## Facts

- John Lancellotti agreed to buy Albert and Lillian Thomas’s luncheonette business (name, goodwill, and equipment) and to lease the premises where it operated.
- Lancellotti paid $25,000 at signing as part of the purchase consideration.
- The lease term was five years at $8,000 per year, with an option to renew.
- Lancellotti promised to build a 16' x 16' building addition (minimum $15,000), and the lease made construction an express condition; failure to build would terminate the lease.
- An addendum provided that if the addition was not constructed as agreed, Lancellotti would vacate and “forfeit all rights to the business.”
- Lancellotti did not build the addition; the parties disputed whether permitting problems excused performance.
- The Thomases built the addition themselves for about $11,000.
- After about a year, Lancellotti stopped operating the business and paid no rent; the Thomases resumed possession and control.
- Lancellotti sued to recover the $25,000 payment; the Thomases counterclaimed for rent and other damages.

## Issues

1. Whether a breaching buyer in a related business-sale-and-lease transaction may obtain restitution of payments made before breach.
2. Whether a contractual forfeiture provision bars restitution, or whether restitution is available subject to offset for the nonbreaching party’s loss.

## Decision

- The Superior Court reversed the judgment denying any recovery of the $25,000 to Lancellotti and remanded.
- The court rejected the traditional rule that a party in breach may never recover payments made before breach.
- The court adopted Restatement (Second) of Contracts § 374, permitting a breaching party restitution for benefits conferred in excess of the loss caused by the breach.
- The court directed the trial court on remand to determine the Thomases’ actual loss and then decide whether any portion of the $25,000 exceeded that loss and must be returned.
- The court treated the “vacate and forfeit” language as not automatically foreclosing restitution where retention would exceed reasonable compensation.

## Legal Principles

- A party in breach may obtain restitution for benefits conferred by part performance or reliance to the extent those benefits exceed the loss caused by the breach. (Restatement (Second) of Contracts § 374(1))
- Restitution is distinct from expectation damages; its function is to prevent the nonbreaching party from retaining a benefit beyond compensation for actual loss.
- Contract remedies are compensatory rather than punitive; denying all restitution to a breaching party can operate as an impermissible forfeiture and yield unjust enrichment.
- A forfeiture-style clause does not necessarily eliminate restitution; retention of payments must still be tested against the nonbreaching party’s provable loss.
- On remand under § 374, the factfinder must calculate the nonbreaching party’s recoverable loss (e.g., costs incurred to complete promised work, unpaid rent, and other proven damages) and permit retention only up to that amount.

## Conclusion

The court held that a defaulting buyer is not categorically barred from recovering pre-breach payments; instead, the seller may retain amounts necessary to cover proven losses, and any surplus benefit must be returned as restitution under Restatement (Second) of Contracts § 374.


Lancellotti v. Thomas, 491 A.2d 117 (Pa. Super. Ct. 1985)