Bausch & Lomb v. Bressler, 977 F.2d 720

United States Court of Appeals, Second Circuit

1992

Chapter

20

Title

Contract Remedies

Page

822

Topic

Restitution as an Alternative

Quick Notes

If the Df is liable for material breach, the Pl may recover the reasonable value of services rendered, goods delivered, or property conveyed less the reasonable value of any counter-performance received by him

Book Name

Contracts Cases, Discussions, and Problems.  Blum Bushaw, Second Edition.  ISBN:  978-0-7355-7069-6.

Issue

o         The issue here is the $500K Prepaid Royalty B&L made when it entered the contract.  They get it back by way of restitution.  However, it is pro-rated.

Procedure

District

o         Awarded B&L $500,000, the amount of the prepaid royalty.

Circuit

o         Vacate district courts award, and remand to grant restitutionary aware to B&L.

Facts

Rules

Reason

Pl Bausch & Lomb

Df Bressler (Sonomed)

What happened?

o         Sonomed is a manufacturer of ophthalmic [eye] diagnostic instruments.

Contract Background

o         Bausch & Lomb (B&L) entered into a series of contract with Sonomed where B&L was awarded the exclusive rights to distribute Sonomeds products within a certain territory.

o         In exchange, B&L paid Sonomed $500,000 and agree to purchase certain minimum annual quantities of Sonomeds product.

Sonomeds Operational Difficulties

o         Delivery was delayed and was not cured.

o         B&L took advantage of the right to stop purchasing and instead manufactured the product themselves.

o         B&L has 200 of Sonomeds products in stock.

Sonomeds Cancellation

o         Ultimately cancelled contract.

o         Claimed B&L had not right to stop purchasing.

Trial Court

o         Sonomed was in material breach because it had not right to terminate the contract.

o         Also held if B&L had been in breach, Sonomed would have the right to terminate.

o         Sonomed did not give 30 days notice as stipulated in the K.

Court of Appeals

o         Affirmed Sonomed was in material breach.

$500,000 Payment

o         The K stated the payment constituted a prepaid royalty and that in the event of any dispute with respect to this Agreement, such payment shall be deemed to be payment for exclusive distribution rights.

District Court Denied B&Ls Claims for Lot Profit Damages

o         Based on sales by Sonomed in B&L's exclusive territory.

o         The court found that B&L offered no evidence linking Sonomed's sales to profits allegedly lost by B&L.

o         The court also awarded B&L $500,000, the amount of the "prepaid royalty" paid to Sonomed and described in the Agreement as a payment for B&L's right to distribute Sonomed products.

o         The court reasoned that Sonomed's breaches "vitiated [impaired]" B&L's exclusive distribution right and stated that return of the payment made whole and "reasonably compensated" B&L.

Court of Appeals found no errors with liability determinations

Sonomed Challenged $500,000 Damage Award

o         B&L offered no evidence tending to prove that it would have made the same sales absent Sonomeds breach.

Reasonable Degree of Certainty (Loss profits from Df - breach)

o         NY law requires that plaintiff prove with a reasonable degree of certainty that any claimed loss of profits was caused by defendant's breach.

Court of Appeals Expectation Damage Error.

o         It does not follow that B&L would have realized a $500,000 return if the K was fully performed.

o         Again no evidence connecting the 500K to any profits.

Court of Appeals Talking about Reliance Damages

o         A plaintiff may recover "his expenses of preparation and of part performance, as well as other foreseeable expenses incurred in reliance upon the contract."

Reliance Cannot Be Greater Than Expectation

o        The alternative reliance "measure of damages rests on the premise that the injured party's reliance interest is no greater than the party's expectation interest."

o        Courts will not "knowingly put the plaintiff [receiving a reliance recovery] in a better position than he would have occupied had the contract been fully performed."

Reliance Recovery will be offset by any loss the breaching party can prove

o        A reliance recovery will be offset by the amount of "any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been fully performed."

If Pl - Losses upon Full Performance Equal or Exceeds its Reliance Expenditures

o        If the breaching party establishes that the plaintiff's losses upon full performance would have equaled or exceeded its reliance expenditures, the plaintiff will recover nothing under a reliance theory.

Court of Appeals may be entitled to restitution. (Lets see)

Doctrine of Restitution

Basic Premise

o        The doctrine of restitution is premised upon the equitable principle that a person who has been unjustly enriched at the expense of another is required to make restitution to the other.

DF is Liable for Reasonable Value Services Rendered, Goods Delivered, Property Conveyed

o        If the Df is liable for material breach, the Pl may recover the reasonable value of services rendered, goods delivered, or property conveyed less the reasonable value of any counter-performance received by him.

Reasonable Value Of Benefit Conferred Even if you would have lost money!!!

o        Because the doctrine of restitution looks to the reasonable value of any benefit conferred upon the defendant by plaintiff, and is not governed by the terms of the parties' agreement, restitution is available even if plaintiff would have lost money on the contract if it had been fully performed.

Court of Appeals Restitution Reasoning

o         B&L would be entitled to recover as much of the $500,000 payment it made to Sonomed as it can show unjustly enriched Sonomed.

o         We reject Sonomed's contention that an award of any portion of the $ 500,000 payment is precluded by the terms of the Agreement.

o         The terms of the contract do not control an award of restitution.  (Test Potential)

Court of Appeals Valuation of Distribution Right

o         The years they were doing business the distribution right constituted a benefit to B&L.

o         The court will have to determine the value of the benefit received

o         It would be appropriate to pro-rate the 500K.

Vacated district courts award, and remand to grant restitutionary aware to B&L.

Rules

Reliance Damages

o         A plaintiff may recover "his expenses of preparation and of part performance, as well as other foreseeable expenses incurred in reliance upon the contract."

Reliance Cannot Be Greater Than Expectation

o        The alternative reliance "measure of damages rests on the premise that the injured party's reliance interest is no greater than the party's expectation interest."

o        Courts will not "knowingly put the plaintiff [receiving a reliance recovery] in a better position than he would have occupied had the contract been fully performed."

Reliance Recovery will be offset by any loss the breaching party can prove

o        A reliance recovery will be offset by the amount of "any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been fully performed."

If Pl - Losses upon Full Performance Equal or Exceeds its Reliance Expenditures

o        If the breaching party establishes that the plaintiff's losses upon full performance would have equaled or exceeded its reliance expenditures, the plaintiff will recover nothing under a reliance theory.

Doctrine of Restitution

Basic Premise

o        The doctrine of restitution is premised upon the equitable principle that a person who has been unjustly enriched at the expense of another is required to make restitution to the other.

DF is Liable for Reasonable Value Services Rendered, Goods Delivered, Property Conveyed

o        If the Df is liable for material breach, the Pl may recover the reasonable value of services rendered, goods delivered, or property conveyed less the reasonable value of any counter-performance received by him.

Reasonable Value Of Benefit Conferred Even if you would have lost money!!!

o        Because the doctrine of restitution looks to the reasonable value of any benefit conferred upon the defendant by plaintiff, and is not governed by the terms of the parties' agreement, restitution is available even if plaintiff would have lost money on the contract if it had been fully performed.

Test Potential

o         Restitution looks to the reasonable value of any benefit conferred.

o         Restitution is not governed by the terms of the parties' agreement

o         Damages cause does not control a restitution award.

Class Notes