Opinion ID: 424737
Heading Depth: 2
Heading Rank: 2

Heading: CBS's Cross-Appeal

Text: 24 The district court found that CBS's complaint sought rescission and restitution and in a separate cause of action sought damages for breach of contract. A party injured by a breach of a contract may recover both restitution and reliance damages. See Nelson v. Hatch, 70 A.D. 206, 75 N.Y.S. 389 (1st Dept.1902), aff'd, 174 N.Y. 546, 67 N.E. 1085 (1903) and Sperry & Hutchinson Co. v. O'Neill-Adams Co., 185 F. 231 (2d Cir.1911). A party may rescind a contract if there was fraud in the inception or if there was a substantial breach. Callanan v. Powers, 199 N.Y. 268, 92 N.E. 747 (1910). The district court listed many reasons why Merrick's refusal to perform was unjustified and held that Merrick materially breached the Rights Agreement and the Production Agreement by repudiating them without justification. 25 In its findings on damages, the district held that Merrick must return to CBS the amounts which it paid him under the contract. The court also found that CBS is entitled to rescission both because Merrick expressly repudiated the modified contract and because he breached the original contract, and it therefore awarded CBS $916,666.67, the amount it paid both to Merrick and his agent, the William Morris Agency. 26 This award of restitution damages is proper under either rescission or breach of contract. When a breach occurs after the execution of the contract, the injured party in a contract action is entitled to both restitution and reliance damages. 27 Here, the district court found substantial breaches of contract. Nevertheless, the court limited recovery to restitution, the only recovery available when the contract is illegal or void from its inception. The court refused to allow reliance damages even though it found breaches of the contract. 28 This was error. This action must therefore be remanded to the district court to determine what part, if any, of the $750,000 paid to the director and screenwriter are legitimate reliance damages. In connection with this determination, the court should consider questions like reasonable reliance on the agreement, attempts to mitigate damages, the value of the screenplay delivered to CBS, and the foreseeability of the loss. 29 The district court's finding that Merrick is liable to CBS for breach of contract is AFFIRMED. The award to CBS of $916,666.67 it paid to Merrick and his agent is also AFFIRMED. The denial of amounts paid to Friedkin, the director, and Green, the screenwriter, by CBS in reliance on its contract with Merrick is REVERSED and REMANDED for proceedings consistent with this opinion.