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filed: March 22, 1985.


Appeal from the Judgment in the Court of Common Pleas of Delaware County, Civil No. 6480 of 1974.


Irwin Paul, Philadelphia, for appellant.

James G. Buckler, Upper Darby, for appellees.

Spaeth, President Judge, and Beck and Tamilia, JJ. Tamilia, J., files a dissenting opinion.

Author: Spaeth

[ 341 Pa. Super. Page 2]

This appeal raises the question of whether a defaulting purchaser of a business who has also entered into a related lease for the property can recover any part of his payments made prior to default. The common law rule precluded a breaching buyer from recovering these payments. Today, we reject this rule, which created a forfeiture of the breaching buyer's payments and unjustly enriched the non-breaching seller, and adopt ยง 374 of the Restatement (Second) Contracts (1979), which permits limited restitution. This case is remanded for further proceedings so that the trial court may apply the Restatement rule.

[ 341 Pa. Super. Page 3]


On July 25, 1973, the parties entered into an agreement in which appellant agreed to purchase appellees' luncheonette business and to rent from appellees the premises on which the business was located. Appellant agreed to buy the name of the business, the goodwill, and equipment; the inventory and real estate were not included in the agreement for the sale of the business. Appellees agreed to sell the business for the following consideration: $25,000 payable on signing of the agreement; appellant's promise that only he would own and operate the business; and appellant's promise to build an addition to the existing building, which would measure 16 feet by 16 feet, cost at least $15,000, and be 75 percent complete by May 1, 1973.*fn1

It was also agreed that appellees would lease appellant the property on which the business was operated for a period of five years, with appellant having the option of an additional five-year term. The rent was $8,000 per year for a term from September 1, 1973, to August 31, 1978. A separate lease providing for this rental was executed by the parties on the same date that the agreement was executed. This lease specified that the agreement to build the existing building was a condition of the lease. In exchange for appellant's promise to build the addition, there was to be no rental charge for the property until August 31, 1973. Further, if the addition was not constructed as agreed, the lease would terminate automatically. An addendum, executed by the parties on August 14, 1973, modified this agreement, providing that "if the addition to the building as described in the Agreement is not constructed in accordance with the Agreement, the Buyer shall owe the Sellers $6,665 as rental for the property . . ." for the period from July 25, 1973, to the end of that summer season. The addendum also provided that all the equipment would revert to appellees upon the appellant's default in regard to the addition.

Appellant paid appellees the $25,000 as agreed, and began to operate the business. However, at the end of the 1973

[ 341 Pa. Super. Page 4]

    season, problems arose regarding the construction of the addition. Appellant claims that the building permit necessary to construct the addition was denied. Appellees claim that they obtained the building permit and presented it to appellant, who refused to begin construction. Additionally appellees claim that appellant agreed to reimburse them if they built the addition. At a cost of approximately $11,000, appellees did build a 20 feet by 40 feet addition. In the spring of 1974 appellees discovered that appellant was no longer interested in operating the business. There is no evidence in the record that appellant paid any rent from September 1, 1973, as the first rental payment was not due until May 15, 1974. Appellees resumed possession of the business and, upon opening the business for the 1974 summer season, found some of their equipment missing.

Appellant's complaint in assumpsit demanded that appellees return the $25,000 plus interest. Appellees denied that appellant was entitled to recovery of this sum and counterclaimed for damages totaling $52,000: $6,665 as rental for the property for the 1973 summer season and the remainder as compensation for "grievous damage to [appellees'] business, its goodwill and its physical operation . . ." and appellee Lillian Thomas suffering "nervous illness, pain and suffering inclusive of serious bodily injury and necessitating bed rest and physicians' supervision for one year after [appellant's] default." Defendants' Counterclaim and New Matter, paras. 9-11. In his answer, Appellant only conceded liability for the $6,665 rent under the terms of the addendum. Plaintiff's Answer to Counterclaim and New Matter, para. 9. The trial court, sitting without a jury, found against appellant on the original claim, allowing appellees to retain the $25,000 paid by appellant, and for appellees on the counterclaim, allowing them to recover the $6,665 rent.


At one time the common law rule prohibiting a defaulting party on a contract from recovering was the majority rule. J. Calamari and J. ...

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