1. (8 points) On February 1, a firm agrees to sell a quantity of flour to a buyer on May 1, at a fixed price of $10,000. The buyer pays a $5,000 deposit on March 1, with the balance to be paid upon delivery of the flour. On May 1 the seller refuses to deliver the flour, for undisclosed reasons. The price on May 1 for that quantity of flour turns out to be $7,500. The buyer sues to recover the $5,000 plus interest, but the seller argues that only $2,500 should be returned since that is sufficient to put the buyer in the position he would have been in had the flour been delivered as promised.
What kind of remedy is the buyer calling for? (Be very careful here; consider all possibilities!) The seller? Explain briefly. Which of these remedies should the court apply? Explain your decision, considering the arguments that could be raised by each side.
2. (12 points) In its 1995 BMW v. Gore opinion, a divided U.S. Supreme Court set out guideposts by which it could be assessed whether a punitive damages award could be deemed excessive. (Note that Justice Ruth Bader Ginsburg, the most liberal member of the Court, was joined in her dissent by Chief Justice William Rehnquist, one of the more conservative members at the time.) Arguably, this is one of the issues on which judges have reached a very different conclusion than economists, applying deterrence theory, would have reached. (Recall Guido Calabresi’s critique of “economic analysis of law.”) Inform your analysis of the questions below by considering the paper by Polinsky and Shavell, the majority opinion authored by Justice Stevens, the concurring opinion of Justice Breyer, and the dissenting opinion of Justice Ginsburg.
Should both punishment and deterrence be objectives in the setting of punitive damages? Explain.
Make sure that you include a discussion of how economic theory guides the setting of punitive damages to deter misbehavior.
Do you agree more with the guideposts set by justices, or with the economists? Make as strong an argument as you can for your position.
Putting this all together, was the U.S. Supreme Court majority correct in capping punitive damage awards, in your view? Explain.
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