Remedies - Remedial rights of breaching parties

Learning Outcomes

This article explains remedial rights of breaching parties in contract law, including:

• understanding the theoretical basis for allowing a breaching party any recovery at all, and how restitution and quantum meruit prevent unjust enrichment while still protecting the non‑breaching party’s expectation interest;
• identifying when a breaching party may obtain restitution or quantum meruit, and when recovery is barred because the non‑breaching party’s damages equal or exceed the value of the benefit conferred;
• applying the contract‑price cap and offsetting the non‑breaching party’s cost to complete or correct in order to calculate a breaching party’s maximum recoverable amount on exam fact patterns;
• distinguishing restitutionary claims from expectation and reliance damages, and recognizing when substantial performance or divisibility allows suit on the contract instead of in quasi‑contract;
• evaluating the effect of willful versus non‑willful breach on remedial rights under the majority and minority approaches, and spotting forfeiture concerns that examiners frequently test;
• comparing how these principles operate under common law and UCC Article 2, including special rules for breaching sellers and buyers and typical MBE traps involving deposits, goods accepted, and mistaken claims for lost profits.

MBE Syllabus

For the MBE, you are required to understand the circumstances in which a party who has breached a contract may nevertheless recover some value for benefits conferred, with a focus on the following syllabus points:

• The right of a breaching party to restitution or quantum meruit for benefits provided.
• The measure and limits of recovery for partial performance by a breaching party.
• The distinction between recovery for breaching and non-breaching parties.
• The effect of willful versus non-willful breach on remedial rights.
• The application of these principles under both common law and the UCC.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. If a contractor breaches a building contract after completing 60% of the work, what remedy may the contractor seek from the owner?
   1. Expectation damages
   2. Restitution for the value of work performed
   3. Specific performance
   4. Liquidated damages
2. Under common law, a breaching party may recover in restitution:
   1. Only if the breach was not willful
   2. For the contract price minus the cost to complete
   3. For the reasonable value of benefits conferred, less damages caused
   4. Never
3. Which of the following is most likely to bar a breaching party from recovering in quantum meruit?
   1. The breach was minor
   2. The breach was willful and deliberate
   3. The contract was for the sale of goods
   4. The non-breaching party suffered no loss
4. Under the UCC, if a seller breaches but the buyer keeps delivered goods, the seller may recover:
   1. Nothing
   2. The contract price
   3. The contract price minus damages
   4. The value of goods accepted

Introduction

When a party breaches a contract, the starting point in remedies is the non‑breaching party’s entitlement to expectation damages. But exam questions often twist the posture: the breaching party has partially performed and now wants to be paid something. The key issue becomes whether the breaching party can obtain restitution or quantum meruit, and if so, how much.

Key Term: Breaching Party
The party who fails to perform a contractual obligation when performance is due, thereby committing a breach of contract.

Key Term: Expectation Damages
Damages designed to put the non‑breaching party in the position they would have occupied had the contract been fully performed, usually measured by the value of promised performance minus the value actually received, plus proven consequential and incidental losses.

Expectation damages protect the non‑breaching party’s bargain; restitution and quantum meruit focus instead on avoiding unjust enrichment. On the MBE, you must know when a breaching party is limited to restitution and why they cannot recover full expectation damages.

Key Term: Restitution
A remedy allowing a party who has conferred a benefit on another to recover the reasonable value of that benefit, to prevent unjust enrichment.

Key Term: Quantum Meruit
A claim for the reasonable value of services or goods provided, typically used when a contract is unenforceable or has been breached, measured by market value rather than the contract price.

Remedial Rights of the Breaching Party (Common Law Overview)

At common law, a party who breaches a contract may, in certain circumstances, recover the reasonable value of benefits provided to the other party, even though the contract was not fully performed. This recovery is not based on enforcing the contract; it is based on restitutionary principles aimed at preventing unjust enrichment.

General Rule

A breaching party may recover in restitution or quantum meruit for the value of benefits conferred, but only to the extent that the value exceeds the loss caused by the breach. The non‑breaching party is entitled to offset any damages suffered as a result of the breach.

In formula form:

• Restitution to breaching party = Value of benefit conferred
  minus: Damages suffered by non‑breaching party (including cost to complete or correct)

Critically:

• The breaching party cannot recover its expected profit under the contract.
• The breaching party’s recovery is capped so that the non‑breaching party does not end up worse off than if the contract had been fully performed.

Key Term: Reliance Damages
Damages reimbursing expenditures made in reasonable reliance on the contract, designed to restore the plaintiff to their pre‑contract position. Unlike restitution, they focus on the plaintiff’s loss rather than the defendant’s gain.

Restitution and reliance are conceptually related but distinct; when the breaching party sues, recovery is almost always framed as restitution/quantum meruit, not reliance.

Measure of Recovery and the Contract Price Cap

The breaching party’s recovery is limited to the lesser of:

• The contract price for the part performed, or
• The reasonable value (market value) of the benefit conferred,

minus the non‑breaching party’s damages caused by the breach.

This “contract price cap” ensures that the breaching party cannot use restitution to get a better deal than it originally made.

Key Term: Substantial Performance
Performance that, despite minor defects, meets the essential purpose of the contract and triggers the other party’s duty to pay the contract price, subject to a deduction for the cost of curing defects.

Substantial performance and restitution are closely tested together:

• If the breaching party has substantially performed, it usually sues for contract price minus cost to cure, not for restitution.
• If the breach is material (no substantial performance), the breaching party cannot recover under the contract but may still seek restitution for the value conferred, subject to the offset rules.

Key Term: Willful Breach
A deliberate, intentional failure to perform a contractual duty, as opposed to an inadvertent, negligent, or good‑faith failure.

Willful vs. Non‑Willful Breach

Most modern courts allow a breaching party to recover restitution even if the breach was willful, to avoid a gross forfeiture that would unjustly enrich the non‑breaching party. A minority view denies restitution to a willful breacher on the theory that they should not profit at all from deliberate wrongdoing.

On the MBE:

• Assume the majority rule: even a willful breacher may obtain restitution, subject to offset and the contract price cap, unless the fact pattern clearly states you are in a jurisdiction that bars recovery for willful breach.

Worked Example 1.1

A builder contracts to construct a garage for $30,000. After completing 70% of the work, the builder abandons the project without justification. The owner hires another contractor to finish the job, paying $12,000 to complete it. The owner refuses to pay the original builder anything.

Question: Can the builder recover anything from the owner?

Answer:
Yes. The builder may recover in restitution the reasonable value of work performed (70% of the contract suggests $21,000, assuming market value matches the contract), minus the damages caused by the breach ($12,000 paid to complete). Thus, the builder may recover $9,000. The builder does not receive the full contract price or any profit—only the net benefit retained by the owner.

When Restitution Is Denied or Reduced

A breaching party recovers nothing in restitution if:

• The non‑breaching party’s damages equal or exceed the value of the benefit conferred; or
• The breaching party’s work has no objective value to the other party (e.g., completely defective work that must be demolished).

In those cases, unjust enrichment is absent.

Worked Example 1.2

A contractor agrees to install custom windows in a house for $20,000. After installing half the windows, the contractor walks off the job. The installed windows are defective and must be removed and replaced; the owner spends $15,000 to remove and replace the defective windows. The contractor sues in restitution.

Answer:
The contractor recovers nothing. Although the contractor did work, it conferred no net benefit—the owner had to pay extra to undo the work. Because the owner’s damages equal or exceed the value of the performance, restitution is unavailable.

Divisible Contracts and Units of Performance

Key Term: Divisible Contract
A contract that can be apportioned into corresponding pairs of part performance on each side, so that payment is due for each completed unit even if later units are not completed.

If a contract is divisible—for example, payment per completed unit of work—the breaching party may recover the contract price for completed units, even if it breaches as to the remainder. Here, recovery is under the contract for completed units, not in quasi‑contract, but the effect is similar: the breaching party is not forced to forfeit compensation for fully completed, separately priced portions.

Worked Example 1.3

A painter agrees to paint 10 identical houses for a developer at $4,000 per house, payment due upon completion of each house. After painting 6 houses properly, the painter refuses to do more without a price increase. The developer hires someone else to paint the remaining 4 houses and refuses to pay for the 6 completed houses.

Answer:
The contract is divisible: each house is a separate unit with a separate price. The painter can recover the contract price for the 6 completed houses ($24,000), because those units were fully and properly performed. The breach as to the remaining 4 houses does not deprive the painter of payment for completed units.

Application under the UCC: Breaching Sellers and Buyers

Key Term: UCC
The Uniform Commercial Code, a set of model statutes governing commercial transactions; Article 2 regulates contracts for the sale of goods.

The UCC contains specific restitutionary rules for breaching parties in sales of goods cases. Two roles can be breaching parties:

• The seller who fails to deliver conforming goods or repudiates.
• The buyer who wrongfully rejects, revokes acceptance, or repudiates.

Breaching Seller’s Recovery

Under UCC Article 2, if a seller breaches but the buyer accepts and retains some goods:

• The seller is still entitled to the contract price for those goods accepted, even if it breaches as to the remainder.

The buyer’s remedy is to seek damages for the shortfall or nonconforming portion, not to refuse to pay for goods already and properly accepted.

Worked Example 1.4

A seller contracts to deliver 100 widgets for $10 each. The seller delivers 60 widgets, then refuses to deliver the rest. The buyer keeps the 60 widgets and buys 40 more from another supplier at $12 each.

Question: What can the seller recover?

Answer:
The seller may recover the contract price for the 60 widgets accepted ($600). The buyer may set off damages for the breach (here, the extra $2 per widget for the 40 undelivered widgets = $80) in a separate claim or counterclaim. The buyer cannot refuse to pay for goods accepted.

Breaching Buyer’s Restitution (UCC § 2‑718)

The UCC also addresses the situation where the buyer is the breaching party. Even a breaching buyer may be entitled to restitution of payments made in excess of the seller’s damages.

Roughly:

• The seller may keep:

  • Any validly agreed liquidated damages, or
  • If no valid liquidated damages clause, the lesser of 20% of the contract price or $500.

• Any additional payments made by the buyer beyond that amount must be refunded, unless the seller proves greater actual damages (in which case the seller may offset those damages).

This prevents the seller from obtaining a windfall by retaining a large deposit when actual damages are small.

Worked Example 1.5

A buyer agrees to purchase machines for $20,000 and pays a $5,000 deposit. The contract has no valid liquidated damages clause. Before delivery, the buyer wrongfully repudiates. The seller resells the machines at the same price and suffers only $1,000 in incidental costs. The seller refuses to refund the deposit.

Answer:
The buyer is the breaching party but can recover restitution of part of the deposit. Under the UCC, absent valid liquidated damages, the seller may keep the lesser of 20% of the contract price ($4,000) or $500, plus provable damages. The seller’s actual damages are $1,000, so the seller may keep $1,000. The buyer should recover $4,000 of the $5,000 deposit in restitution.

Restitution vs. Expectation for Breaching Parties

A recurring exam theme is that breaching parties are generally limited to restitution, not expectation:

• A breaching party cannot recover lost profits on the contract.
• If the fact pattern shows the breaching party asking for the “benefit of the bargain,” that is almost always wrong.
• The correct measure is the net benefit conferred, capped by contract price and reduced by the non‑breaching party’s damages.

Worked Example 1.6

A contractor agrees to build a deck for $15,000. The contractor spends $9,000 on labor and materials and would have earned $3,000 in net profit if the job were completed. Halfway through, the contractor walks off the job without excuse. The owner hires a new contractor, paying $7,000 to finish the deck. The original contractor sues, seeking $6,000 ($3,000 for costs plus $3,000 expected profit).

Answer:
The contractor is a breaching party and cannot recover expectation damages (including lost profit). The deck as completed is worth the full contract price, so the value of the original contractor’s partial performance can be approximated at $15,000 – $7,000 cost to complete = $8,000. Restitution is limited to the lesser of this value ($8,000) and the contract price for the part performed, minus the owner’s damages. The owner’s damages are $7,000 (cost to complete). Net benefit to the owner from the contractor’s work is $1,000, so the contractor’s maximum restitution is $1,000—not $6,000.

Willful Breach and Forfeiture Concerns

Courts are often reluctant to impose a total forfeiture on a breaching party who has conferred a substantial benefit, even if the breach is willful. On the MBE, watch for:

• Large amounts of work completed.
• Owner seeking to keep all the benefits without paying anything.
• No serious defect or damage to the non‑breaching party beyond the cost to complete or cure.

In those cases, the examiners are inviting you to award restitution despite willfulness, to avoid unjust enrichment.

Exam Warning

On the MBE, be alert for questions where the breaching party seeks recovery after partial performance. Always consider:

• Whether the non‑breaching party suffered damages, and their amount.
• Whether the breaching party is improperly seeking expectation damages.
• Whether the jurisdiction described bars recovery for willful breaches (explicitly stated if relevant).

Revision Tip

If asked about a breaching party's right to restitution, always:

• Start with the value of the benefit conferred;
• Subtract the non‑breaching party's damages; and
• Check that the result does not exceed the contract price for the part performed.

Summary

A breaching party is generally not entitled to the benefit of the bargain but may recover in restitution or quantum meruit to prevent unjust enrichment of the non‑breaching party. The core ideas:

• Restitution focuses on the defendant’s gain, not the plaintiff’s lost expectations.
• Recovery is limited to the net benefit retained by the non‑breaching party, subject to an offset for damages and a cap at the contract price.
• Most courts allow restitution even for willful breaches, though a minority denies it.
• Under the UCC, a breaching seller can recover the contract price for goods accepted, and a breaching buyer can recover excess payments over the seller’s damages, subject to statutory limits.
• Substantial performance and divisibility affect whether the claim is on the contract or in restitution, but the exam logic is consistent: avoid unjust enrichment while protecting the non‑breaching party from loss.

Key Point Checklist

This article has covered the following key knowledge points:

• A breaching party may recover in restitution or quantum meruit for benefits conferred, but only to the extent the non‑breaching party is not left worse off.
• Recovery is limited to the lesser of the market value of the benefit conferred or the contract price for the part performed, minus the non‑breaching party’s damages.
• Breaching parties generally cannot obtain expectation damages or lost profits; they are limited to restitution.
• Most courts allow restitution even for willful breaches, but some jurisdictions bar recovery for deliberate breaches.
• Divisible contracts allow breaching parties to recover contract price for completed units, while indivisible contracts often push them into restitution.
• Under the UCC, a breaching seller may recover the contract price for goods accepted by the buyer, and a breaching buyer may reclaim payments exceeding the seller’s damages subject to statutory caps.
• Always offset the non‑breaching party’s cost to complete or correct when computing the breaching party’s restitution.

Key Terms and Concepts

• Restitution
• Quantum Meruit
• Expectation Damages
• Substantial Performance
• Willful Breach
• Divisible Contract
• UCC
• Reliance Damages
• Breaching Party