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Eker Brothers, Inc. v. Rehders

Court of Appeals of New Mexico
150 N.M. 542, 263 P. 3d 319 (2011)
ELI5:

Rule of Law:

A party who materially breaches a contract is entitled to restitution for any benefit conferred on the non-breaching party by way of part performance, in excess of the loss caused by the breach.


Facts:

  • Eker Brothers, Inc. (Subcontractor) entered into a verbal agreement with John G. Rehders, General Contractor, Inc. (General) to perform site and concrete work for a school construction project.
  • Subcontractor began work and General paid the first invoice in full.
  • Subcontractor continued to perform work through August and into early September.
  • On September 8, Subcontractor ceased all work on the project, breaching the agreement.
  • Subcontractor submitted an invoice for the work performed between August 1 and September 7.
  • General did not pay this invoice, citing Subcontractor's breach.

Procedural Posture:

  • Eker Brothers, Inc. (Subcontractor) sued John G. Rehders, General Contractor, Inc. (General) in district court seeking payment for work performed.
  • The district court found the value of Subcontractor's unpaid work was $74,964.05 and that General incurred damages of $42,448.20.
  • The district court held that Subcontractor's claims were barred because it had committed a willful, material, and anticipatory breach of the contract.
  • The district court entered judgment in favor of General for the full amount of its damages, $42,448.29.
  • Subcontractor, as appellant, appealed the district court's judgment to the New Mexico Court of Appeals.

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Issue:

Does a party who materially breaches a contract have a right to restitution for the benefit conferred on the non-breaching party in excess of the damages caused by the breach?


Opinions:

Majority - Bustamante, Judge.

Yes. A party that materially breaches a contract is entitled to restitution for the benefit conferred on the non-breaching party that exceeds the damages caused by the breach. The court explicitly adopts the rule articulated in the Restatement (Second) of Contracts § 374, which rejects the traditional common law rule that a breaching party forfeits any claim to compensation. The court reasoned that the purpose of contract damages is to compensate the non-breaching party, not to punish the breaching party or provide a windfall. Allowing the non-breaching party to retain the full value of the work performed without payment would result in unjust enrichment. Therefore, the correct calculation is to determine the value of the benefit conferred by the breaching party, subtract the damages suffered by the non-breaching party, and award the difference to the breaching party.



Analysis:

This decision formally adopts the Restatement (Second) of Contracts § 374 in New Mexico, aligning the state with the modern view on restitution for a breaching party. It marks a significant departure from the harsh, traditional common-law rule that a material breach results in the forfeiture of any compensation for work performed. The case emphasizes that the primary purpose of contract remedies is compensation, not punishment, and solidifies the principle against unjust enrichment. This precedent ensures that while non-breaching parties are made whole for their losses, they cannot receive a windfall at the expense of the breaching party's labor.

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