Lancellotti v. Thomas

Brief Fact Summary. This case involves an agreement where one party breached and then demanded return of payment that he made prior to breaching.

Synopsis of Rule of Law. A breaching party is entitled to restitution in excess of the loss caused by the breach.

Facts. The Appellant entered into an agreement with the Appellee, where the Appellant agreed to purchase the Appellee’s luncheonette business and to rent the premises on which the business is located.  In return, in addition to paying rent, the Appellant agreed to build an addition onto the structure in which the business was located.  The Appellant paid $25,000 as specified by the agreement.  However, it failed to build the addition.  Eventually, the Appellee built the addition.  The Appellant lost interest in the business and the Appellee resumed possession.  The Appellant then sued, demanding his payment of $25,000.

Issue. Is a breaching party entitled to restitution for payments he made prior to his breach?

Held. Yes.  Judgment reversed and remanded for further proceedings.  Pennsylvania should follow the modern view of contract law, which allows a breaching party to recover “any benefit…in excess of the loss that he caused by his own breach.”

Dissent. It is well settled that Pennsylvania follows the common law rule, where the breaching party has no right to restitution.

Discussion. The court examined the common law rule, which denies restitution to a breaching party.  It then examined the criticisms of the rule, finding that essentially it will allow the non-breaching party to receive a windfall from the breach.  The court then looked to other jurisdictions, finding that many have adopted the modern view that does allow the breaching party to recover.  The court reasons that since Pennsylvania has adopted the Uniform Commercial Code (UCC), which espouses the modern rule, it ought to allow the breaching party to recover restitution.