Court Opinion

ID: 9471154
Source: CourtListenerOpinion
Date Created: 2023-08-05 03:26:00.270526+00
Date Added: 2024-06-11T17:42:17.431051
License: Public Domain

NELSON, Circuit Judge,
concurring:
I concur in the majority opinion but believe that the applicable law in section II requires further clarification.
The proper measure of damages in this case depends on an interpretation of an unclear area of New York law. Although CBS denominated its complaint below as one for rescission, I believe CBS’s lawsuit was effectively a breach of contract action. The complaint sought restitution instead of lost profits because of the speculative nature of the breached contract. The question presented to us, then, is whether an award of restitution when used as a substitute for speculative lost profits in a breach of contract action should preclude the recovery of additional measures of damages.
In seeking to answer this question of New York law, I have found neither a New York statute that is directly controlling nor a decision by the New York Court of Appeals that is directly on point. I would therefore have this court turn to other relevant sources of New York law and sit, in effect, as a New York state court. Commissioner v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 1782, 18 L.Ed.2d 886 (1967).
The phrase “rescission and restitution” has two meanings in New York. Richard v. Credit Suisse, 242 N.Y. 346, 152 N.E. 110, 111 (1926) (Cardozo, J.). When used in the *1297context of a voidable or mutually rescinded contract, “rescission and restitution” means that a contract is treated as void ab initio. Id. On the other hand, a party seeking rescission and restitution in a breach of contract action does not seek to undo the contract from its beginning. Id.; see generally D. Dobbs Handbook on the Law of Remedies § 12.1, at 793 (1973); 5 A. Corbin, Gorbin on Contracts §§ 1104-1106 (1964). Instead, a plaintiff may request restitution in a breach of contract action as a substitute measure of lost profits where, as here, the true measure of lost profits would be purely speculative. Nelson v. Hatch, 70 A.D. 206, 75 N.Y.S. 389, 393 (1902), aff’d 174 N.Y. 596, 67 N.E. 1085 (1903) (law firm breached contract to prosecute lawsuit and was required to return pre-paid fee).
New York law is unclear on whether the two different meanings of the phrase “rescission and restitution” produce two different answers to the question whether a plaintiff can recover restitution plus additional damages. I conclude that they do.1 A plaintiff who elects to rescind his voidable contract cannot avoid the contract for purposes of restitution and invoke it for purposes of recovering special damages.2 See Sheridan Drive-In, Inc. v. New York, 16 A.D.2d 400, 407, 228 N.Y.S.2d 576 (1962) (no consequential damages where contract rescinded because of mistake that either was mutual or resulted from innocent misrepresentation); Rodriguez v. Northern Auto Auction, Inc., 35 Misc.2d 395, 396, 225 N.Y. S.2d 107 (Sup.Ct.1962) (no consequential damages where contract rescinded because of infancy), Naimoli v. Massa, 81 Misc.2d 431, 366 N.Y.S.2d 573 (City Ct.1975) (no reliance damages where contract mutually rescinded). In such cases, a plaintiff suing for rescission and restitution can recover only those benefits that he has conferred on the defendant. Restatement (Second) of Contracts § 370 (1981).
In contrast, because it does not actually “rescind” the breached contract, an award of restitution in a breach of contract action should not preclude the award of additional measures of damages. I have found only two cases that reach this conclusion under New York law. See Nelson v. Hatch, 75 N.Y.S. at 394 (where lost profits from contract were speculative, plaintiff properly “permitted to prove the moneys which he advanced, and the expenses which he incurred in connection with it”) (dictum); Sperry & Hutchinson Co. v. O’Neill-Adams Co., 185 F. 231, 239 — 40 (2d Cir.1911) (where trading stamp suppliers’ breach caused unknown loss of profits, New York law held to *1298permit recovery of restitution of price paid for unused trading stamps plus consequential damages incurred in redeeming already distributed stamps). Neither case is binding on this court, and both predate Richard v. Credit Suisse, supra, the opinion that gives them their analytical underpinning. Still, the conclusion of each case, although not black letter law in New York, accords with a report by New York’s Law Revision Commission3 and with the position of most commentators.4
I therefore concur with the majority’s conclusion that a New York court would permit recovery of restitution plus additional measures of contract damages in this case. I also concur with the necessity of a remand. In rejecting CBS’s claim for full contract damages and relying instead on a purely restitutionary measure, the district court failed to pass on several issues necessary to measure breach of contract damages. Both parties address these issues in their briefs on appeal, but these are topics best left to the trier of fact.

. Merrick cites three cases for the proposition that, prior to the 1941 enactment of a statute allowing consequential damages from contracts rescinded because of fraud, “the New York courts were strictly prohibited from awarding consequential damages in any case in which rescission and restitution was granted.” Two of the three cases involved rescission and restitution in the case of a voidable contract and are therefore distinguishable from the present case. Clark v. Kirby, 204 A.D. 447, 198 N.Y.S. 172, 175 (1923); Kountze v. Kennedy, 147 N.Y. 124, 41 N.E. 414 (1895).
The third case cited by Merrick, Rosebreit Realty Corp. v. Macceber Corp., 229 A.D. 791, 241 N.Y.S. 726 (1930), may be read to support Merrick’s claim in the context of a breach of contract action. Still, the opinion in that case, which was only a paragraph in length, did not describe why the contract in question had allegedly been rescinded. Moreover, Rosebreit Realty merely held that a defendant’s counterclaim must assert facts consistent with his response; the court held that a defendant could not, in the same action, claim both that the contract was rescinded and that he had suffered damages from the breach of that contract. I therefore do not read Rosebreit Realty as precluding the recovery of reliance damages when a plaintiff suing for breach of contract uses restitution as a substitute for lost profits. Even if Rosebreit Realty clearly precluded restitution plus reliance damages, it is not a ruling by the New York Court of Appeals and is not binding on this court. Commissioner v. Estate of Bosch, 387 U.S. at 465, 87 S.Ct. at 1782.

. In 1941, New York created a narrow exception to its rule denying reliance and consequential damages when a voidable contract is rescinded. Such damages are recoverable in addition to restitution when the contract was induced by fraud or misrepresentation. N.Y. Civ. Prac.Law § 3002(e) (McKinney 1974). In arguing that this statute describes the only circumstance in which a plaintiff can recover both restitution and reliance damages, Merrick ignores the second meaning of “rescission and restitution” under New York law.

. One party to a bilateral contract is entitled, upon the ground of repudiation or material breach by the other, to treat the contract as terminated and to maintain an action against the other for ‘restitution’, for the reasonable value of the injured party’s part performance of the contract.... Certainly the measure of recovery is not limited to the benefits conferred on the defendant; the purpose of the action is to restore the plaintiff to the situation existing before the contract was made.
Leg.Doc. No. 65(b), Report of Law Commission at 46-47 (1946) (footnotes omitted; emphasis in original).

. See e.g., Restatement (Second) of Contracts § 370, Comment a (1981); Restatement (Second) of Restitution § 15 (Tent.Draft No. 1, 1983); D. Dobbs, Handbook on the Law of Remedies §§ 12.1, 12.17, at 793, 880, 910-12 (1973); E.A. Farnsworth, Legal Remedies for Breach of Contract, 70 Colum.L.Rev. 1145, 1180-83 (1970); cf. Fuller & Perdue, The Reliance Interest in Contract Damages: 1, 46 Yale L.J. 52, 55 (1936) (recognizing that what is traditionally called the restitution interest in contract damage measures is, in fáct, a subset of the reliance interest).