Contracts II, Pages 1128–1135

Lancellotti v. Thomas

Superior Court of Pennsylvania, 1985

Facts:

Plaintiff bought defendants' business for $25,000 and agreed to rent the building for five years and build a 16'×16' addition costing at least $15,000. Defendants refused to build the addition, so defendants built a 20'×40' addition it for $11,000. After a year, plaintiff no longer wanted to run the business, and so he stopped paying rent and vacated the business to start his own competing restaurant. Plaintiffs resumed operation of it but found that some equipment was missing.

Plaintiff sued to recover his $25,000 purchase price, and defendants counterclaimed for $52,000—$6,665 for unpaid rent and $45,335 for damage to the business and Mrs. Thomas's emotional distress resulting from the default.

Procedural History:

Trial court allowed defendants to retain the $25,000 purchase price and awarded them $6,665 for the rent.

Reasoning:

While a party should not be allowed to get an advantage from his breach, the non-breaching party should not get a windfall from the breach either. Under the common law rule, the non-breaching party gets more benefit in the event of a breach the more the breaching party performed before breaching Likewise, the breaching party is more severely penalized the more he performs.

Many jurisdictions have adopted the Restatement's liberalization of the common law rule. This rule should be adopted here.

Issue:

Can a defaulting party recover based on his reliance?

Holding:

Yes, a breaching party is entitled to restitution for a benefit he has conferred in performance or reliance in excess of the loss that he has caused. Remanded.

Dissenting Opinion:

Tamilia: The Restatement has not been adopted in Pennsylvania, so it is not applicable to this case. The common law rule should be followed. Plaintiff acted in bad faith and should not be rewarded for this.

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