I know there’s any easy answer somewhere but I’m too dumb to figure it out…
Let’s say Doe had a contract with Smith in which Smith will buy Doe’s house for 4.5 million dollars. Jones was Doe’s broker and will receive 5% (225k) of the sale as commission once it happens.
BUT Smith backs out. As Doe prepares a lawsuit for breach of contract, he also sells his house for 2.5m to mitigate damages, again with Jones receiving 5% commission (125k).
Doe sues successfully and the judge awards damages. And the damages are…
The professor says that you shouldn’t factor in Jones’ commission and just straight up 2 million (4.5 million - 2.5 million) should do. If Smith argues he’s paying for ‘cost avoided’ since Doe never paid the commission for the first contract, Doe could just say he will pay Jones his damages (for having been collaterally screwed by Smith).
But even then it feels like he’s paying more than what Doe and Jones hoped to gain if the original contract had been upheld.
And I can’t put my finger on what…
If Smith paid for just the commission of the mitigating sale, it would look like this (I think):
4.5m - 225k - 2.5m = 1,775,000
But this wouldn’t be adequate because of Jones’ damages but even if you add that
225k (what Jones expected under original contract) - 125k (what he actually got in mitigating contract) = 100k.
So 1,775,000 + 100,000 = 1,875,000
Which is still significantly less than 2 million.
It’s all just additions and subtractions but I can’t seem to get the right formula, or if I have, understand how I came to that result.
Sorry if some of this seems convoluted and confusing, the original question actually had more factors but I tried my best to strip it down as much as possible. And I’m still confused as hell.
Can anyone see what I’m doing wrong or misunderstanding?
(Oh and the assignments done with so I’m not using you guys for homework or something)
