Also known as: windfalls · windfall profit · windfall profits · windfall gain · windfall profits tax
Written by attorneys · grounded in primary & secondary sources — see below
An unexpected or undeserved gain or benefit received without corresponding effort or entitlement. The concept arises when one party obtains value that properly belongs to or should remain with another, often requiring equitable intervention to prevent unjust enrichment.
Willowbrook Capital sold a portfolio of loans to Winterhaven Logistics but recorded only an assignment of the mortgages and omitted any transfer of the promissory notes. When borrowers defaulted, Winterhaven sought to foreclose. The separation left the notes unsecured in practice, allowing the borrowers an unearned advantage in resisting enforcement.
Ulysses paid the full balance Alpha Precision demanded after Nova Precision defaulted on the assumed mortgage. Alpha recorded a satisfaction, leaving Nova with clear title. Ulysses then demanded assignment of the mortgage and note so he could foreclose, preventing Nova from retaining the property free of the lien Ulysses had discharged.
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Aluminum Company of America and Essex Group entered a multi-year smelting agreement using a Wholesale Price Index formula both parties believed would track costs. Electricity price spikes caused the formula to undercompensate Alcoa by tens of millions. The court reformed the price term rather than rescinding the contract outright.
Equity intervenes when one party receives value that properly belongs to another or that the recipient did not earn through performance or reliance. Subrogation prevents a mortgagor or junior interest from obtaining clear title after a third party discharges the senior obligation. Reformation avoids granting one contracting party an unearned profit created by a mutual mistake in the pricing formula.
Supporting sources
Damages are capped at the amount needed to place the injured party in the position it would have occupied had the contract been performed. An award exceeding that amount produces an undeserved surplus. Courts therefore reduce reliance recoveries by any loss the breaching party proves with reasonable certainty the injured party would have suffered.
Supporting sources
Any proceeds or other benefits obtained through a derivative action belong to the entity on whose behalf the suit was brought. Allowing the plaintiff to retain the funds converts a corporate recovery into a personal gain. The plaintiff must remit the entire amount to the company, subject only to a possible court award of reasonable expenses.
Supporting sources
…The relation is clear. The assumed capacity of the price formula in a long term service contract to protect against vast windfall profits to one party and vast windfall losses to the other is so clearly basic to the agreement as to repel dispute. While the cases often assert that a mistake as to price or as to future market…