William Woodward Jr, ‘Restitution Without Context: An Examination of the Losing Contract Problem in the Restatement (Third) of Restitution’

Professor Stewart Macaulay wondered in 1959 whether restitution, a set of doctrines applied in a wide range of fact-laden contexts, could be captured in a restitution casebook that, inevitably, would strip away much of the context for the law’s application. Restitution reappeared early in this new Century when the American Law Institute decided to “restate” restitution; the final product was approved In 2011. Several sections focused on the role of restitution in settings that began with a contract, or with a contract later “avoided” under contract law.

This article is about one of those situations, that in which the party on the losing end of the original contract exits the contract due to the other party’s substantial breach. If that plaintiff agreed to what turned out to be a bad bargain, and would have lost money performing it, is that loss to be reflected in the injured party’s remedy notwithstanding the other party’s substantial breach. Modern decisions — and the 1981 Restatement (Second) of Contracts — permitted the injured party to “avoid” the contract and seek restitution for the value of what it conferred on the breacher, thereby erasing the loss on the bargain that would come with a contract law remedy. The new Restatement did not follow dominant case law but, instead, adopted a solution reflected in a few 19th Century cases that would preserve part of the “bargained-for” loss in the non-breacher’s recovery.

The article argues that the Restatement’s solution — a compromise between recognizing all of the bargained-for loss and recognizing none of it — may be unworkable in real cases, and that the supporting economic analysis is hopelessly indeterminate in the complex situations onto which that analysis is projected. Yet, paradoxically, its unworkability may be an asset, pressing contracting parties to settle rather than risk litigation in a legal environment even more indeterminate than the environment that preceded it, where the older Restatement of Contracts and the dominant case law were at least in rough alignment with one another. The article concludes with the observation that the new Restatement’s solution is a product of its time and is likely to be temporary because legal thinking tends to be cyclical. Our current economics-dominated approach to solving legal problems will inevitably give way to new thinking, research, and norms — and to new solutions to recurring problems such as this one.

Woodward, William J., Restitution Without Context: An Examination of the Losing Contract Problem in the Restatement (Third) of Restitution (February 24, 2014). REVISITING THE CONTRACTS SCHOLARSHIP OF STEWART MACAULAY ON THE EMPIRICAL AND THE LYRICAL edited by Jean Braucher, John Kidwell and William C. Whitford published in 2013 by Hart Publishing; Santa Clara Univ. Legal Studies Research Paper No. 03-14.

First posted 2014-02-26 18:52:14

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