law of economics-1. Walgreen vs. Sara Creek Property

Apr 8th, 2015
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1. In the case of Walgreen’s vs. Sara Creek Property, Walgreen’s, a full service pharmacy, had signed a 30 year lease with Sara Creek for space in a mall. The lease included an exclusivity agreement – no other drug store was to be given space in the mall for the length of the lease. With 11 years still to go on the lease, Sara Creek announced its intention to break the agreement and rent space to Phar-mor, a discount pharmacy that emphasized low prices over service and shopping selection. Sara Creek offered to pay Walgreen’s damages, which Sara Creek argued could be “readily estimated”. Walgreen countered that its damages were higher than Sara Creek believed, would be difficult to calculate, and would include intangibles. They asked the court for an injunction against letting the space to Phar-mor until the lease expired; in other words, they asked for specific performance. The lower court granted the injunction. Sara Creek appealed. On appeal they argued that the value of having Phar-

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1. In the case of Walgreen's vs. Sara Creek Property, Walgreen's, a full service pharmacy, had signed a 30 year lease with Sara Creek for space in a mall. The lease included an exclusivity agreement - no other drug store was to be given space in the mall for the length of the lease. With 11 years still to go on the lease, Sara Creek announced its intention to break the agreement and rent space to Phar-mor, a discount pharmacy that emphasized low prices over service and shopping selection. Sara Creek offered to pay Walgreen's damages, which Sara Creek argued could be "readily estimated". Walgreen countered that its damages were higher than Sara Creek believed, would be difficult to calculate, and would include intangibles. They asked the court for an injunction against letting the space to Phar-mor until the lease expired; in other words, they asked for specific performance. The lower court granted the injunction.Sara Creek appealed. On appeal they argued that the value of having Phar-mor in the mall exceeded the losses Walgreen's would suffer from increased competition, which is why they agreed to pay Walgreen's losses. Walgreen, argued Sara Creek, should have to prove that the Sara Creek damage offer was too low. In answering the following questions, it will be necessary to make reference to the quantities WD and PM, defined below. It will also be useful to think about such things as the Coase theorem, transactions costs, and the costs associated with various remedies.

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