Rules of contract law are not rules of punishment; the contract breaker is not an outlaw. The party who committed a breach should be entitled to recover any benefit in excess of the loss that he has caused by his own breach.
The court reversed the lower court judgment and remanded for a consideration of restitution damages for appellant buyer because the lower court judgment allowed appellee sellers to be unjustly enriched. The court found that appellant defaulted on the purchase of the business, and that the lower court erred when it allowed appellees to retain all payments made by appellant. The court held that appellant, as the party who breached the contract was entitled to recover any benefit in excess of the loss caused by the breach.
Can a defaulting purchaser of a business who has also entered into a related lease for the property recover any part of his payments made prior to default?
The lower court failed to consider whether appellant was entitled to restitution, and if not, whether appellees retention of the entire amount paid by appellant was reasonable in light of the anticipated or actual loss caused by the breach. The common law rule precluded a breaching buyer from recovering these payments. Today, we reject this rule, which created a forfeiture of the breaching buyer's payments and unjustly enriched the nonbreaching seller, and adopt § 374 of the Restatement (Second) Contracts (1979), which permits limited restitution. The party who breaches after almost completely performing should not be more severely penalized than the party who breaches by not acting at all or after only beginning to act. Under the common law rule the injured party retains more benefit the more completely the breaching party has performed prior to the default. Thus it has been said that "to allow the injured party to retain the benefit of the part performance without making restitution of any part of such value, is the enforcement of a penalty or forfeiture against the contract-breaker."