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For purposes of this paper, "commercial itigation" will refer to civil suits filed by a plaintiff who has been economically damaged by the allegedly wrongful acts of another party. We distinguish a commercial economic loss from a personal economic loss in the following way. A commercial loss is a business loss of profits or loss of asset value resulting from the actions of another party. These actions may involve a temporary or permanent interruption of business, breach of contract, or losses due to fraud. In contrast, personal injury cases involve a temporary or permanent disruption to the personal income or benefits of an individual, or the ability to earn income. The focus of this article is on the role of the forensic economist in measuring the economic damages suffered by the plaintiff in a commercial loss case. From the point of view of an attorney, commercial litigation cases usually fall into one of five categories: breach of contract, tort, fraud, condemnation or antitrust. Since the literature on both the law and the economics of antitrust is vast, antitrust issues will not be addressed in this paper. A valid contract typically involves enforceable promises by one party, in consideration for which another party makes a payment or a reciprocal promise. When one party does not perform its promise, a breach may have occurred and a lawsuit may follow. An example would be a heating contractor who pays for an advertisement to appear in a "Yellow Pages" type of directory, but the publisher fails to include the ad in the next issue. American common law recognizes several methods for defining the resulting economic damages. The most commonly applied method is the "expectations remedy,’’ whereby the breaching party would pay an amount that makes the plaintiff firm as well off as it expected to be if the contract had been properly fulfilled. Under an alternative theory, known as the "reliance remedy," the payment would make the plaintiffs as well off as if they had never entered into the contract which was breached. 1 A tort is a private or civil wrong or injury other than a breach of contract. An example of a tort giving rise to commercial litigation would be a business whose premises were flooded when a paving contractor breaks a nearby water main. In this instance, a court might apply the equivalent of the expectations remedy to measure damages: the magnitude of the damages must be sufficient to make the plaintiff/owners as well off as they could have expected to be if the flood had never occurred. 2 |
