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As a matter of pure contract law it is generally true that if two individuals enter into a contract and one breaches, the breaching party cannot obtain a recovery from the innocent party. Rather, if the innocent party has suffered, a recovery against the party in breach is generally accorded.
Appellant contractor, Cal State Electric, Inc., hired appellee subcontractor, Palmer Construction, Inc., to perform certain services. Appellee breached the contract after only partial performance and partial payment. Appellant was required to pay sums in excess of the contract to finish the project. Appellant filed an action for breach of contract and the trial court determined that appellee was owed additional sums for the work it did complete and attorney’s fees as the prevailing party in the action. Appellant sought review of the decision.
Under the circumstances, may the appellee – the breaching party – obtain a quasi-contractual recovery from the appellant – the innocent party?
The court reversed the decision of the lower because appellant was the injured and innocent party who did not breach. According to the court, where, as here, the innocent party has paid more than the contract price for the goods and services ordered from the breaching party, the innocent party may recover the overage from the breaching party. The breaching party may not obtain a quasi-contractual recovery from the innocent party. In short, the innocent party was not unjustly enriched when it received what it bargained for and paid no more than the contract price. Accordingly, appellant was entitled to damages for any sums beyond the contract price it had to pay as a result of appellee's breach and attorney’s fees as the prevailing party.