Restitution in Legal Context

Restitution Richard Warner

Elements of Restitution Elements: (1) the plaintiff conferred a benefit on the defendant, and (2) it would be unjust to let the defendant retain the benefit. If you succeed, you get the reasonable value of the benefit conferred.

Measuring The Reasonable Value of The Benefit Conferred 1 Market value Determined by how much people generally are willing to pay. Better: An estimate of the price at which a knowledgeable, willing, and unpressured buyer and a knowledgeable, willing, and unpressured seller would enter a sale. Aesthetic value Historical value Monetary value to an individual Determined by how much that person is willing to pay--this may be more or less than the market value Or determined by the gain to the person who benefits from the provision of a good or a service. Non-monetary value to an individual

Measuring The Reasonable Value of The Benefit Conferred 2 Actual cost of providing the good or service: Example: book dealer obtains a rare book for $50. The dealer sells the book for its market value of $100. The cost of providing the good is $50. Average cost to the reasonable seller: The average cost of the rare book to a bookdealer might be more or less than the actual cost to some particular dealer. The average cost might be $75. A particular dealer might pay more or less.

Osteen v. Johnson: Expectation Damages Contract performed position: Two records produced; royalties from the two records; fame from the two records; future recording contracts, concerts. Position as a result of the breach and proper mitigation: One record produced; royalties from one record; fame from the one record; future recording contracts, concerts. Foreseeable? Yes. Amount needed to move from breach to performance: Difference between: royalties, fame, future recording contracts and concerts from two records and royalties, fame, future recording contracts and concerts from one record To what extent are these damages provable with reasonable certainty? Probably not provable. So, if we just award expectation damages, Osteen gets $0 and the promoter keeps $2500. (a) True (b) False

Osteen v. Johnson: Reliance Damage Her reliance expenses are $2500. There may be other expenses here, but the case does not identify any. The problem: How does the promoter get the value of his services? The promoter is left with $0 for his services.

We Know What We Want The promoter should keep the value of his services for making and promoting the first record and pay back the rest of the $2500 to Osteen. How do we make that happen doctrinally?

In Osteen v. Johnson Linda conferred a benefit on the defendant of (a) $2500 (b) $2500 minus the reasonable value of the promoter s services. (c) the reasonable value of promoting the first record.

Unjust? It is unjust to let the promoter keep that part of the benefit he did not earn by working. (a) Yes (b) No

Why Does the Court Say This? The essential question here then becomes whether any breach on the part of the defendant is substantial enough to justify the remedy of restitution.

Really, Restitution Is Not A Remedy Technically, restitution isn't a contract remedy at all It is a separate cause of action. When suing for restitution, you aren't suing for contract damages at all. In fact, you cannot recover in restitution if there is an enforceable contract.

The Injustice Requirement To recover in restitution (1) you must have conferred a benefit on the defendant, and (2) it must be unjust to let the defendant retain the benefit. If benefit was transferred to the defendant under an enforceable contract, then (a) It is unjust for the defendant to retain the benefit. (b) It is not unjust for the defendant to retain the benefit.

Material (Substantial) Breach: Consequences (1) The non-breacher may but need not sue in restitution, can and typically does sue for expectation/mitigation (2) The material breacher cannot sue for expectation/mitigation (or cost of completion, or specific performance, or reliance) = on the contract Why? Relevant obligations no longer exist. (3) the material breacher must sue in restitution = off the contract More terminology: partial breach = a breach that is not a material breach. Total breach = an uncured material breach.

The Mason/Dixon Line Mason contracts with Dixon for Mason to build a brick wall along Dixon's property line. The contract calls for used brick. Mason uses new bricks. If the court holds that Mason materially breached, then: (a) Dixon can sue for expectation damages, or in restitution. (b) Dixon can sue in restitution. (c) Mason can sue for expectation damages. (d) Mason can sue in restitution (e) (a), (b), and (d). (f) (a), (c), and (d).

Criteria for Material Breach 1. the extent to which the failure to perform deprives the injured party of the benefit he or she reasonably expected to obtain under the contract; 2. the extent to which the injured party can be adequately compensated for the deprivation of the benefit; 3. the extent to which the party failing to perform will suffer a forfeiture; 4. the likelihood that the party failing to perform will cure the failure; 5. the extent to which party failing to perform acted in accord with standards of good faith and fair dealing.

The extent to which the injured party can be adequately compensated for the deprivation of the benefit Osteen would be adequately compensated for the deprivation of the benefit (= not making and promoting the second record)if the court awarded expectation damage. (a) True (b) False

The extent to which the party failing to perform will suffer a forfeiture If the court awarded Osteen her reliance damages of $2500, Johnson (= the party failing to perform) would not be adequately compensated for work done (= one way to suffer a forfeiture). (a) True (b) False

Tony Tenor Tony Tenor signs a contract with a movie company for the part of "Mad Dog" in the movie "Invasion of the Frat Boys", a comedy set in Malibu. In the contract, Tony agrees to gain 50 pounds--since the part calls for him to be fat, and he also agrees to learn to speak without his strong New York accent. Tony hires a nutritionist and a speech therapist, and succeeds in gaining weight and losing his accent. However, in a material breach, the company never makes the movie since the city of Malibu denies it a permit to film in Malibu. The Malibu City Council imposes very stringent requirements for issuing such permits. Films showing Malibu have to be "consistent with the image of Malibu as a dignified and quiet upper class community." The Council held that "Invasion of the Frat Boys" was not consistent with this image. Can Tony recover in restitution from the movie company the payments to the nutritionist and speech therapist? (a) No, because it is not unjust to let the nutritionist and speech therapist retain the payments. (b) No, because the payments do not confer a benefit on the movie company. (c) Yes

Olwell v. Nye Olwell leased factory space to Nye. In the negotiations, the parties discussed Nye s rental of an egg washing machine that was in the factory space. They were unable to agree on a rent, and in the lease, Nye promised not to use the machine. Nye materially breached by using the machine. Using the machine benefits Nye by reducing his costs and increasing his profits. The increase in profits exceeded what Nye would have paid for the rent of the machine, if he had paid the fair market rental value. Adapted from Olwell v. Nye, 173 P.2d 652 (1947). Could Olwell recover the profits from Nye in restitution? (a) Yes (b) No

The Double Agent George Blake was a former member of the Secret Intelligence Service (MI6) from 1944 to 1961. For his employment contract he had signed an Official Secrets Act declaration to disclose no information about his work. It applied after his employment ceased. Treat that declaration as a contract. In 1951, Blake became a Soviet agent. The British government imprisoned him. He escaped and fled to the Soviet Union. In a material breach, he wrote a book about the escape and his secret service work called No Other Choice. He got a publishing contract for release in 1989. The information in the book was no longer confidential. Blake received advanced payments and was entitled to more. Can the government recover the profits from the publication under restitution? Assume that the government conferred a benefit on him by allowing him access to secret service information that has market value as a publication. Can the government recover the profits from the book in restitution? (a) No, because the government is not a party to the publishing contract. (b) Yes, if the court holds it is unjust for Blake to retain the benefit.

The Plumbing Subcontractor A, a plumbing subcontractor, contracts with B, a general contractor, to install the plumbing in a factory being built by B for C. B promises to pay A $100,000. After A has spent $40,000, B materially breaches by repudiating the contract and has the plumbing finished by another subcontractor at a cost of $80,000. The market price to have a similar plumbing subcontractor do the work done by A is $40,000. B (the general contractor) has made no payments to A. Can A recover the $40,000 from B in restitution? (a) Yes (b) No