Clulo, Paul J.

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Contracts: Restitution as a Remedy for Breach

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Marquette Law ReviewVolume 47Issue 4 Spring 1964 Article 12Contracts: Restitution as a Remedy for BreachPaul J. CluloFollow this and additional works at: http://scholarship.law.marquette.edu/mulrPart of the Law CommonsThis Article is brought to you for free and open access by the Journals at Marquette Law Scholarly Commons. It has been accepted for inclusion inMarquette Law Review by an authorized administrator of Marquette Law Scholarly Commons. For more information, please contactmegan.obrien@marquette.edu.Repository CitationPaul J. Clulo, Contracts: Restitution as a Remedy for Breach, 47 Marq. L. Rev. 572 (1964).Available at: http://scholarship.law.marquette.edu/mulr/vol47/iss4/12MARQUETTE LAW REVIEWthe several states. It seems to be a subtle avoidance of the rule ofErie R.R. v. Tompkins, 23 which would permit the federal courts, inany instance absent a very recent state decision, to acknowledgestare decisis as but a guide post, and then reverse the highest statecourts according to their own determinations. By replacing the dis-cretion of the state court with its own, a federal court can effectivelyreverse a state supreme court. This raises several final points ofinquiry. Will federal courts follow their own precedents in thefuture? Will they extend Caporossi to avoid Erie R.R. entirely? Willwe return to the chaos of Tyson's rule? Will state high courts bebound by federal court reversals of the judgments?MICHAEL D. BAUDHUINContracts: Restitution as a Remedy for Breach-Plaintiff,a professional engineer, entered into an oral agreement to provideplans and specifications for a proposed motel on land owned by thedefendant. Relying upon defendant's representations and a plot surveyprovided by him, the plaintiff submitted preliminary plans for theproposed building which incorporated land not belonging to the de-fendant. This land was needed to provide parking facilities requiredby the city building code. The defendant's attempts to purchaseadditional property and to obtain a building permit were unsuccessful,and the defendant was unable to secure the necessary financing. As aresult, the project was dropped. Plaintiff submitted a bill for servicesperformed, and upon defendant's refusal to pay, the plaintiff sued forservices rendered. Barnes v. Lozoff. 1 The Supreme Court of Wisconsinaffirmed the lower court allowing plaintiff to recover the reasonablevalue of his services. The court held that there was no fault on theplaintiff's part in preparing the preliminary sketches and that suchsketches were a part of the bargained-for performance, thus bring-ing the case within section 347 of the Restatement of Contracts.2The city authority relied on by the court in Barnes suggests thatthe decision rests on restitution as a remedy for a breach of contract.3Restitution in this sense lies as an alternative remedy to a suit on thecontract for damages. The purpose of this remedy is to restore theinjured party to as good a position as was occupied by him prior to23 Ibid.1 Barnes v. Lozoff, 20 Wis. 2d 644, 123 N.W. 2d 543 (1963).2 RESTATEMENT, CONTRAcTS §347 (1932) Restitution of Value of a PerformanceRendered By One Party as a Remedy For Total Breach by the Other.3 Guentrer v. Gragi, 258 Wis. 383, 46 N.W. 2d 194 (1957); Palak v. Kramer,116 Conn. 688, 166 AtI. 396 (1933) ; Sterling v. Marshall, 54 A. 2d 353 (Wash.D.C., Mun. Ct. of App. 1947); Parrish v. Taltaras, 7 Utah 2d 87, 318 P. 2d642 (1957).[Vol. 47RECENT DECISIONSthe making of the contract.4 The availability of the remedy requiresthe presence of the following elements:1. The contract must be enforceable, that is, an action must lie fordamages in case of a breach.52. There must be a substantial breach so as to justify decision.03. The injury done to the plaintiff must be in the form of(a) part performance for which the defendant has bargained, or(b) a benefit which the defendant has actually received.7There is a conflict among text writers on the question of whetheror not this restitutional remedy is quasi-contractual in nature. Themajority seem to feel that it is not strictly quasi-contractual., In fact,restitution, as a remedy for contract breach, is clearly distinguishablefrom an action in quasi-contract based upon the theory of unjustenrichment, the elements of recovery being quite different. Recoveryin quasi-contract, based on the theory of unjust enrichment, arises innon-contract situations and under a contract which is unenforceablewhere justice and conscience require compensation to be given forproperty or services rendered Recovery in this situation is allowedowing to the unjust enrichment of the defendant which is measuredby the value of the benefit retained by the defendant. Unjust enrich-ment thus requires the actual transfer of benefit from the plaintiffto the defendant and an increase in the wealth of the latter. Thisconcept of benefit differs from that in the case of restitution, as aremedy for breach, wherein recovery will be allowed even thoughthere has been no actual transfer of benefit to the defendant if thepart performance of the plaintiff was part of the bargained-for per-4The remedy of money damages for breach is intended to put the injured partyin as good a position as he would have been in had the contract been fullyperformed. See Fuller and Perdue, The Reliance Interest in Contract Damages.46 YALE L. J. 52, 53-54 (1937), wherein the authors define three purposes forwhich contract damages are awarded, thus defining the three basic contractinterests-the expectancy interest, the restitution interest, and the relianceinterest. The reliance interest is the one which is discussed in the Barnes case.5 5 CORBIN, CoNTRACrS §1102 (1951).65 CORBIN, CoNTRAcrs §1104 (1951). Professor Corbin points out that therescission requirements merely give evidence of the fact that the breach is,in the words of §347 of the Restatement of Contracts, a total breach.7RESTATEMENT, CONTRACTS §348 (1932).85 CORBIN, CONTRACTS §1106 (1951). SIMPSON, CONTRAs §154 (1954). WooD-WARD, THE LAW OF QUASI-CONTRACT §260 (1913). 5 WILLISToN, CoNTRAcTs§1454 (1937. Dawson, Restitution or Damages, 20 OHIo ST. L. J. 175, 189(1959).9 An action in quasi-contract based on the theory of unjust enrichment will liewhere the contract is unenforceable in the following instances: (The sectioncitations are to WILLISTON, CONTRACtS (1937)) because of infancy §240, mar-ried women §270, or an insane person §255; where the right to recover bene-fits furnished under an ultra vires contract exists §271, where a contract isvoidable under the Statute of Frauds §§534-538; when benefits are conferredunder a contract unenforceable because of impossibility or frustration ofpurpose §1972 et. seq.; and in cases of fraud §1525, mistake §1542, duress§1623, or illegality §§1787-1791.MARQUETTE LAW REVIEWformance.10 Benefit in this latter sense seems to rest on the principlethat the law will acknowledge, as benefit, what the parties to thecontract have called benefit, whether or not the performance of thepromisor will increase the estate of the promisee."While the authority relied on in Barnes strongly suggests thatrecovery was allowed on the theory of restitution as a remedy forbreach of contract, the court did not expressly make a finding as tothe presence of the elements of this remedy. The court, therefore,left the door open to speculation on whether its decision was in factmade upon a finding of quasi-contract based upon the theory ofunjust enrichment.As has been pointed out, the enforceability or unenforceability ofthe engineer's contract is a vital question, for if the agreement isunenforceable, restitution will not lie as a remedy for contract breach.There are facts to suggest in the present case that the agreementmade between Barnes and Lozoff was unenforceable. If the fault asto the lack of available parking facilities was equally shared by boththe parties, then it may be argued that the contract was impossible ofperformance and, owing to this impossibility, was rendered unen-forceable. This seems unlikely, however, since it would appear fromthe opinion of the court that the fault lay with the defendant. Anotherview of the facts in the Barnes case which could give rise to a findingof unenforceability is that the plans, as rendered, made the contractillegal. The building code of the city required that enough land beavailable so as to provide a parking space for every unit in the motel.The plan submitted by the plaintiff could thus be argued to have beenillegal when applied to the proposed site, as a violation of the buildingcode requirements. This theroy upon further analysis also seems un-tenable, however, for the preparation of plans and specifications wasnot malum in se. The building as planned was simply malul prohi-bitum. Therefore, the agreement itself is not illegal so as to render itunenforceable.' 2 A third view of the facts suggest that the contract inBarnes was unenforceable because of a mistake. It appears that plain-tiff began his work relying upon a mistake of fact-namely, that theavailable land was that as represented by the defendant.All three of the aforementioned theories of unenforceability alsorequire another finding before the court, in a situation such as thatpresented by the Barnes case, could properly allow recovery in quasi-20 Note 2 supra and RESTATEMENT, CONTRACrS §348 (1932)."See Dawson, Restitution of Damages, 20 OHIo ST. L. J. 175, 190 (1959), citedin Barnes v. Lozoff, supra note 1 at 651, 125 N.W. 2d at 547.12 See Weiser v. Stadium of Carnarsie, 244 N.Y.S. 61, 137 Misc. 881 (1930),wherein the court found that preparation of plans for a building did notrender the agreement illegal even though, on its proposed site, it would haveviolated the zoning requirements.[Vol. 47RECENT DECISIONScontract upon the theory of unjust enrichment. The prevention ofunjust enrichment requires that the defendant give something back toplaintiff, and this cannot be done unless he has received somethingof value. In the Barnes case, there was no actual transfer of benefitto the defendant. The defendant received nothing except bargained-forperformance which in no way enriched his estate or increased hiswealth at the plaintiff's expense.' 3Based upon the preceding analysis of these two distinct remedies,it would appear that the only theory upon which the Supreme Courtof Wisconsin could have allowed recovery in Barnes was that ofrestitution, as a remedy for breach of contract. A loss which wassuffered by the plaintif therein, where there has been no actualtransfer of benefit to the defendant, is recoverable only when foundto be suffered in part performance of the contract.14The complexity of the law in the area of restitution can probablybest be traced to the type of loss which was suffered by plaintiff inthe Barnes case and the various treatments given to it by the courts.Some modern legal writers believe that this type of loss should berecoverable in a wider variety of situations than it is at present.' 5Further difficulty comes when the courts speak of benefit. This con-cept will of necessity take on a greater variety of meanings as thetheory upon which restitution is allowed changes.' 6Restitution as an alternative remedy for breach of contract is morethan a mere backstop for an action for money damages; it stands inits own right as a form of relief available to a party injured by abreach. Assuming the presence of the elements of this remedy, theWisconsin Supreme Court in Barnes has properly applied this restitu-tional theory to the facts. However, by ignoring necessary assumptionsand applying other theories, which have been shown to fit the facts,the case gives rise to a situation wherein recovery should have beendenied. It must be assumed, therefore, that the elements of the remedyof restitution for a contract breach are present in the Barnes decision;otherwise, the decision stands as an incorrect application of the lawof quasi-contract. PAUL J. CLULO'3However, see Olephant v. Kalman, 35 N.Y.S. 2d 354 (1942), wherein thecourt allowed recovery in restitution where the contract was unenforceabledue to the intervention of a third party. The court awarded the plaintiff thereasonable value of his services even though the defendant in no way benefitedfrom the plaintiff's performance.14 In both of the actions of restitution, as a remedy for breach and quasi-contractbased on unjust enrichment, recovery will not be allowed where a promiseeexpends labor and materials in preparation prior to actual performance on thecontract. However, in the alternative action for damages, in the former situ-ation, this loss to the plaintiff will be considered consequential damages and,as such, recoverable. See 5 CORaIN, CONTRACTS §1107 (1951).:5 See Fuller and Perdue, supra note 4.16 On the concept of benefit, see 46 MIicH. L. REv. 543 (1948).

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Contracts: Restitution as a Remedy for Breach

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