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27 J. Corp. L. 567 (2001-2002)


As my contribution to this symposium in David's honor, I submit the law and economics section of the damages chapter of our joint enterprise, Understanding Contracts. Because of David's failing health, my own involvement with the publisher never reached contract stage. The chapter concludes with a problem that illustrates some of the intricacies of mixing family law and contract. David and I grappled for some time with the answer to the problem, coming at it from our different points of view. On one occasion, David, with a twinkle, told me there was only one place where I was "absolutely wrong." So here is our attempt to fuse two disciplines, followed by my analysis of why we had such problems (and such fun) doing it.

The family law problem does not illuminate every single part of an exploration of damages or every aspect of damages that might apply to family transactions. I leave that task for another time. It does, however, illustrate problems with predicting and planning for the future, problems that plague all contracts, but that make use of contract analogies (or any other theory) particularly frustrating in family law. I suggest that the enhanced earning cases featured here be analogized to a particular kind of commercial contract, the sort involving specific investments needed not only by the contracting parties but also by the economy as a whole.

Though law and economics claims to be positive, so that all contracts are equal, reality teaches us that some investments are not equal to others. Some investments are so important they deserve government funding or the benefits given by the patent system. Even if they remain purely private, some contracts have such wider social impact that, when they fail, damages are not calculated in precisely the usual way. If one party or one spouse invests in a venture that promises to benefit the economy as a whole, I argue here that damages should not be limited to reliance losses. In situations in which timing make returns asymmetric, somehow the party making the investment should recognize a return to investment even when, without anyone's fault, the contract terminates.


Originally published in Journal of Corporation Law.



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