Thursday, January 21, 2010
2 - Contract Remedies - The Three R’s
CONTRACT REMEDIES – The Three R’s
PLEASE NOTE THAT THE FOLLOWING IS TAKEN FROM SOME OF MY CLASS NOTES, SOME OF WHICH IS MY OWN PERSONAL WORK AND SOME OF WHICH BELONGS TO CONCORD LAW SCHOOL. IT IS POSTED TO HELP MY IL STUDENTS IN PARTICULAR. IT CANNOT BE DISSEMINATED WITHOUT EXPRESS, WRITTEN PERMISSION.
One part of Contract Remedies’ Comprehensive Outline is what I call The Three R’s, otherwise known as Restitution, Rescission and Reformation.
1. The Three R's
A. Restitution: Restitution is the “value of benefit conferred,” sometimes referred to as “unjust enrichment.” Restitution restores what the non-breaching party (aggrieved party) has paid to the breaching party. Restitution requires the breaching party to give back benefits conferred by the non-breaching party.
Broadly stated, restitution seeks to restore a person to the status that he enjoyed before another caused a loss.
Unjust enrichment (a form of restitution) is an equitable doctrine that covers more than just contractual situations. The elements are (1) that the plaintiff conferred a benefit on the defendant; (2) that the defendant appreciated or knew of the benefit; and (3) that, under the circumstances, it was unfair for the defendant to accept or retain the benefit without paying for it. If one succeeds in establishing these elements, she is entitled to the reasonable value of the benefits conferred.
Most courts consider quantum meruit (Latin, “As much as is deserved”) a particular form of restitution based upon preventing unjust enrichment.
Note the following about restitution:
1. Restitution is not available to the non-breaching party if he has fully performed on the contract.
2. As a technical matter, restitution really isn’t contract damages at all. Rather it is a separate cause of action where contract damages is not sought, just the return of what has been conferred on the other party. It is an alternative to the expectation measure of damages.
3. There are a variety of ways courts can measure restitution damages. One, is the market value. Another measure is value to the recipient (e.g. how much for example, you value a rare book).
I think it helps to better understand, to compare and contrast restitution to other contract remedies.
Some refer to rescission as an “off the contract remedy.” What rescission does is to undo the contract by returning those things the parties have already exchanged. If there is a substantial breach, then you can't go off the contract – rescission is not appropriate. If the breach is not substantial, then you can go off the contract – rescission is appropriate. Hint: look for a contract under the UCC – sale of goods – where the goods can be given back or in contracts where, prior to performance one party has announced an intention to breach. Rescission is appropriate.
Reliance means to give back what was spent in reliance on what another said or did. The goal is to put the aggrieved party back to where she would have been had there been no contract. Restitution means to give back what the aggrieved party gave to the breaching party.
B. Rescission: Rescission seeks to return the contractual parties to the status quo – back to before the time of contracting.
C. Reformation: Reformation is an equitable theory where a court will reform the terms of a contract to meet the intention of the parties.
Professor Doug Holden
© 2010 Douglas S. Holden. All Rights reserved.