University of Southern California Gould School of Law
In Boomer v. Muir,1 a subcontractor on a hydroelectric project continued to provide goods and services even though the value of the performance far exceeded the contract price. The general contractor, who was receiving these goods and services, breached the contract even though he was paying less than market price for them.2
In many states, a supplier in the subcontractor's position has among her options the choice of "rescission and restitution."3 That means the supplier may rescind the contract and seek, under the label of "restitution", payment set at market price (or at her cost)4 for all the nonreturnable goods and services provided over the course of the project. Under the majority rule, it does not matter whether the market price (or cost) is above the contract price5 or even above the value of what the defendant has received;6 if after the other party's material breach the partially-performing supplier chooses to rescind, the court will award her the price (or cost) of what she has supplied.7 This was in fact the rule applied in the Muir case.
Andrew Kull strongly takes issue with this majority approach., He argues that if contracting parties cannot be returned to their precontract, status quo positions, restitution should be denied. In his view, restitution should be available only under the limited circumstances where it was permitted under the old common law rules; under those rules, the contract price would effectively cap any restitutionary award.9 Professor Kull believes that when restitution requires the defendant to pay an amount in excess of the contract price, the result is economically unsound as well as unjust.
In particular, Professor Kull fears that the majority rule allowing full restitutionary awards to a plaintiff who has provided an extensive amount of nonreturnable goods or services at less than market prices-would have the following effects. He argues it would (1) create inefficient incentives for the parties by (a) encouraging the supplier to maneuver the other party into a breach10 and (b) encouraging that other party to overspend in order to avoid breach-like behavior.11 He also argues that it would (2) engage courts in the potentially expensive administrative task of going outside the four comers of the contract to value the plaintiff's performance. 12 Professor Kull further argues that such awards in excess of the contract price (3) do not represent a plausible default rule to which the parties themselves would have agreed ex ante.13 Additionally, he contends that such awards are (4) unjustified by the law of restitution itself because the defendant purchaser is not unjustly enriched if he is required to pay the contract price for what he has received. 14
Tamar Frankel & Wendy J. Gordon,
Enforcing Coasian Bribes for Non-Price Benefits: A New Role for Restitution
Southern California Law Review
Available at: https://scholarship.law.bu.edu/faculty_scholarship/3019