Restitution mechanisms up to this point We have seen several mechanisms allowing P to force D to return unjust gain. All have essentially resulted in a simple money judgment measured by the amount of Ds gain (although the measurement of that gain may differ depending on the culpability of D (or P)). Mechanisms include: Quasi-Contact (Sauer, Olwell) Accounting For Profits (Sheldon) Constructive Trust (Snepp)

Restitution mechanism specifics: Quasi-contract - court implies a promise by D to return benefit in situations where D in good conscience should not keep it. Mainly used when (1) underlying action is a tort or (2) P needs a substantive theory of restitution Legal remedy Accounting for Profits - court implies a duty to account for and disgorge profits made from improper use of Ps property/entitlement. Mainly used w/ (1) breach of fiduciary duty cases, (2) statutory claims (e.g., trademark & copyright infringement) Equitable remedy Constructive Trust - court declares D a constructive trustee who must disgorge any unjustly gained benefit. Mainly used w/ (1) breach of fiduciary duty, (2) fraud & (3) theft Equitable remedy

Rescission What is it: A restitution remedy used to reverse transactions resulting in a contract. Modern trend – courts treat as an equitable remedy Grounds for rescission: Fraud, substantial breach of K, mutual mistake, duress, certain unilateral mistakes, undue influence. How it works: Court reverses the transaction (disaffirms the K) & requires the parties to return any benefit conferred on them by the other party. Example - B & S contract for B to buy house for $150,000. After closing, B learns that the house has a reputation of being haunted, which S deliberately hid from B. What are Bs remedies? Damages: Rescission:

Rescission & changed circumstances – Mobil Oil Mobil entered into K w/ US where it promised $156 million in exchange for leases to explore/develop OCS off N.C. coast (conditional upon Mobil getting further govt permission). Due to later federal law, US w/held permission. SCT says US repudiated the contract. Rescission is a hugely important remedy for Mobil: Prior to the change in federal law, Mobil never secured drilling rights – it had only a CHANCE to get them given N.C.s veto power under old law. But that chance was worth paying for. After the law forced US to breach, Mobils chance plummeted to zero. Mobils expectancy damages are $0 because court found that N.C. likely would have denied Mobil rights under the old law anyway BUT rescission undoes the contract and gets Mobil its money back in exchange for its return of exploration rights to the US

Rescission & election of remedies Rescission can be very attractive if circumstances have changed (or simply because its so easy to unwind a particular contract). BUT it has costs. Rescission is inconsistent with damages – i.e., P cannot seek both rescission & compensatory damages on a contract so she must ELECT one or the other An aside about timing and election: Modern trend allows P election between rescission or affirmation of the contract up to entry of judgment as long as Ps choice does not prejudice D BUT some jurisdictions require notice of rescission so choice should be made as early as possible Consequences of electing rescission: If P chooses rescission, she should lose her right to ALL damages – even punitive and consequential damages – because she has disaffirmed the contract.

Rescission & punitive or consequential damages What are the court trends? Trend with punitive damages – courts still reluctant to allow punitive damages Trend with consequential damages – majority of courts willing to allow consequentials if they dont duplicate the unwinding of the contract Hypo re consequentials & rescission: P (a resident of Missouri) buys a house from D located in New York state. P moves to NY only to find that D lied about the houses habitability – its haunted and nobody has able to spend the night in the house without going crazy. P is forced to stay in a motel for 2 weeks until he can find another house to purchase. P can seek rescission and recover consequential damages for hotel expenses in such circumstances even though damages look to Ps loss from the contract.

Rescission where there has been additional benefit Ps buy a house from D. After K is executed, Ps move in and build an addition. After living in the house for six months, Ps discover that it is haunted, which D fraudulently concealed from them. Upon rescission, P/D will have to return the house and purchase price to each other. Upon rescission of the contract, what do we do with the addition (how do we value it)? P cant keep addition so D will have to compensate P for it in some way. Three commonly used valuations: (1) Difference in market value before and after addition, (2) Ps cost of improvement, or (3) Value of improvement to D Upon rescission, what do we do about the fact that Ps have lived in the house for six months? Havent Ps lived in Ds house rent free for 6 months once Ps return the purchase price? Courts often require Ps in these situations to compensate D with rent.