Academic journal article Washington and Lee Law Review

A Commonwealth of Perspective on Restitutionary Disgorgement for Breach of Contract

Academic journal article Washington and Lee Law Review

A Commonwealth of Perspective on Restitutionary Disgorgement for Breach of Contract

Article excerpt

Promises made.

Promises not kept.

Breach to seize a more profitable deal.

Default - Pay expectancy damages.

Why not - Disgorge defendant's gain through breach?

If, and when, the law permits disgorgement for contractual breach will say much about the nature of contract law and the role of moral judgment within it.1

I. Introduction: Contractual Disgorgement Remedy as Watershed

The muse of restitution enraptures the rest of the world's legal scholars. Yet, America, the nineteenth-century birthplace of restitution theory, resists her lure.2 This Article contributes to what I hope will become an American restitution revival.3 The instant comparative analysis focuses on an ongoing American blackletter-law endeavor to follow the Commonwealth's lead on restitutionary disgorgement as a remedy for contractual breach.

Ultimately, the American effort is a step in the right direction, but it may not go far enough. American legal scholars should embrace the complexity and attraction of restitution's riddles. We should call it to our imagination. The "new" American proposal for restitutionary contractual disgorgement is worthy of serious scholarly attention, praise, and critique. It will admirably enhance the stable of alternative remedies for contract plaintiffs. But we should explore its potential shortcomings, as drafted, as well as its moral underpinnings. Only then can we glean the deeper lessons from the Commonwealth's lead and embrace the consequences of our new path.

Disgorgement of defendant's gain is not traditionally available as a common-law remedy for breach of contract.4 At least two legal events telegraph a restitutionary sea change for the Commonwealth and the United States. The first is the House of Lords' decision in Attorney General v. Blake? permitting a gain-based remedy for breach of contract.6 The Blake decision "marked a watershed ... for the award of gain-based remedies for breach of contract."7 Accordingly, for England, Blake demonstrates that "[i]t is now clear that breach of contract is capable of supporting gain-based relief."8

The second pivotal legal event is Section 39 of the pending American Restatement (Third) ofRestitution and Unjust Enrichment? Section 39 extends a warm welcome to contractual disgorgement for the United States, while careful to answer the post-5/aÄ:e task of "defining the various situations in which disgorgement actually will be available."11 This section introduces limited authorization for a restitutionary remedy of disgorgement where one profits from an "opportunistic breach" of contract.12

Section 39, although likely narrow in its application, represents a significant theoretical challenge to the popular United States conception of Holmesian-based contract law. 13 Justice Holmes is the intellectual godparent of an entire canon of contract law scholarship in the United States. His theories undermine core notions regarding contract law's non-interest in morally judging the defendant's mental state, and thus its rejection of efforts to punish defendants for breaching contracts.14 Instead, as classically conceived, contract defendants prepare to pay expectancy damages if they choose to breach the ordinary - not unique - contract.15 Justice Holmes's influence extends to the law and economics movement and may lend, in the minds of many, a historical platform upon which efficient breach theory rests.16 Efficient breach theory advances a Holmesian vision "because of the dominance that it gives to the expectation measure of damages in cases of contract breach: the promisor is allowed to breach at will so long as he leaves the promisee as well off after breach as he would have been had the promise been performed, while any additional gain is retained by the contract breaker."17 Section 39's intersection with the classical conception, as well as with efficient breach theory, should give serious pause to American contract, restitution, and remedies scholars. …

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