Damage remedies matters little to future behavior of parties

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Reference no: EM132102586

At Time 0, Kara pays for the seller’s (Sam) promise to deliver ships at Time 2. Sam then renounces the contract at Time 1. Perfect substitutes for Sam’s ships exist in the market. A futures contract at Time 1 for a substitute ship costs 110. Kara, however, does not buy a substitute at Time 1 and instead waits until Time 2 and purchases a substitute on the spot market, which turns out to cost 125. Kara then sues for expectation damages of 125, and Sam responds that expectation damages equal 110. The court must decide which level of damages to apply. Explain why the choice between these two damage remedies matters little to the future behavior of parties like Kara and Sam.

Reference no: EM132102586

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