Pompelio: Restitution in Favor of The Party-in-Breach

POMPELIO FINAL 1/4/2010 11:13:36 AM
RESTITUTION IN FAVOR OF THE

PARTY-IN-BREACH: CONTRACT LAW
IN MASSACHUSETTS REMAINS A
BREEDING GROUND FOR UNJUST
ENRICHMENT
Nicholas F. Pompelio*
Abstract: Only one case in the Commonwealth of Massachusetts mentions,
and only briefly, Restatement (Second) of Contracts 374(1), which
provides restitution for a breaching party. Although, Massachusetts General
Laws ch. 106 2-718 does permit restitution to the breaching party with
respect the sale of goods transaction, the well-established rule in the state
remains that a breaching contractor cannot recover restitution unless he
proves both substantial performance of the contract and a good faith attempt
to render such performance. Thus, Massachusetts courts seem reluctant to
award a breaching party restitution, which further adds to the uncertainty in
attempting to protect the integrity of contractual relations while preventing
the result of unjust enrichment. This Notes thesis argues that Massachusetts
should formally adopt Restatement (Second) of Contracts 374, which is the
modern approachadopted in several other jurisdictionsfor permitting
restitution in favor of the party in breach. This Note presents several
arguments in favor of Massachusettss adoption of 374(1), which focuses
on the prevention of unjust enrichment, extension of the reasoning in 2-
718(2) to other contractual transactions, and the avoidance of subjecting
* Juris Doctor, New England School of Law (2008). B.A., Finance, Saint Josephs
University (2004). For the past year, Mr. Pompelio has proudly served as the judicial law
clerk in the New Jersey Superior Court to the Honorable Thomas J. Critchley, Jr., J.S.C.
Following his clerkship, Mr. Pompelio will join the law firm of Pompelio, Foreman, &
Gray, P.C. as an associate where he will assist with the firms growing and diverse general
practice and also contribute to its mission of providing pro bono legal representation to
victims of violent crime. The author may be reached at nicholaspompelio@gmail.com. I
would like to thank Professor Gary L. Monserud for his wisdom and guidance during my
journey in the compilation of this Note.
615
616 NEW ENGLAND LAW REVIEW [Vol. 43:615
contract breakers to inequitable penalties and forfeitures. This Note

concludes in discussing how the breaching partys burden of proof and the
ability of both parties to invoke liquidated damages clauses during contract
formation curtail the seemingly harsh result faced by the innocent party
when awarding restitution to contract breakers.
INTRODUCTION ..........................................................................................617
BACKGROUND ............................................................................................619
I. The Rationale for Awarding Restitution in Favor of the
Party in Breach ........................................................................619
A. The Movement for Awarding Restitution in Favor
of the Party in Breach ........................................................621
1. The Common Law .........................................................621
2. Restatement (First) of Contracts 357 (1932) .............622
3. Restatement (Second) of Contracts 374 (1981) ..........623
II. Application of the Doctrine of Restitution in Favor of the
Party in Breach ........................................................................624
A. Transactions Involving the Sale of Land and Down
Payments............................................................................624
B. The Subcontractor and General Contractor Relationship ...626
C. Massachusettss Approach For Awarding Restitution in
Favor of the Party in Breach ..............................................628
1. Massachusetts Has Not Adopted Restatement
(Second) of Contracts 374(1). ..................................628
2. Massachusetts Law Provides for Restitution in Favor
of the Breaching Party Only upon a Showing of
Substantial Performance and Good Faith....................629
a. Good Faith...............................................................630
b. Substantial Performance..........................................631
ANALYSIS ..................................................................................................632
III. Massachusetts Should Adopt the Modern Approach of
Section 374(1) .........................................................................632
A. The Prevention of Unjust Enrichment ................................633
B. Massachusetts General Laws Chapter 106, Section 2-718
Provides Restitution for the Breaching Buyer of Goods ...635
C. The Prevention of Penalties or Forfeitures .........................637
D. Safeguards Exist to Alleviate Any Harshness to the
Non-Breaching Party as a Result of Awarding
Restitution to the Contract Breaker under 374(1)...........639
CONCLUSION ..............................................................................................641
2009] RESTITUTION FOR THE PARTY-IN-BREACH 617
INTRODUCTION
Few questions in the law have given rise to more discussion and
difference of opinion than that concerning the right of one who has
materially broken his contract without legal excuse to recover for such
benefit as he may have conferred on the other party by part performance. 1
Consider the following scenario: A person hires a contractor to
perform repairs on his home and agrees to pay $10,000 at the completion of
the job. After the contractor performs seventy-five percent of the work and
expends $8000 in the process, he fails to finish the job. This failure is due
to the contractors insolvency and his financial inability to complete
performance. Since the contractor did not complete all the agreed-upon
repairs, the homeowner withholds payment due to the contractors breach
of contract. Subsequently, the homeowner pays another contractor $2000 to
complete the job, which results in an increase of $9000 in the homes total
value. 2 How should a court rule when the original contractor, as a moving
party, seeks to recover the value of his services rendered to the
homeowner? Various factors could be considered in answering this
question: (1) whether the breach went to the essence of the contract or only
incidental matters; (2) whether the contractor, even though in breach,
substantially performed his duties under the contract; (3) whether his
breach will be considered willful or deliberate in spite of his
insolvency; and (4) whether the contractor can prove that the value of his
services rendered exceeded the loss to the homeowner.
The outcome of this hypothetical will depend on the courts
jurisdiction and its application, if at all, of the above-mentioned factors.
However, in the event that a court ultimately denies the contractor any
recovery, the result would be the same regardless of jurisdiction: the
homeowner realizes a $9000 increase in the value of his home only at an
expense of $2000 and the contractor suffers an $8000 loss. Questions
undoubtedly arise as to whether the homeowners retention of the benefit
amounts to unjust enrichment and if the contractor is being unfairly
penalized for rendering part performance.
The contractor may recover his loss by utilizing the doctrine of
restitution, which requires a party unjustly enriched to pay for its received
benefit. 3 Courts have defined unjust enrichment as retention of money or
property of another against the fundamental principles of justice or equity
and good conscience. 4 A plaintiff that brings a claim for unjust
1. 12 SAMUEL WILLISTON, WILLISTON ON CONTRACTS 1473 (3d ed. 1970).

2. RESTATEMENT (SECOND) OF CONTRACTS 374(1) cmt. b, illus. 2 (1981).
3. See infra note 13 and accompanying text.
4. Taylor Woodrow Blitman Constr. Corp. v. Southfield Gardens Co., 534 F. Supp.
enrichment must essentially prove that: (1) the plaintiff conferred a benefit
upon the defendant; (2) the defendant appreciated or acknowledged the
benefit; and (3) it is inequitable or unjust for the defendant to accept or
retain the benefit without payment of its value. 5 Unjust enrichment is not
necessarily unlawful or wrongful enrichment. 6 Rather, it is necessary
to analyze the parties reasonable expectations in order to determine if a
benefit is truly unjust. 7 Additionally, compensation for restitution differs
from ordinary damage awards in that the latter is measured by the
plaintiffs loss, while the former is measured by the defendants gain. 8
In Massachusetts, analyzing the previous hypothetical proves
problematic due in part to the ambiguous state of the law with respect to
awarding restitution in favor of the party in breach. Only one case in the
Commonwealth mentions, and only briefly, Restatement (Second) of
Contracts, section 374(1), which would provide the contractor with relief. 9
Additionally, Massachusetts General Laws, chapter 106, section 2-718 does
permit restitution to the breaching party with respect to the sale of goods
transactions. 10 However, the well-established rule in Massachusetts
remains that a breaching contractor cannot recover restitution unless he
proves both substantial performance of the contract and a good faith
attempt to render such performance. 11 Thus, Massachusetts courts seem
reluctant to award a
340, 347 (D. Mass. 1982). The doctrine has further been defined as equitable in nature and
correspondently broad. Id.
5. WILLISTON, supra note 1, 1479. To sustain a claim of unjust enrichment a
plaintiff must show that the defendant has at the plaintiffs expense been enriched and
unjustly so, such as when the defendant receives requested goods or services without paying
any compensation therefore. Taylor, 534 F. Supp. at 347.
6. Lengel v. Lengel, 382 N.Y.S.2d 678, 681 (N.Y. Sup. Ct. 1976). Restitution does
not presuppose a wrong by the person who receives the money, property, or benefit. Id.
Furthermore, a plaintiff should not be required to prove that the defendant obtained the
benefit through wrongful acts; passive acceptance of a benefit may also constitute unjust
enrichment. Invest Almaz v. Temple-Inland Forest Prods. Corp., 243 F.3d 57, 64 (1st Cir.
2001).
7. See Salamon v. Terra, 477 N.E.2d 1029, 1031 (Mass. 1985). The injustice of the
enrichment or detriment equates with the defeat of a persons reasonable expectations. Liss
v. Studeny, 879 N.E.2d 676, 682 (Mass. 2008).
8. LaRocca v. Borden, Inc., 276 F.3d 22, 28 (1st Cir. 2002).
9. See infra Part II.C.1. In regards to the above-mentioned hypothetical, section 374(1)
would provide the contractor, although in breach, restitution since the value of the work he
performed exceeded the resulting loss incurred by the other party to complete the unfinished
repairs. See RESTATEMENT (SECOND) OF CONTRACTS 374(1) (1981).
10. See MASS. GEN. LAWS ch. 106, 2-718(2) (2006).
11. See infra Part II.C.2.
breaching party restitution, which further adds to the uncertainty in

attempting to protect the integrity of contractual relations while preventing
the result of unjust enrichment.
This Note will argue that Massachusetts should formally adopt
Restatement (Second) of Contracts, section 374, which is the modern
approach for permitting restitution in favor of the party in breach. Part I of
this Note will examine the general reasons underlying the theory for
awarding restitution. This part will also focus on the historical
developmentfrom the common law through the Restatements (First) and
(Second) of Contractsfor awarding restitution in favor of the defaulting
party. Part II analyzes the different approaches for awarding restitution to
the contract breaker depending on the jurisdiction and the type of
transaction involved.
Part III presents several arguments in favor of Massachusettss
adoption of section 374(1). This part explains that the adoption of section
374(1) prevents unjust enrichment to the non-breaching party when they
retain the benefit of the defaulting partys part performance without
providing compensation. This part then argues that principles encompassed
in Massachusetts General Laws chapter 106, section 2-718(2), which
permits the breaching buyer of goods to recoup the value of his part
performance, should extend to breaching parties in other contractual
transactions. This part also argues that the adoption of section 374 will
avoid subjecting contract breakers to inequitable penalties and forfeitures.
Part III concludes by discussing how the breaching partys burden of proof
and the ability of both parties to invoke liquidated damages clauses during
contract formation curtail the seemingly harsh result faced by the innocent
party when awarding restitution to contract breakers.
BACKGROUND
I. The Rationale for Awarding Restitution in Favor of the Party in

Breach
In a legal sense, the meaning of the word benefit is defined by a
broad range of activities. A person can confer a benefit by giving another
person some interest in money or land, performing an agreed upon service,
satisfying personal debts or obligations, or in any general advantageous
action that saves the person from expense or loss. 12 Depending on the
circumstances, in some cases it may be unjust for a person to retain a
12. RESTATEMENT (FIRST) OF RESTITUTION 1 cmt. b (1937).

benefit conferred by another. 13 The proposition that [a] person who has
been unjustly enriched at the expense of another is required to make
restitution to the other is a well-recognized legal remedy. 14
Providing restitution due to unjust enrichment appears throughout
many different areas of the law, such as contract, tort, and fiduciary
relationships. 15 Historically, the theory of restitution developed separately
depending on whether the claim was brought at law or in equity. 16 Some
commentators argue, however, that both law and equity should be
examined when analyzing the law of restitution, since they share a
connecting link, which is the prevention of unjust enrichment. 17
13. See RESTATEMENT (FIRST) OF RESTITUTION 1 cmt. c (1937); see also Sutton v.
Valois, 846 N.E.2d 1171, 1179 (Mass. App. Ct. 2006) (finding that a woman, who lived
with a man as an unmarried couple, was unjustly enriched when she took $4,000 out of their
joint checking account after the relationship ended since such amount was more than she
contributed and its retention would create a windfall which she did not reasonably expect
was hers to keep); Santagate v. Tower, 833 N.E.2d 171, 174-75 (Mass. App. Ct. 2005)
(awarding a mother restitution upon a finding that a father, who abandoned his family for 27
years, was unjustly enriched by the mother paying his entire share of child support). But cf.
Liss v. Studeny, 879 N.E.2d 676, 682-83 (Mass. 2008) (denying restitution for an attorney
seeking recovery for the value of her services under a contingency fee agreement, which
never occurred due to the attorney leaving the case, upon the finding that there was no
unjust enrichment to the client since both parties had the reasonable expectation that
payment would only be due upon resolution of the case).
14. See RESTATEMENT (FIRST) OF RESTITUTION 1 (1937); see also Keller v. OBrien,
683 N.E.2d 1026, 1029 (Mass. 1997) (stating that restitution is the remedy by which a
person who has been unjustly enriched at the expense of another is required to repay the
injured party (citing Salamon v. Terra, 477 N.E.2d 1029 (Mass. 1985))).
15. 1 GEORGE E. PALMER, THE LAW OF RESTITUTION 1.1, at 2 (1978).
16. See id. at 3. Palmer further illustrates this point by explaining:
If the defendant stole the plaintiffs goods and sold them, the plaintiff
was given a money judgment in the amount of the proceeds in an action
at law. This has come to be known as quasi contract, although the
broader term restitution is gaining general acceptance. . . . If the thief
used the proceeds to buy land, courts exercising equity power in this
country will order him to transfer title to the land to the plaintiff through
a remedy almost universally known as constructive trust, though it also
can be called specific restitution.
Id. at 4 (emphasis added).
17. Id. at 4. For example, [a]t law the principal remedy is quasi contract, leading to a
money judgment . . . . In equity the principal remedy is constructive trust . . . . Id. Both of
these techniques [are] frequently used to prevent unjust enrichment. Id. Such a view
should not be confused with courts commonly characterizing [r]estitution [as] an equitable
remedy by which a person who has been unjustly enriched at the expense of another is
required to repay the injured party. Keller, 683 N.E.2d at 1029.
Although the idea of unjust enrichment may be difficult to define, it

remains the specific type of injustice that restitution is most concerned with
preventing. 18
A. The Movement for Awarding Restitution in Favor of the Party

in Breach
1. The Common Law

Courts have historically shown reluctance to give any type of relief to
the party guilty of breaching the contract. 19 The common law approach
prohibited awarding restitution to a party that failed to fulfill their contract
obligations, even though the other party may have received an unexpected
profit as a result of the breach. 20 Courts applied this rule regardless of
whether the terms of the contract provided for a forfeiture clause. 21 The
decision to refuse awarding restitution to the party in breach stemmed from
the view that a party should not be able to benefit from the wrong which
they were responsible for causing. 22
In Massachusetts, the long-established rule mandated that any willful
default by a party in rendering agreed upon performance barred the
defaulting partys recovery. 23 In 1906, the case of Sipley v. Stickney
established this rule when the court was presented with the question of
whether the plaintiff, hired by the defendant to manage the work at his
farm, could recover the value for his services rendered, even though he did
18. PALMER, supra note 15, at 5.

19. PALMER, supra note 15, 5.1, at 568. Until 1834 the unpaid willful defaulter was
generally not entitled to judicial relief. This was the common-law rule. Joseph M. Perillo,
Restitution in the Restatement Second of Contracts, 81 COLUM. L. REV. 37, 49 (1981).
20. See Quillen v. Kelley, 140 A.2d 517, 520 (Md. 1958) (discussing how the common-
law concept of restitution in the context of the sale of real property prevented the vendee,
who made part payment but failed to fulfill his contractual obligations, from recovering his
payment even though the vendor realized a profit); see also Kutzin v. Pirnie, 591 A.2d 932,
937 (N.J. 1991) (discussing how the common-law approach to restitution did not allow
recovery to the party who caused the breach under a transaction for the sale of land).
21. Quillen, 140 A.2d at 520.
22. See Kutzin, 591 A.2d at 937 ([R]estitution should always be refused, for the good
and sufficient reason that the [breaching party] is guilty of a breach of contract and should
never be allowed to have advantage from his own wrong . . . . (footnote omitted) (quoting
5A ARTHUR LINTON CORBIN, CORBIN ON CONTRACTS 1129 (1964))); Perillo, supra note
19, at 50 ([O]pponents argue that recovery invites contract-breaking and rewards morally
unworthy conduct.).
23. Sipley v. Stickney, 76 N.E. 226, 227 (Mass. 1906); see also Homer v. Shaw, 58 N.E.
160, 161 (Mass. 1900) ([O]ne who has voluntarily failed to perform his contract cannot
recover on a quantum meruit for the part performed by him.).
not accurately report his expenses to the defendant pursuant to the

contractual terms. 24 The court held that the plaintiff could not recover for
the value of this work due to his conscious choice to depart from his
contractual obligations. 25 The court reasoned that [w]here a contractor
commits a willful default and yet claims the contract price, he in effect
claims that he has a right to break his contract. But he has no such right. 26
The common law approach seems to characterize a breaching partys
conduct as wrongfulthereby refusing to award any relief due to such
behaviorwithout focusing on the benefit realized by the defendant. 27
2. Restatement (First) of Contracts 357 (1932)

The reluctance of courts, when applying the common law, to award
restitution in favor of the breaching party has waned, due in part to the
adoption of section 357 of the Restatement (First) of Contracts in 1932. 28
According to section 357, a party who has committed a breach, resulting in
the other partys justification to stop performance, may still recover for the
part performance that the breaching party has rendered. 29 In order for the
breaching party to recover, the performance received by the innocent party
must result in a benefit that exceeds the harm caused by the initial breach. 30
The underlying rationale focuses on the fact that the denial of recovery
permits the non-breaching party to retain the other partys part performance
without paying for anything in return. 31 Such a result forces the contract
breaker to suffer a penalty for his wrong in excess of the compensatory
damages he must pay the non-breaching party. 32
24. Sipley, 76 N.E. at 226-27.

25. Id. at 227. This holding, that any willful default bars all recovery, is regarded as the
stringent rule of Sipley v. Stickney. Ficara v. Belleau, 117 N.E.2d 287, 288 (Mass. 1954).
26. Sipley, 76 N.E. at 227.
27. See id.
28. See PALMER, supra note 15, 5.1, at 569 (commenting that section 357 has had
substantial influence in the development of doctrine supporting restitution to a defaulting
party when there is an unjust enrichment of the innocent party).
29. RESTATEMENT (FIRST) OF CONTRACTS 357(1) (1932); see also Schwasnick v.
Blandin, 65 F.2d 354, 357 & nn.6-9 (2d Cir. 1933) (citing section 357(1) and finding the
jury instruction was incorrect in that it did not reveal that the plaintiff, if in breach of his
employment contract, could still be entitled to the reasonable value of his services); Zirinsky
v. Sheehan, 413 F.2d 481, 489-90 (8th Cir. 1969) (citing section 357(1) and while holding
for the non-defaulting vendor, recognized that the defaulting purchaser could have a claim
for restitution if he could prove that the innocent party was unjustly enriched).
30. RESTATEMENT (FIRST) OF CONTRACTS 357(1) (1932).
31. Id. 357 cmt. d.
32. Id.
Any recovery for the party in breach under section 357, however, is
not automatic. The party must demonstrate that the failure to perform
completely is neither willful nor deliberate, which creates an important
requirement to receive restitution for the value of the part performance. 33
The fact that a person knowingly commits a breach should not necessarily
define his conduct as willful or deliberate. 34 Section 357 seems concerned
with the moral justification behind the breaching partys failure to perform,
such as a mistake in fact or financial hardship, as distinguished with the
intentional departure from contractual obligations to realize selfish gains. 35
3. Restatement (Second) of Contracts 374 (1981)

In 1981, the Restatement (Second) of Contracts again advocated for
providing restitution to the party in breach in section 374(1). 36 The section
embodied the major principles behind the former section 357, stating that
the party in breach is entitled to restitution for any benefit that he has
conferred by way of part performance or reliance in excess of the loss that
he has caused by his own breach. 37 As with the former section 357, the
reasoning behind this principle focuses on the elimination of unjust
enrichment to the non-breaching party that results from receiving the
benefit of the part performance without giving any consideration. 38
However, the major difference between section 374(1) and its former
prodigy is the elimination of the requirement that the breaching party does
not willfully or deliberately refuse rendering complete performance. 39
33. See id. 357(1)(a); see also Harris v. Cecil N. Bean, 197 F.2d 919, 922 (2d Cir.
1952) (The general rule is that no such recovery can be had by one who has deliberately
abandoned, or broken, his contract but the value of the work, less the damages caused by the
default, can be recovered if the breach were merely negligent.); Gillis v. Gillette, 184 F.2d
872, 876 (9th Cir. 1950) ([T]he willful abandonment of the contract by the plaintiff,
without cause, is a bar to any recovery of any further amount for the value of his services.).
The exception to this non-willful and deliberate requirement is that the innocent party
knowingly assents to the breach and accepts the benefit. RESTATEMENT (FIRST) OF
CONTRACTS 357(1)(b).
34. RESTATEMENT (FIRST) OF CONTRACTS 357 cmt. e (1932); see also U.S. Indus., Inc.
v. Vadnais, 76 Cal. Rptr. 44, 51 (Cal. Ct. App. 1969) (A breach may be committed
knowingly and yet not be willful and deliberate. Such is the case if it is the result of mere
negligence or error of judgment or mistake of fact or law . . . .) (citation omitted).
35. See RESTATEMENT (FIRST) OF CONTRACTS 357 cmt. e (1932).
36. See RESTATEMENT (SECOND) OF CONTRACTS 374(1) (1981).
37. See id.
38. See id. 374(1) cmt. a.
39. See id. The terms willful or deliberate have been recognized as difficult to apply
to many contractual breaches. Perillo, supra note 19, at 50.
Section 374(1) resembles the liberal approach to awarding restitution

to the breaching party. 40 Consequently, courts have characterized this
section as the modern approach to providing remedies to those parties that
do not fulfill all of their contract obligations, but still confer valuable
performance. 41 Additionally, the complete resemblance to the relatively
recent version of the Restatement (Third) of Restitution, which also
advocates for relief to the party in breach, further evidences labeling
section 374(1) as the modern approach. 42 As with section 374(1), the
Restatement of Restitution ignores whether a breach is characterized as
willful or deliberate and focuses on the prevention of unjust enrichment. 43
II. Application of the Doctrine of Restitution in Favor of the Party in

Breach
A. Transactions Involving the Sale of Land and Down Payments

Courts have acknowledged the right of a purchaser who has defaulted
on his contractual obligation to buy real property to recover in restitution
the amount of a deposit that unjustly enriched the seller. 44 In Vine v.
Orchard Hills, the plaintiffs entered into a contract to purchase a
condominium and paid ten percent of the total purchase price as a down
payment. 45 Subsequently, the purchaser acquired employment in another
state and decided not to purchase the condominium. 46 The Connecticut
Supreme Court determined that the plaintiffs, although in breach of
contract, were entitled to present their restitution claim for the down
40. See RESTATEMENT (SECOND) OF CONTRACTS 374 reporters note (1981) (This
Section is based on former 357, but it is more liberal in allowing recovery.).
41. See Kutzin v. Pirnie, 591 A.2d 932, 941 (N.J. 1991) ([W]e overrule those New
Jersey cases adhering to the common-law rule and adopt the modern approach set forth in
section 374(1) of the Restatement (Second) of Contracts.) (emphasis added).
42. See RESTATEMENT (THIRD) OF RESTITUTION & UNJUST ENRICHMENT 36 (Tentative
Draft No. 3, 2004). Under subsection (a), a party in breach has a claim in restitution against
the recipient as necessary to prevent unjust enrichment, not exceeding the net benefit
thereby conferred. Id. 36(a).
43. See id. 36(a). Due to the difficulty in classifying certain breaches as willful and
others as not, this section has eliminated the willfulness inquiry in order to allow recovery
for a claimant who commits a conscious breach. See id. 36(a) cmt. b. Also, the breaching
party should not be viewed as a wrongdoer and relief should be based not on the quality
of the claimants conduct, but to the nature of the benefit conferred and the position of the
recipient in light of the claimants breach. Id. 36(a) cmt. a.
44. See Vines v. Orchard Hills, Inc., 435 A.2d 1022, 1027 (Conn. 1980).
45. See id. at 1024.
46. Id. at 1025.
payment. 47 The court held that as purchasers, the plaintiffs could present
evidence to show that at the time of their breach, the condominium could
have been sold at a price higher than their contract price. 48 Such a result
would compensate the seller for any loss caused by the breach and support
the plaintiffs claim that the sellers retention of their deposit would
therefore be unjust. 49
The New Jersey Supreme Court has also instructed a non-breaching
seller of real estate to return any portion of the buyers down payment that
is in excess of the actual harm caused. 50 In Kutzin v. Pirnie, the parties
entered into a contract for the sale of a house. They agreed on a purchase
price of $365,000, with the buyer paying a total of $36,000 as a down
payment. 51 The buyers then breached the contract by refusing to purchase
the house, and the sellers sold it to another party for $352,500. 52 The court
found that the sellers only suffered damages in the amount of $17,325 and
that the retention of the entire deposit would amount to unjust
enrichment. 53 The court held that the buyers were entitled to restitution for
the difference between their deposit and the actual injury caused by their
breach. 54 The court reasoned that denying recovery would impose a
forfeiture and penalty on the buyer and formally adopted section 374(1) as
the states new approach to awarding restitution for the party in breach. 55
Furthermore, courts have recognized that the liberal approach to
awarding restitution represented in section 374 also applies to down
payments made for the sale of a business. 56 In Lancellotti v. Thomas, the
purchaser of a business paid $25,000 as a down payment upon buying a
luncheonette business, including its goodwill and equipment, but not the
real estate upon which the business was located. 57 After only several
months of operating the business as his own, the purchaser stopped
47. Id. at 1027.

48. Id. at 1029. The court noted that remand of the case was appropriate in light of the
fact that restitutionary claims by a plaintiff in default have not previously been clearly
spelled out in our cases. Id.
49. See id.
50. Kutzin v. Pirnie, 591 A.2d 932, 933 (N.J. 1991).
51. See id.
52. Id. at 935.
53. Id. at 941. The $17,325 damages consisted of the $12,500 difference between the
contracted price that the buyers agreed to pay and what the house eventually sold for
($365,000 - $352,500), in addition to $4825 for utilities, taxes, and other expenses the
sellers incurred as a result of the breach. Id. at 935.
54. Id. at 942.
55. See Kutzin, 591 A.2d at 941.
56. See Lancellotti v. Thomas, 491 A.2d 117, 121-22 (Pa. Super. Ct. 1985).
57. Id. at 118.
operating the business and refused to pay rental payments for its location. 58
The court remanded the case back to the trial court since its decision, which
awarded the seller the entire down payment and lost rental payments, rested
on the common law approach towards restitution rather than section 374.59
The court instructed the trial court to determine if the purchaser, while the
breaching party, was nevertheless entitled to recover any portion of the
down payment that exceeded the loss which he caused. 60
B. The Subcontractor and General Contractor Relationship

In transactions involving construction contracts, the breaching-builder
is often prevented from recovery under a contract theory due to his lack of
substantial compliance with the contractual terms. 61 In Kulseth v.
Rotenberger, a dispute between the parties developed when the contractor,
hired to construct two metal buildings, failed to install the correct type of
doors required under the contract, though he constructed the majority of the
building. 62 The Supreme Court of North Dakota affirmed the holding that
the contractor was entitled to recover the value of his services less the
damage caused by the installation of fiberglass doors instead of the
required steel. 63 The court reasoned that the owners benefit of possessing a
well-constructed building far outweighed his minimal cost to replace the
type of doors specified in the contract. 64
Furthermore, since building contracts are usually time-sensitive, the
theory of restitution may be the only available remedy to a breaching
contractor that performs a substantial amount of services but misses
contracted deadlines. 65 In Alstom Power, Inc. v. RMF Industries
Contracting, Inc., a consortium of energy companies hired a subcontractor
to build a generator to a coal-fired power plant and meet specific
58. Id.
59. Id. at 122.
60. Id.; see also Timberland Consol. Pship v. Andrews Land & Timber, Inc., 818 So.2d
609, 611 (Fla. Dist. Ct. App. 2002) (holding that the breaching buyer was entitled to recover
his advance payment for the sale of timber which he did not accept since such deposit
amounted to an unjust enrichment for the seller in light of his retention of the timber).
61. See Kulseth v. Rotenberger, 320 N.W.2d 920, 922 (N.D. 1982) (explaining the
difference between recovery under a contract theory as opposed to recovery for services
rendered under a quantum meruit theory); see also RESTATEMENT (SECOND) OF CONTRACTS
374 cmt. a (1981) (The rule stated in this Section is of particular importance in
connection with . . . breach by a builder under a construction contract.).
62. 320 N.W.2d at 921.
63. Id. at 923.
64. See id.
65. See Alstom Power, Inc. v. RMF Indus. Contracting, Inc., 418 F. Supp. 2d 766, 780
(W.D. Pa. 2006).
completion deadlines expressed under the contract. 66 The United States

District Court for the Western District of Pennsylvania denied the
consortiums motion for summary judgment on the subcontractors
counterclaim for restitution, even though he breached the contract by
failing to meet the completion deadlines. 67 The court reasoned that
evidence should be presented at trial to determine if the subcontractors
services benefited the innocent party in excess of the harm caused by its
breach, which would demonstrate unjust enrichment. 68 Additionally, the
court reasoned that section 374(1) provided for such relief and represented
the rule under Pennsylvania law. 69
Moreover, a subcontractor should not be denied recovery for services
it provides to a general contractor merely because it did not substantially
complete performance. 70 In United Coastal Industries v. Clearheart
Construction Co., the subcontractor performed seventy-five percent of the
demolition work agreed to under contract. 71 The court disagreed with the
contractors claim, which case law and other authorities did not support,
that the subcontractor could not recover any restitution arising from unjust
enrichment because he failed to substantially perform the demolition
work. 72 The court cited section 374 and reasoned that the subcontractors
partial performance enabled him to recover from the contractor the benefit
of his services, less the cost to complete the remaining twenty-five percent
of the demolition work. 73
66. See id. at 768-69.

67. See id. at 780.
68. Id.
69. See id. at 779. The court predicted that the Supreme Court of Pennsylvania would
adopt section 374 since the Restatement had already been expressly adopted and applied by
the Superior Court. Id. at 779-80.
70. See United Coastal Indus., Inc. v. Clearheart Constr. Co., 802 A.2d 901, 907 (Conn.
App. Ct. 2002).
71. Id. at 904.
72. Id. at 906. Partial performance under a contract is sufficient to trigger, and, in some
cases, to allow a claim for restitution by a breaching party . . . . Id.; see also Anuszewski v.
Jurevic, 566 A.2d 742, 742-44 (Me. 1989) (revealing that a breaching contractor who only
completed fifty percent of the work was entitled to restitution for the value of his services
subject to the consequential damages incurred by the homeowners); Kulseth v. Rotenberger,
320 N.W.2d 920, 922-23, 925 (N.D. 1982) (rejecting the requirement of substantial
performance and awarding restitution when ninety percent of the contracting work was
completed).
73. See United Coastal Indus., Inc., 802 A.2d at 907.
C. Massachusettss Approach For Awarding Restitution in Favor

of the Party in Breach
1. Massachusetts Has Not Adopted Restatement (Second) of

Contracts 374(1).
No state court in Massachusetts, beginning with the Superior Court
and proceeding up through the judicial system to the Supreme Judicial
Court, has formally adopted section 374(1). In fact, the only judicial
opinion in the Commonwealth that even mentions section 374(1) is an
unreported decision by the Massachusetts Appellate Division rendered in
1999. 74
In Mutual Oil Company, Inc. v. A.A. Sunoco, Inc., the District Court
for the Massachusetts Appellate Division considered whether the
distributor of petroleum products could recover money it paid as a signing
bonus to a retailer. 75 Pursuant to the agreement, the distributor paid the
retailer $20,000 as a signing bonus and was to pay a mortgage installment
of $1600. 76 Although the distributor did pay the bonus, which was after it
became due under the contract, he never made the mortgage payment. 77
The retailer contended that the distributor could not recover any money
since it was the distributor who breached the contract. 78 The trial court
found that the distributor did breach the agreement by not paying the
signing bonus in a timely fashion and by failing to pay the mortgage
installment. 79 The court also determined that as a result of the distributors
breach, the retailer terminated the contract before its starting date. 80 The
court ultimately returned the $20,000 bonus to the distributor, even though
he was the party in breach, but awarded the $1600 mortgage installment to
the retailer. 81
The appellate court affirmed the trial courts decision in finding that it
was not clearly erroneous. 82 The court reasoned that the $20,000 payment
by the distributor substantially exceeded the loss resulting in a
74. See Mutual Oil Co. v. A.A. Sunoco, Inc., 1999 WL 788508, at *1 (Mass. App. Div.
July 20, 1999).
75. Id.
76. Id.
77. See id.
78. Id.
79. Id.
80. Mutual Oil Co., 1999 WL 788508, at *1.
81. Id. There was no mention of the trial courts reasoning in returning the bonus to the
breaching party except that it was made in equity and good conscience. See id.
82. See id.
disproportionate windfall to the retailer. 83 In its opinion, the court cited

Restatement (Second) of Contracts section 374(1) and stated that,
[r]estitution is not necessarily denied to a party in breach of contract
where the retention of a benefit by the non-breaching party would amount
to unjust enrichment. 84 However, the appellate court did not expressly
adopt section 374(1) or resolve that this section mandated the return of the
bonus to the distributor. 85 Instead, the court referenced a Massachusetts
Supreme Judicial Court opinion, A-Z Servicenter, Inc. v. Segall, 86 in
concluding that restitution was the proper remedy for the distributor. 87
The references made to A-Z Servicenter and section 374(1) are
troublesome when analyzing the issue of restitution in favor of the
breaching party. In A-Z Servicenter, the court stated that when real
damages resulting from a breach are unconscionably excessive, the court
will award the aggrieved party no more than his actual damages. 88 This
statement seems synonymous to the situation in Mutual Oil, where the
court returned the distributors $20,000 payment in light of the nominal
damages to the retailer. 89 However, in A-Z Servicenter, the court focused
on the validity and enforceability of an unreasonably high liquidated
damages clause, rather than the narrow issue of awarding restitution to a
party in breach. 90
2. Massachusetts Law Provides for Restitution in Favor of

the Breaching Party Only upon a Showing of Substantial
Performance and Good Faith.
Although Massachusetts has not adopted section 374(1), a party in
breach may still be able to recover some form of restitution upon meeting
certain requirements. In relation to building contracts, it is well-established
law in Massachusetts that a contractor cannot recover under the contract
without strictly performing all of its terms. 91 However, the same contractor
may recover on a theory of restitution if he can prove both substantial
performance of the contract and an endeavor on his part in good faith to
83. Id.
84. Id.
85. See id. There was no mention in the courts opinion of any other Massachusetts
judicial opinion that adopted, referenced, or even applied section 374(1). See id.
86. 138 N.E.2d 266, 268 (Mass. 1956).
87. Mutual Oil Co.,1999 WL 788508, at *1.
88. A-Z Servicenter, Inc., 138 N.E.2d at 268.
89. See supra text accompanying note 81.
90. See A-Z Servicenter, 138 N.E.2d at 267-68.
91. Andre v. Maguire, 26 N.E.2d 347, 347-48 (Mass. 1940).
perform fully. 92 The burden is on the breaching contractor to prove both

factors of what is essentially a two-prong test for recovery. 93 An intentional
departure from completing the contractual terms, or in other words, a
willful breach, indicates bad faith and will prevent any recovery for the
breaching party. 94
a. Good Faith
The requirement of good faith to fully perform under a contract
presents problems for a breaching party that deliberately chooses to stop
short of rendering complete performance. In Andre v. Maguire, the
homeowners hired a contractor to build their house. 95 During the
construction of the home, the contractor deviated from certain
specifications required by the homeowners on numerous occasions. 96 The
contractor sought recovery for labor and materials used when he made
these changes to the building plans. 97 The court denied his request for
restitution because it found that he did not attempt in good faith to adhere
to the requirements of the building contract. 98 The court reasoned that even
though the contractor made changes to the building design at extra cost to
himself, this intentional departure was evidence that he did not intend to
perform the exact terms as stipulated in the contract. 99
Additionally, the good faith requirement presents problems for a
breaching party who finds himself unable to complete full performance. In
USS Corp. v. Modern Continental Construction, Co., the general contractor
92. Id. This rule for recovery of restitution is also well-established and settled law in the
Commonwealth. See U.S. Steel v. M. Dematteo Constr. Co., 315 F.3d 43, 54 (1st Cir. 2002)
(explaining how the rule for awarding recovery to a breaching subcontractor is a recent and
unambiguous statement of Massachusetts law).
93. See Andre, 26 N.E.2d at 348; see also USS Corp. v. Modern Contl Constr. Co., No.
01-10561-DPW, 2002 WL 1949223, at *9 (D. Mass. Aug. 5, 2002) (emphasizing the burden
to prove both substantial completion and good faith) (emphasis in original); J.A. Sullivan
Corp. v. Commonwealth, 494 N.E.2d 374, 378 (Mass. 1986) (The plaintiff has the burden
of proving both.).
94. Andre, 26 N.E.2d at 348; see also, e.g., Hub Constr. Co. v. Dudley Wood Works
Co., 175 N.E. 48, 49-50 (Mass. 1931) (granting recovery for breaching contractor upon
proof that he attempted in good faith to perform [his agreements] completely, that is, that
he had an honest intention to go by the contract and acted in accordance with such
intention) (citations omitted).
95. 26 N.E.2d at 347.
96. See id.
97. Id. at 347.
98. Id. at 348.
99. Id.
hired a subcontractor to supply and install fencing along highways. 100 After
partially completing the work under the contract, the subcontractor ceased
performance due in part to financial difficulty, resulting in his breach, and
the subcontractor subsequently filed for bankruptcy. 101 The court denied
the restitution claim seeking recovery for the value of services rendered
prior to the breach. 102 The court found that the filing of bankruptcy did not
constitute[] a good faith justification for failure to fully complete a
contract. 103
On the other hand, there are limited situations where an intentional
departure will not prevent recovery. The good faith requirement may be
satisfied if a partys conscious choice not to complete all the terms is so
trifling as to fall within the rule de minimis. 104 In Kauranen v. Mattaliano,
the builder was hired to construct two homes but breached when he failed
to seal the water pipes. 105 The court found that the builders failure to
perform was intentional and without good excuse, even though he believed
that the town water department should have done the work. 106 The court,
however, held that this intentional failure did not bar recovery because it
found the $30 cost to seal the water pipe was trivial. 107
b. Substantial Performance
The determination of whether a party substantially performs prior to
its breach may not be resolved in cases where courts dismiss the entire
claim for restitution once establishing that the breaching party lacked good
faith. 108 A court that actually analyzes the issue should not use a rigid
formula or require a specific percentage for completion of work in its
determination. 109 In J.A. Sullivan Corp. v. Commonwealth, the SJC stated
100. No. 01-10561-DPW, 2002 WL 1949223, at *1 (D. Mass. Aug. 5, 2002).

101. Id.
102. Id. at *9.
103. Id.
104. Andre, 26 N.E.2d at 348.
105. 199 N.E.2d 214, 216 (Mass. 1964).
106. See id.
107. Id.; cf. Glazer v. Schwartz, 176 N.E. 613, 615 (Mass. 1931) (stating that a builders
intentional substitution of different material resulting in a loss of value of $700 could not
be overlooked as trivial).
108. See, e.g., USS Corp. v. Modern Contl Constr. Co., No. 01-10561-DPW, 2002 WL
1949223, at *9 (D. Mass. Aug. 5, 2002) (refusing to consider the issue of substantial
performance since there was no showing of a good faith effort to complete performance);
Andre, 26 N.E.2d at 348 (assuming that there was substantial performance in order to
quickly dismiss the claim for lack of good faith).
109. See J.A. Sullivan Corp. v. Commonwealth, 494 N.E.2d 374, 378-79 (Mass. 1986).
that when determining whether there was substantial performance under a

contract, the judges task [is] to examine the evidence in reference to the
entire contract, what had been done, and what had been omitted. 110 In that
case, the court looked at the value of the work that remained in relation to
the overall price of the contract. 111 Other courts have also relied on the
actual percentage of work completed and left it to the jury to decide
whether such a percentage constituted substantial performance. 112
ANALYSIS
III. Massachusetts Should Adopt the Modern Approach of Section

374(1)
Although Massachusetts has not adopted section 374(1), restitution
may still be provided to the party in breach as long as there is a showing of
good faith and substantial performance. 113 However, such a requirement
prevents recovery for those parties whose breach is a willful or deliberate
choice. Unfortunately, this scenario results in the quick dismissal of the
breaching partys claim due to his deliberate breach, without any
consideration of the other factors surrounding the transaction, such as
reasons for defaulting or the amount of any performance conferred. 114
Consequently, Massachusetts should apply the restitution doctrine
described in section 374(1), which dispenses with the good faith and
substantial performance requirement, 115 in order to prevent the types of
injustice such as unjust enrichment and the enforcement of unnecessary
penalties against the contract breaker.
110. Id.
111. See id. (finding substantial performance since the value of the work left for
completion was less than one percent of the contract price).
112. See, e.g., PDM Mech. Contractors, Inc. v. Suffolk Constr. Co., Inc., 618 N.E.2d 72,
75 (Mass. App. Ct. 1993) (upholding the jurys determination that the ninety-two percent of
the work completed constituted substantial performance).
113. See discussion supra Part II.C.2.
114. See 5A CORBIN, supra note 31, 1123, at 11 ([C]onduct may properly be described
epithetically; but the fact that it may be so described does not automatically decide the case
and make it unnecessary to weigh and give effect to other factors therein.).
115. See discussion supra Part I.A.3.
A. The Prevention of Unjust Enrichment

The primary reason courts award restitution is to prevent the unjust
enrichment of one party at the expense of another. 116 In order to prevent the
innocent party from realizing the benefit of services received without
paying for it, the contract breaker will seek to recover the value of his part
performance under the theory of restitution. However, in Massachusetts,
the contract breaker in this typical situation will be the moving party
seeking affirmative relief, and, therefore, this relief will be denied if it is
shown that his breach lacked good faith or substantial performance. 117
The prevailing party on a breach of contract claim should not be
enriched by inflated damage awards. 118 In Ficara v. Belleau, there was a
contractual agreement for the defendant to install a heating and cooling
system for the plaintiff. 119 After the plaintiff paid $4200, the defendant
willfully and intentionally abandoned the contract. 120 The plaintiff was
forced to pay another contractor $2361 to complete the work as a result of
the defendants breach. 121 The plaintiff sought this entire amount in
damages from the defendant, thereby attempting to obtain a $6200 system
for only $4200. 122 However, the judgment of the superior court only
awarded the plaintiff $361. 123
The SJC affirmed the judgment and refused to award the plaintiff the
exemplary damages he sought. 124 The court reasoned that [i]t is not the
policy of our law to award damages which would put a plaintiff in a better
position than if the defendant had carried out his contract. 125 The plaintiff
was entitled to be made whole, but no more, and compensation was limited
116. See discussion supra Part I.A. When restitution is granted to a party who has
breached his contract, we see more sharply than in any other part of the law of restitution
that this is based squarely on the prevention of unjust enrichment. PALMER, supra note 15,
5.1, at 573.
117. See Ficara v. Belleau, 117 N.E.2d 287, 289-90 (1954) (illustrating that different
results can occur depending on whether the defendant sues or is being sued when limiting a
damage award to reflect actual loss to the innocent party); see also PALMER, supra note 15,
5.1, at 573-74 (describing the problem when the breaching party seeks affirmative relief).
118. See Ficara, 117 N.E.2d at 289-90.
119. Id. at 288.
120. Id.
121. Id.
122. Id. at 289.
123. Id. at 288.
124. Ficara, 117 N.E.2d at 289.
125. Id.
to what he would have made had the contract been performed. 126 By
limiting his damage award to the actual harm caused by the breach, the
court was in essence preventing unjust enrichment to the plaintiff. 127
The Ficara court recognized, however, that the defendant would have
been barred from recovery if he sought relief as the plaintiff since he
willfully breached the contract. 128 For example, if the defendant had not
received any payment from the plaintiff but still performed $4200 worth of
work, he could not recover for the value of his services since he willfully
breached the contract. Such an outcome would result in the plaintiff
receiving a $6200 system for only the $2361 it cost to finish the job. This is
precisely the unjust outcome that the court wished to avoid, but seems
likely when the breaching party seeks affirmative relief. 129
However, Massachusettss adoption of section 374(1) would rectify
these divergent outcomes. The fact that a party willfully caused a breach
should not change the fact that the innocent partys retention of any benefit
is inequitable. 130 The ability to recover restitution under section 374(1)
does not depend on the breaching party acting in good faith or substantially
performing under the contract. 131 Rather, recovery is determined by
calculating any benefit that the breaching party has conferred in excess of
the loss caused by his breach. 132 Under this approach, the fact that a party
did not complete performance or deliberately chose not to complete the job,
which current Massachusetts law would constitute bad faith and bar
recovery, 133 is irrelevant in the restitution determination. Therefore, the
breaching party in Ficara could rely on section 374(1) and seek recovery as
the moving party to recover the net benefit of his part performance. Such a
126. Id. at 289-90.

127. See RESTATEMENT (SECOND) OF CONTRACTS 374(1) cmt. a (1981) (describing that
it is unjust for a party to retain a benefit without paying anything in return, which occurs
when the benefit received exceeds the loss caused by the breach). In Ficara, the plaintiffs
actual loss was the $361 that he had to pay above the agreed contract price for the heating
and cooling system. Ficara, 117 N.E.2d at 288. If the plaintiff was awarded the full $2361,
his recovery, which is at the defendants expense, would have exceeded his actual loss by
$2000. See id. at 288-89.
128. Ficara, 117 N.E.2d at 290 (explaining that the same defendant in suing as a plaintiff
on the same contract might be barred). The court relied on the rule of Sipley v. Stickney that
any willful default in the performance of a contract bars recovery. Id. at 288. And in fact,
the defendants were denied relief in their cross-action for such reasons. See id.
130. See CORBIN, supra note 22, 1123, at 11 (Not even a willful wrongdoer is an
outlaw; and the enrichment of even an injured man may become unjust.).
result prevents unjust enrichment since relief is not determined by the

characterization of the defaulting partys breach, but rather solely on
returning that portion of the innocent partys retained benefit which
exceeds the actual loss.
B. Massachusetts General Laws Chapter 106, Section 2-718

Provides Restitution for the Breaching Buyer of Goods
Unlike contractual agreements for personal services, Massachusetts
provides restitution for the party in breach involved in a sale of goods
transaction. 134 Massachusetts General Laws chapter 106, section 2-718(2)
states, [w]here the seller justifiably withholds delivery of goods because
of the buyers breach, the buyer is entitled to restitution . . . . 135 The
breaching partys recovery is limited to the amount by which the sum of
his payments exceeds 136 either a valid liquidated damages clause 137 or a
relatively small statutorily mandated amount. 138 Section 2 embodies the
refusal to recognize forfeiture to a breaching buyer of goods where he has
conferred a benefit to the seller and then later breaches the contract. 139
The purpose of section 2-718(2) is clear in that it extends rights of
restitution to the breaching buyer of goods. 140 Unfortunately, no case
exists in Massachusetts that analyzes or discusses this section or its
reasoning. Only one State case, Security Safety Corp. v. Kuznicki, even
references section 2-718. 141 However, the court in that case only
considered the reasonableness of a liquidated damages clause and not the
issue of awarding restitution to the party in breach. 142 However, authority
134. See MASS. GEN. LAWS ch. 106, 2-718 (2006).

135. Id. 2-718(2).
136. Id.
137. Id. 2-718(2)(a). Any restitution recoverable by the buyer is subject to offset in the
event that the contract between the seller and buyer contained a liquidated damages clause.
See id.
138. Id. 2-718(2)(b). If the contract does not contain a liquidated damages clause, then
the buyers restitution award is reduced by either twenty percent of the value of the total
performance for which the buyer is obligated under the contract or five hundred dollars,
whichever is smaller. See id. This is a special exception where the buyer made a small
down payment as security. See id.; U.C.C. 2-718 cmt. 2 (2005).
139. See MASS. GEN. LAWS ch. 106, 2-718 (2008); U.C.C. 2-718 cmt. 2.
140. See ch. 106, 2-718 Mass. Code cmt. (2008).
141. See Sec. Safety Corp. v. Kuznicki, 213 N.E.2d 866, 867 (Mass. 1966).
142. Id. The court referenced section 2-718(1) in finding that a liquidated damages clause
representing one-third of the contract price was unreasonable in light of nominal actual
damages to the aggrieved party. Id. Furthermore, the court relied on A-Z Servicenter v.
from other jurisdictions provides restitution to the breaching buyer under

similar statutory guidelines. 143 These cases present persuasive authority
that Massachusetts would provide similar relief since the source of most
states law concerning the concept of restitution in sale of goods
transactions is derived from the Uniform Commercial Code. 144
Massachusettss section 2-718(2) references Restatement (First) of
Contracts section 357(2) in justifying the extension of restitution to the
breaching buyer of goods. 145 Such a reference appears troublesome,
however, since the ability to recover under each section is distinguishable
from one another. Under section 357(2), the breaching party must establish
that he acted in good faith in that his breach was not willful or deliberate. 146
However, under section 2-718(2), the breaching buyer does not have to
make such a showing in order to recover. 147 Consequently, recovery under
section 2-718(2) is more in harmony with the modern trend of awarding
restitution to the party in breach under Restatement (Second) of Contracts
section 374(1). 148
Granting restitution to the breaching party should not depend on the
nature of the transactionsuch as the sale of goods or land, contracting for
Segall, which as previously stated is only concerned with the reasonableness of liquidated
damages clauses and not restitution in favor of the party in breach. See supra text
accompanying note 90.
143. See, e.g., Stanturf v. Quality Dodge, Inc., 596 P.2d. 1247, 1249-50 (Kan. Ct. App.
1979) (relying on Kansas version of 2-718(2) and finding in the absence of a liquidated
damages provision, the breaching buyer, who defaulted on the purchase of an automobile
after tendering a down payment, should be entitled to restitution of all but $500 if no special
damages were proven by motor vehicle seller); Anheuser v. Oswald Refractories Co., 541
S.W.2d 706, 712 (Mo. Ct. App. 1976) (relying on Missouris version of 2-718(2), the
breaching party was entitled to recover in restitution any portion of his down payment he
made for the purchase of a boat, which he later refused to accept, that exceeded the loss to
the seller); Lewin Chevrolet-Geo-Oldsmobile v. Bender, 695 N.Y.S.2d 425, 427 (N.Y.A.D.
3 Dept. 1999) (relying on UCC 2-718(2) and awarding restitution to buyer, who
wrongfully repudiated under the contract, to recover the value of her trade-in that she gave
the seller as a down payment).
144. Ch. 106, 2-718, Historical and Statutory Notes (This Section is identical with 2-
718 of the Uniform Commercial Code.).
145. See id. 2-718, Mass. Code cmt.
146. See supra Part I.A.2.
147. See ch. 106, 2-718(2).
148. See supra Part I.A.3. The general measure for awarding restitution under each is
virtually identical. Compare ch. 106, 2-718(2) ([T]he buyer is entitled to restitution of
any amount by which the sum of his payments exceeds . . . .) (emphasis added), with
RESTATEMENT (SECOND) OF CONTRACTS 374(1) (1981) ([T]he party in breach is entitled
to restitution for any benefit that he has conferred . . . in excess of the loss that he has caused
. . . .) (emphasis added).
personal services, or duties under general construction relationshipssince

its primary justification is to maintain equality and prevent unjust
enrichment. 149 Therefore, if Massachusetts law permits the breaching buyer
of goods to recoup the value of his part performance, then it should extend
this same remedy to other breaching parties regardless of the context of
their contractual relationship. 150 The Commonwealths adoption of section
374(1) will help establish consistency and uniformity in an area of
Massachusettss law which currently lacks such desirable attributes.
C. The Prevention of Penalties or Forfeitures

Rules of contract law are not rules of punishment; the contract
breaker is not an outlaw. 151 This statement emphasizes the underlying
objective in awarding damages for breaches of contractto compensate the
injured party for his loss rather than punish the breaching party. 152 Courts
have well-established that cases where a liquidated damages clause will be
upheld, close attention is given to avoid overly penalizing the breaching
party. 153 When a party renders part performance and then subsequently
breaches, he will be required to compensate the injured party for its loss,
but his performance is nonetheless valuable and in some circumstances
149. See WILLISTON, supra note 1, 1473, at 225-26 (explaining that there is no reason
why cases involving land should not be dealt with in the same manner as those involving the
sale of goods or personal property).
150. The view seems appropriate in light of the fact that the Uniform Commercial Code,
particularly section 2-718, influenced the advancement of the modern trend for permitting
restitution by breaching parties in all general contexts. See Carolyn F. Lazaris, Article 2:
Revocation of AcceptanceShould a Seller Be Granted a Setoff for the Buyers Use of the
Goods?, 30 NEW ENG. L. REV. 1073, 1100-01 (1996).
151. Lancellotti v. Thomas, 491 A.2d 117, 122 (Pa. Super. Ct. 1985) (quoting Perillo,
supra note 19, at 50).
152. See generally F.A. Bartlett Tree Expert Co. v. Hartney, 32 N.E.2d 237, 240 (Mass.
1941). The court stated:
A plaintiff in an action for breach of contract is entitled in general to
damages sufficient in amount to compensate him for the loss actually
sustained by him and to put him in as good a position financially as he
would be in had there been no breach. . . . The fundamental principle
upon which the rule of damages is based is compensation.
Id.
153. See, e.g., Cummings Properties, LLC v. National Commcns Corp., 869 N.E.2d 617,
620 (Mass. 2007) (It is well settled that a contract provision clearly and reasonably
establishing liquidated damages should be enforced so long as it is not so disproportionate to
anticipated damages as to constitute a penalty.); Begelfer v. Najarian, 409 N.E.2d 167,
173 (Mass. 1980) (discussing that in situations where liquidated damages are unreasonably
and grossly disproportionate to the real damages caused by the breach, the damages
recoverable should be limited to actual damages suffered by the innocent party).
may even exceed the loss to the injured party. Consequently, the denial of
restitution to the breaching party in such an instance constitutes a penalty if
the innocent party retains the benefit without compensating the breaching
party. 154
Massachusettss current requirement that a breaching party must act
in good faith in order to recover restitution unfortunately results in the
realization of penalties or forfeitures. The outcome in Andre v. Maguire,
the case that established this long followed rule in the Commonwealth,
illustrates the nature of the penalties born by breaching parties. 155 The
breaching contractor in this case spent $5675 to construct a home but was
never paid for his services. 156 The contractor did not perform according to
the exact specifications, but nevertheless finished the construction of the
house. 157 The court, however, awarded him no relief since evidence would
not warrant a finding of an endeavor in good faith to perform in all
respects. 158 The homeowner was undoubtedly put in a better position had
there been no breach since he retained the value of the home, even if not
exactly what he contracted for, at no cost. 159 Additionally, the contractor
was certainly penalized since the homeowner retained the benefit without
making any restitution remedy. 160
The adoption of section 374(1) would help ease the penalty in this and
other situations since it forgoes the requirement of good faith. The
subcontractor could present evidence to show whether the benefit retained
by the homeowner exceeded the loss caused by his breach, if able to rely on
section 374(1). 161 The damages (or loss caused by the breach) to the
homeowner could be calculated at the difference in the value of the home
contracted for and the one ultimately constructed by the subcontractor.
Thus, it may very well turn out that this difference is less than the actual
154. See CORBIN, supra note 31, 1122, at 3 ([T]o allow the injured party to retain the
benefit of the part performance so rendered, without making any return performance and
without making restitution of any part of such value, is the enforcement of a penalty or
forfeiture against the contract breaker.); WILLISTON, supra note 1, 1473, at 222 ([T]o
deny recovery often gives the defendant [non-breaching party] more than fair compensation
for the injury he has sustained and imposes a forfeiture (which the law generally abhors) on
the plaintiff.).
155. See USS Corp. v. Modern Contl Constr. Co., No. OT-10561-DPW, 2002 WL
1949223, at *10 (D. Mass. Aug. 5, 2002) (referring to Andre v. Maguire as the time tested
Massachusetts rule).
156. Andre v. Maguire, 26 N.E.2d 347, 347-48 (Mass. 1940).
157. Id.
158. Id. at 348.
159. See supra note 152.
160. See supra note 154.
161. See RESTATEMENT (SECOND) OF CONTRACTS 374(1) (1981).
value of the home ultimately retained by the homeowner. 162 Although the
subcontractor would not be entitled to the entire original contract price, he
should receive this difference in restitution in order to avoid a complete
forfeiture. 163
D. Safeguards Exist to Alleviate Any Harshness to the Non-

Breaching Party as a Result of Awarding Restitution to the
Contract Breaker under 374(1).
The reluctance to reward a guilty party for his own wrongful behavior
constitutes the general support for denying restitution to contract
breakers. 164 Opponents to the theory of granting breaching parties
restitution express the concern that recovery invites contract-breaking and
rewards morally unworthy conduct. 165 However, the implicit recognition
in section 374 that restitution for breaching parties is not absolute provides
protection against this seeming unfairness to the innocent party. 166
The contract breaker cannot simply allege that his part performance
conferred a benefit on the innocent party to recover restitution for its value.
Instead, the breaching party must demonstrateand carries the burden of
proofthat this value exceeds the loss caused by his own breach resulting
in unjust enrichment to the non-breaching party. 167 Therefore, unless the
162. For example, if the contracted price of the home was $5675, and the value of the
home furnished was $4000, then the loss suffered would be $1675. The benefit to the
homeowner would be the $4000 home that he ultimately retained, which far exceeds the loss
of $1675.
163. See Nelson v. Hazel, 433 P.2d 120, 122 (Idaho 1967) (Even where the contract
cannot be said to be substantially performed, the weight of authority allows a negligent
contractor to recover for the benefits actually conferred, in order that a forfeiture be
avoided.) (emphasis added). The contract breaker should have been allowed to offer
evidence to establish, if it could, a right to recover the amount of the benefit it conferred
upon [the innocent party] in excess of the harm it had caused . . . by its own breachrather
that [he] be compelled to suffer a complete forfeiture. Power-Matics, Inc. v. Ligotti, 191
A.2d 483, 490 (N.J. Super. Ct. App. Div. 1963) (emphasis added).
164. See supra note 22 and accompanying text; see also Arthur L. Corbin, The Right of a
Defaulting Vendee to the Restitution of Installments Paid, 40 YALE L.J. 1013, 1014 (1931)
(It has been thought by some that restitution should always be refused, for the good and
sufficient reason that the plaintiff is one who is guilty of a breach of contract and should
never be allowed to have advantage from his own wrong . . . .).
165. Perillo, supra note 19, at 50.
166. See Corbin, supra note 164, at 1032-33. Restitution should be denied if: (1) the non-
breaching vendor still has the right to specific performance from the vendee; (2) the
breaching party has not proven that the innocent party has been unjustly enriched; and (3)
there is a valid and enforceable liquidated damages clause. Id. However, [i]f the facts are
such that none of these justifications exists, restitution should be allowed. Id. at 1033.
167. See discussion supra Part I.A.3; see also Wilkins v. Birnbaum, 278 A.2d 829,
breaching party satisfies this burden, restitution will be denied regardless of

the nature or amount of the rendered performance. 168 Additionally, in
Massachusetts, the party claiming unjust enrichment, whether in breach or
not, still has the burden of proving damages in excess of loss. 169 This
burden places a difficult task on the breaching party when attempting to
prove the other partys amount of damages, since it is usually the party who
actually suffered the damages who is in the best position to determine the
true extent of the harm. 170 However, this requirement protects the non-
breaching party from the harshness of section 374(1) in that a court will
deny restitution in the event that the contract breaker does not fulfill this
obligation. 171
Furthermore, parties always remain free to incorporate liquidated
damages clauses into their contractual agreements. Section 374(2)
explicitly provides:
To the extent that, under the manifested assent of the parties, a
partys performance is to be retained in the case of breach, that
party is not entitled to restitution if the value of the performance
as liquidated damages is reasonable in the light of the
anticipated or actual loss caused by the breach and the
difficulties of proof of loss. 172
Therefore, if a contracting party has apprehension that the other may
not complete full performance under the contract, he can add a level of
protection with the insistence of a mutually agreed-upon liquidated
damages clause at the time of contract formation. The provision, if valid,
will prevent the breaching party from recovering damagesderived from
his part performanceas restitution. 173
831 (Del. 1971) ([I]n the event a defaulting buyer can prove that the deposit exceeds in
amount the actual damages resulting from the breach, he [can] recover back the excess, but
the burden of proving this is placed on him.).
168. See, e.g., Quillen v. Kelley, 140 A.2d 517, 522-23 (Md. 1958) (denying restitution to
the breaching party since they could not prove that their $22,500 payment, about 9% of the
total contract price, exceeded the innocent partys loss); cf. Kutzin v. Pirnie, 591 A.2d 932,
941 (N.J. 1991) (awarding restitution to the contract breaker since it proved that its $36,000
deposit exceeded the $17,325 actual damages suffered by the non-breaching party).
169. See generally Keller v. OBrien, 683 N.E.2d 1026, 1029 (Mass. 1997) (describing
that the burden of proof rests with the party seeking to establish unjust enrichment).
170. See PALMER, supra note 15, 5.4, at 583-85.
171. See id. at 584 (Despite this difficulty the principle has the important consequence
that, in case of doubt as to the fact or extent of damage, the doubt will be resolved in favor
of the [non-breaching party].).
172. RESTATEMENT (SECOND) OF CONTRACTS 374(2) (1981) (emphasis added).
173. See Kelly v. Marx, 705 N.E.2d 1114, 1115 (Mass. 1999) (denying restitution to the
breaching buyers of a home to recover their five percent deposit, even though their breach
Additionally, Massachusetts courts analyze the reasonableness of

liquidated damages clauses at the time of contract formation and not at the
point when the breach occurred. 174 This analysis prohibits the court from
considering the circumstances resulting after a breach of contract and
ignores the parties resulting positions derived from the breach. 175 Such a
scenario further protects the innocent party from a restitution claim under
section 374(1) since any allegation made by the breaching party that the
other has retained the benefit of his part performancethereby leading to
unjust enrichmentremains irrelevant to the courts decision in granting
the innocent party the contractually stipulated damages. 176
CONCLUSION
The doctrine of restitution promotes equality and fairness in
contractual relationships in that it is designed to eliminate unintended
windfalls. The doctrine allows an avenue of recovery for a party which
finds that his services or performance is enjoyed by another party without
being compensated. Although restitution is designed to eliminate unjust
enrichment, injustice surely occurs when the law forbids a party from
relying on it as a remedy. However, this is exactly the injustice that occurs
when a party in breach of contract is denied restitution due simply to the
characterization of his conduct as wrongful.
Restitution, as embodied in the Restatement (Second) of Contracts,
has evolved over time to account for this injustice and permit a contract
breaker the opportunity to recover for the value of his unpaid performance.
What was once forbidden at common law, providing restitution for the
party in breach as enunciated in Restatement (Second) of Contracts section
374, has now become the modern approach followed in many jurisdictions.
It is time for the Commonwealth of Massachusetts to adopt this modern
approach and eliminate the injustice undoubtedly faced by contracting
parties throughout its jurisdiction.
Regardless of the type of transaction underlying a contract, allowing
the breaching party to recover restitution under section 374 without proving
substantial performance or good faith is necessary to prevent unjust
allowed the homeowner to sell to another buyer at a higher price, because the original
contract contained a valid liquidated damages clause against the buyer).
174. See id. at 1115-17. The court adopts the single look approach that determines
reasonableness of liquidated damage clauses at contract formation and specifically rejects
the second look approach. Id. at 1117.
175. See id. at 1117 (stating that parties with liquidated damage clauses expect to
receive stipulated damages, not damages resolved by a court examining postbreach
circumstances) (emphasis added).
176. See id.
enrichment to the innocent party. Massachusettss adoption of section 374

would also bring the state of the law in this area in conformity with its
acceptance for awarding restitution to breaching buyers of goods under
Massachusetts General Laws chapter 106, section 2-718. Furthermore,
recovery under section 374 is also necessary to prevent damage awards that
penalize contract breakers. For this reason, it is in contradiction to the
central theme underlying contract recovery, which is to compensate rather
than punish.
As a result of the current state of law in Massachusetts regarding
restitution in favor of the defaulting party, individuals who find themselves
in danger or unable to perform all of their entire obligations, may find the
best course of action is simply not attempting to render any part
performance. However, without Massachusettss adoption of the modern
view of restitution in section 374, this is precisely the likely scenario since
a breaching partys part performance will remain uncompensated.

Pompelio: Restitution in Favor of The Party-in-Breach

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POMPELIO FINAL 1/4/2010 11:13:36 AM

RESTITUTION IN FAVOR OF THE

616 NEW ENGLAND LAW REVIEW [Vol. 43:615

contract breakers to inequitable penalties and forfeitures. This Note

2009] RESTITUTION FOR THE PARTY-IN-BREACH 617

1. 12 SAMUEL WILLISTON, WILLISTON ON CONTRACTS 1473 (3d ed. 1970).

618 NEW ENGLAND LAW REVIEW [Vol. 43:615

2009] RESTITUTION FOR THE PARTY-IN-BREACH 619

breaching party restitution, which further adds to the uncertainty in

I. The Rationale for Awarding Restitution in Favor of the Party in

12. RESTATEMENT (FIRST) OF RESTITUTION 1 cmt. b (1937).

620 NEW ENGLAND LAW REVIEW [Vol. 43:615

2009] RESTITUTION FOR THE PARTY-IN-BREACH 621

Although the idea of unjust enrichment may be difficult to define, it

A. The Movement for Awarding Restitution in Favor of the Party

1. The Common Law

18. PALMER, supra note 15, at 5.

622 NEW ENGLAND LAW REVIEW [Vol. 43:615

not accurately report his expenses to the defendant pursuant to the

2. Restatement (First) of Contracts 357 (1932)

24. Sipley, 76 N.E. at 226-27.

2009] RESTITUTION FOR THE PARTY-IN-BREACH 623

3. Restatement (Second) of Contracts 374 (1981)

624 NEW ENGLAND LAW REVIEW [Vol. 43:615

Section 374(1) resembles the liberal approach to awarding restitution

II. Application of the Doctrine of Restitution in Favor of the Party in

A. Transactions Involving the Sale of Land and Down Payments

2009] RESTITUTION FOR THE PARTY-IN-BREACH 625

47. Id. at 1027.

626 NEW ENGLAND LAW REVIEW [Vol. 43:615

B. The Subcontractor and General Contractor Relationship

2009] RESTITUTION FOR THE PARTY-IN-BREACH 627

completion deadlines expressed under the contract. 66 The United States

66. See id. at 768-69.

628 NEW ENGLAND LAW REVIEW [Vol. 43:615

C. Massachusettss Approach For Awarding Restitution in Favor

1. Massachusetts Has Not Adopted Restatement (Second) of

2009] RESTITUTION FOR THE PARTY-IN-BREACH 629

disproportionate windfall to the retailer. 83 In its opinion, the court cited

2. Massachusetts Law Provides for Restitution in Favor of

630 NEW ENGLAND LAW REVIEW [Vol. 43:615

perform fully. 92 The burden is on the breaching contractor to prove both

2009] RESTITUTION FOR THE PARTY-IN-BREACH 631

100. No. 01-10561-DPW, 2002 WL 1949223, at *1 (D. Mass. Aug. 5, 2002).

632 NEW ENGLAND LAW REVIEW [Vol. 43:615

that when determining whether there was substantial performance under a

III. Massachusetts Should Adopt the Modern Approach of Section

2009] RESTITUTION FOR THE PARTY-IN-BREACH 633

A. The Prevention of Unjust Enrichment

634 NEW ENGLAND LAW REVIEW [Vol. 43:615

126. Id. at 289-90.

2009] RESTITUTION FOR THE PARTY-IN-BREACH 635

result prevents unjust enrichment since relief is not determined by the

B. Massachusetts General Laws Chapter 106, Section 2-718

134. See MASS. GEN. LAWS ch. 106, 2-718 (2006).

636 NEW ENGLAND LAW REVIEW [Vol. 43:615

from other jurisdictions provides restitution to the breaching buyer under

2009] RESTITUTION FOR THE PARTY-IN-BREACH 637

personal services, or duties under general construction relationshipssince

C. The Prevention of Penalties or Forfeitures

638 NEW ENGLAND LAW REVIEW [Vol. 43:615

2009] RESTITUTION FOR THE PARTY-IN-BREACH 639

D. Safeguards Exist to Alleviate Any Harshness to the Non-