M-EPLI talk ‘Pecuniary Damages – Measuring the Economic Value of Contracts’, Johannes Flume, 23 September 2015

This academic year’s first M-EPLI talk will be delivered by dr. Johannes Flume of the University of Tübingen on ‘Pecuniary Damages – Measuring the Economic Value of Contracts’, 23 September 2015, 12.30-13.30, ‘Statenzaal’, Faculty of Law (Boullionstraat 1-3, Maastricht).

The aim of M-EPLI talks is bringing M-EPLI fellows together to discuss our research – as well as the research of invited speakers – and this remains one of the most, if not the(!) most, important activities M-EPLI undertakes. It allows us to know what others are doing and provides the perfect opportunity to help them with their research. M-EPLI talks are about research in progress: many M-EPLI talks lead to a M-EPLI Working Paper in our working paper series. Working papers, by their nature, are work in progress. The format of the M-EPLI talks is therefore 15-20 minutes of presentation and 45-40 minutes of discussion.

In this talk dr. Flume will suggest a new way to understand the foundations of pecuniary damages in the case of breach of contract by connecting contract law with basic capital market economics. He argues that the amount necessary to compensate the aggrieved is equal to the hedge effected by locking in the price with respect to the market value at the time of the breach. Payoff measurements used for linear financial products prove to be very helpful in the field of contract law. He proposes that the value of a positive payoff measure of linear derivatives is tantamount to pecuniary damages. The so-called market price rule is the epitomization of that idea. The legal reality is, however, different. From a comparative as well as a historical perspective, measuring pecuniary damages is the story of the rise and fall of the market price rule. Instead of sticking to the clear edges of the market price differential, a seller today is able to claim his “lost volume,” and a buyer might specify his interest on the basis of his “lost profit.” He argues that this miscalculation of contractual promises should come to an end.

Dr Johannes W. Flume is currently a senior researcher at the Faculty of Law, of the University of Tübingen. His research focuses on civil, commercial, and company law as well as comparative legal history. He studied at the University of Regensburg, Cologne and Bonn and completed his doctorate in law in 2008. Between 2005 and 2010 he worked as research fellow at the University of Cologne, where he also taught courses on civil law. In 2011 he was a Max Planck Scholar and Visiting Fellow at Wolfson College, Cambridge. His research has been published in leading journals in Germany, France, Austria and the UK.

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