Restitution is concerned with undoing unjust enrichment, usually on the part of the person against whom legal action is taken. Where a person receives a benefit which is not intended to be a gift, restitution may reverse the benefit received. Commonly, money or benefits have been paid under a proposed transaction, which did not ultimately proceed to the point that a contract was entered.
In the majority of cases, where gains and losses occur in everyday life, the law of restitution has no role. Generally, losses lie where they fall. The law regarding restitution defines the limited number of circumstances in which windfall gains, transfers and must be undone and the benefit reimbursed.
Restitution supplements contract law. It creates obligations from circumstances. The defendant must have obtained enrichment or a gain in circumstances, in which it would be unjust, not to reverse the enrichment or gain.
The gain must be at the claimant’s expense or in circumstances, where the claimant is entitled to the benefit concerned. The gain or enrichment may consist of the receipt of property, monetary value, saving of expense, improvement of property or the rendering of services.
Generally, a restitution claim cannot be made where there is a valid contract in place dealing with the matter. Similarly, where a person intends to make a gift or benefit a third party, he will generally be unable to recover the benefit.
Where goods are supplied under a failed or ineffective contract, a claim for a quantum meruit payment (a reasonable sum) may be available for the value of goods and services provided.
An action for monies had and received may arise where the claimant’s money is held by the defendant, where a third party has paid money to the defendant for the purpose of being passed to the claimant or and many cases where monies were paid by mistake or compulsion.
Damages for tort or breach of contract may involve elements of reversing unjust interest.
Unjust Enrichment I
The mere receipt of a benefit is not enough. A transfer intended as a gift or benefit is not subject to restitution. There must be circumstances by which the gain is unjustified. This could happen in the context of an apparent contract, which is rendered void by an invalidating factor. For example, a transfer of a benefit may be made under mistake or duress, which invalidates the intended contract.
The defendant may have received something which belongs to a third party. He may receive a gift of misappropriated assets. A bank may make an unauthorised transfer. A third party’s property rights may have been infringed and the defendant may have received the benefit of those rights. A person may receive money for payment to a third party, but fail to pay it over to that person.
Unjust enrichment may arise where a person receives a benefit which he ought never to have received. This may be a benefit which he receives on the basis of an assumption which is unfounded. This may apply where a person improves another person’s property on the understanding created by that other person that he will be entitled to a benefit, such as a right to live there.
A similar category of case arises where a person confers benefits or transfers assets on the assumption that he will be entitled to payment under a contract, but the expected contract does not materialise or is invalidated. In these circumstances, the basis upon which or goods, assets or benefits have been transferred, has disappeared.
Similarly, where payments are made to public authorities on the assumption that they are due but later turned out not to be due there is a similar failure of a fundamental assumption.
Unjust Enrichment II
If a person freely accepts an apparent gift or benefit in the knowledge that itis not being provided as a gift, then he may be obliged to pay a reasonable sum for it. This may happen in circumstances where a transaction is proposed but does not ultimately proceed.
Another circumstance is where the defendant has committed a wrong against the claimant and has gained the benefit which it is unjust that he retain. If a person wrongfully obtains assets in breach of a trust or other duty, they can be recovered. The essence of the claim is that the defendant ought not to benefit from his wrongdoing.
The defendant’s gain must be at the claimant’s expense. Generally, this will be clear from the circumstances. In some more complicated cases, the situation may not be so clear.
The claimant may have made some necessary intervention, such as in the case of maritime salvage or the rendering of medical services in an emergency. If a third party intervener undertakes works which he believes necessary, but which are unnecessary or where others could have done the job better, he may not be able to recover
Although a person may have received an unrequested benefit there may be circumstances that justify retention of that benefit. If a person is given a benefit which he has not requested or acquiesced in, he may not be liable to return it in some cases. If goods or services are delivered or provided without request in an attempt to force a purchase, restitution is not usually available. The benefit may be incapable of being undone and to do so would amount to a compulsory sale and purchase.
There may be circumstances where the intervention is necessary. For example, a person may intervene and do works to a house in an emergency to prevent it from falling down. In this situation, the person may be entitled to recover the benefit because this is a necessary intervention. Generally, however, benefits may not be forced on a person, unknown to them or without request.
When a person undertakes work on another person’s land or buildings, that work becomes part of the property and generally, cannot be recovered. There is no lien or charge over the property for the work done. Unless there is a contract creating an entitlement to recovery, no recovery is available. If the person who has received the benefit, later becomes insolvent, there is no right to recover the asset simply because this would be a just solution.
In some situations, a person may have received a so-called “incontrovertible benefit”. For example, a person may intend to upgrade his property and negotiate with persons, who in fact do the work, with his acquiescence, but without a request or contract. In such circumstances where the works were intended clearly to be done in any event and the recipient benefits, it may be patently unjust if he was not required to pay so that restitution applies.
The subjective views of the person receiving the benefit may be relevant. If a defendant intends to let a house fall down, the intervention of a third party who undertakes repairs which he believes are necessary, may not entitle him to restitution. The subjective view of the person benefitted is relevant in this case, to the issue of the what or is not just.
Generally, where a third party receives goods or a benefit, payment or value in good faith without knowledge of flaws in a previous or underlying transaction or title, he takes the benefit, e.g. the goods, and no claim in restitution is available against him.
Flaws in transaction nearly always make them voidable rather than void. Where the seller’s title is voidable, but not void, a bona fide buyer for payment may take the benefit or title to the goods, if the third party (earlier owner) has not challenged the voidable transaction.
Where the previous transaction is void (e.g. the result of duress, and not just a misrepresentation), the original true owner/transferor retains title to the assets concerned and the intermediate transferor(s) has no title. In this case, the true owner is able to recover the assets or the innocent purchaser may be obliged to pay the true owner the price.
If an asset to which a flawed title is held (e.g. its acquisition can be reversed due to misrepresentation) is transferred to a recipient other than for full payment and in good faith, it may be possible for the third party with earlier better title to recover that asset by virtue of his title or a constructive trust.
Restitution may involve property claims and the assertion of a property right. The assertion of a property right in itself against a party who wrongfully holds it without any apparent basis is not a restitutionary remedy. Restitution involves some further element or circumstances whereby the third party may have some ostensible claim to hold the property, but it is unjust that he do so. A proprietary claim can be critical in insolvency as it succeeds over claims of general unsecured creditors.
Property rights may arise where contracts to pass assets are ineffective or re-vest because they are cancelled. Difficult cases arise in relation to transfer property by mistake. In some cases, the transfer is deemed void where the mistake is very fundamental. In other cases, it is merely deemed voidable.
Less obvious instances of a proprietary claim may arise where improvements to property represent unjust enrichment at the claimant’s expense and property is in the hands of the defendant. Where a person develops or improves property in the expectation and belief created by the owner, he may have a proprietary remedy by way of proprietary estoppel, which is an equitable remedy which is restitutionary in nature.
A proprietary claim may arise where trust assets are wrongfully appropriated or assets are transferred under a contract which is subsequently found fraudulent. It may apply where a fiduciary such as a trustee, director or employee receives a bribe or a benefit that properly belongs to the trust, the company or employer.
In these cases, the claimant claims equitable ownership or legal ownership. Gains made in breach of a trust or a fiduciary duty by exploiting “inside” knowledge for their benefit is subject to property claims. They must account for any profits they make from the use of the trust assets.
Actions to recover property are subject to the law of property. These actions are based on the rights of recovering the rights of ownership that already exist. There are separate legal rights for recovery of goods and for real property.
In other cases, so-called resulting trusts can arise where monies have paid without consideration of something in return. In this case, the recipient must hold the benefit or asset received in trust. In this case, the recovery basis is similar to restitution but is based on trust.
Subrogation and Indemnity
Subrogation applies by operation of law in certain circumstances. It is restitutionary and proprietary in nature.
An example of subrogation arises where a guarantor pays off a debt to a secured creditor. The guarantor stands in the shoes of the secured creditor and is entitled to the benefit of the security. He is also entitled to an indemnity from the guaranteed party. The principle also applies to insurers, who make payment on claims. The succeed to the insured’s rights, once they have paid out on the insurance policy.
Where a person pays off another person’s mortgage, he will generally stand in the shoes of that mortgagee. He has a right to exercise for his own benefit all rights vested in the creditor. Where a bank credits money to an account wrongly, which facilitates a creditor to be paid off, the bank may be subrogated to the rights of the creditor who has paid off.
The recipient may be able to show an independent justification for his enrichment. A person may be unjustly alleged if a donor of a gift is unjustly enriched. It does not follow that the beneficiary of a similar gift must account to the person who has been unjustly deprived.