, both are assumed to be subject to the same conditions and to share the same compensatory aim. Against this view, this essay argues that cost of cure damages and value of loss damages are fundamentally different. Value of loss damages can plausibly be understood as compensatory. Cost of cure damages are different: rather than compensating for losses, they are designed to eliminate or prevent losses (so far as this can be done). Their aim is to undo or avoid the tangible change in the plaintiff's world that will be, or has already been, brought about by the defendant's breach. Cost of cure damages are therefore closely related to specific relief and as such are appropriately labelled 'substitutionary specific relief damages' or simply 'substitutionary damages'. The first part of this essay criticizes the traditional view that cost of cure and value of loss damages share the same objective. The second part introduces the idea of substitutionary damages, situates it within the broader framework of private law duties, and uses it to explain the basic rules governing cost of cure damages as well as features of the law governing specific relief and mitigation.

Number of Pages in PDF File: 27

Keywords: damages, remedies, contract, tort, specific performance

JEL Classification: K10, K12, K13

Accepted Paper Series