Remedies in Restitution
The remedies in restitution may be, by way of quantum meruit, money had been received, money repaid by reason of a total failure of consideration or an account of profits. There may also be proprietary remedies such as rescission, equitable liens. Trust and proprietary remedies may be available. Subrogation is by way of operation of law in certain cases. It may give a proprietary remedy where a person is subrogated to a security.
Quantum meruit or quantum valebat arises where a person supplies goods or services without a contract or under a contract which is wholly void or completely avoided. Monies had been received arises where monies pass into the respondent’s control on the basis that it is to be paid to the claimant. This may arise where the defendant has usurped the position of, or received the payment on account of the claimant by mistake, under compulsion or for a total failure of consideration.
In principle, proprietary and personal remedies may be sought in a single action. Accordingly, if monies are paid to another in error and that other diverts them into assets, a simultaneous claim may be made by way of personal remedy for monies had and received and a proprietary remedy against the assets concerned by way of tracing.
There are certain common law liens including that of the maritime general average claimant and maritime salvor who have liens over property saved on well established historical basis. They are dealt with in other parts.
The law on unjust enrichment is not a single area of law. Contract law and tort may afford remedies against unjust enrichment. Recourse against unjust enrichment may be afforded through the law of property, where assets are reclaimed. Damages by way of compensation for breach of contract or tort may also include elements of restitution.
The courts may grant a remedy by way of a personal order to repay and/or an order to return property. In restitution case, the court may make an order for money had and received to the use of the claimant. This is not a property or trust remedy but is a personal order that the respondent is rightly accountable to the claimant in respect of monies held or received by him. which
In the reverse case, where goods or services are supplied a personal order of quantum meruit, or more appropriately, quantum valebat the case of services, may be made requiring the respondent who has received and accepted a benefit by reason of his request or acquiescence, must pay a reasonable price for it.
In some relatively limited classes of case, a constructive trust may be imposed by the court as a remedy in order to do justice. Under the law of trusts, this creates or recognises proprietary right. Effectively, the respondent is deemed to hold certain assets as a trustee. The retrospective imposition of a trust is significant in that the relevant asset is deemed to belong to the claimant, which is of particular importance in insolvency.
A property or proprietary claim is made where the respondent holds an asset to which the claimant has an interest or entitlement, whether legal or beneficial. Where a trustee receives assets on behalf of the trust which he diverts to himself, it remains trust property and may be recovered.
Assets transferred to another in anticipation of a transaction are recoverable. Assets transferable on a contract which has failed for total lack of consideration or because the apparent contract is void, belong to the transferor and are recoverable as such.
Advantage of Proprietary Remedies
The consequence of a successful property claim is that the entitlement to the property is unconditional. Rises and falls in value are for the account of the claimant and not the defendant. A claim against the defendant personally may be defeated by a change of circumstances. In contrast, property rights are absolute.
The fact that the remedy proprietary in nature means that claimant will obtain the benefit to rise in the value of the underlying asset/benefit. Proprietary rights usually hold good against third-party.
Critically, they can usually be asserted in insolvency, giving the claimant a security right over the asset concerned, to the exclusion of ordinary creditors. Proprietary rights may generally be defeated by the third-party purchasers in good faith without notice of the underlying equitable interest.
Unravelling Property Transfer
In some cases, property may be retaken without legal action. In contrast, a personal claim for restitution will require a judicial declaration, in order to establish the right and its extent.
Where assets pass or appear to pass under a failed (void) contract, the title automatically reverts to the transferor without a court order. If the price has been part paid, the transferor may be obliged to give so-called counter restitution, refunding money is paid.
Some proprietary remedies may be exercised by notice and retaking, without a judicial order. Where a contract is rescinded due to fraud, the position may be unwound by notice to the counterparty. Rescission may re-vest title to property (such as chattels) in the transferor, subject to an obligation to make counter restitution for money received.
Proprietary claims are often available where assets are transferred in the context of a failed contract. Rescission of a contract is its avoidance or cancellation contract on some lawful grounds.
In the case of assets not transferable by delivery alone and in the case of rescission on the basis of “voidable” grounds such as mistake, misrepresentation, short or fraud, the assets do not re-vest or transfer as a matter of law automatically. However, the counterparty holds them as a nominee.
The right may be exercised out of court in some cases. A court order may be required if there is a dispute. In the case of a mere equity, a court order may be necessary. A court order is required for rectification and set aside on the grounds of undue influence.
Where a contract is voidable, such as by mistake or misrepresentation, title to the asset is not automatically revested in the transferor. However, the holder holds them as nominee or trustee for the owner, if the option to treat the transaction as avoided is exercised.
There is generally no proprietary claim where a person had been unjustly enriched by way of receipt of money. Where the receipt involves trust money, there may be a right of tracing. However, there is no general right for courts to determine that a proportion or a specific party of a person’s assets are held on trust for the claimant, simply because he has been unjustly enriched at the claimant’s expense. Proprietary claim are is available a relatively narrow category of cases.
In cases of so-called proprietary estoppel, a person is given a proprietary right where he incurs expenditure or suffers loss or otherwise acts to his detriment on the basis of representations made by the owner of a property as to the benefit he holds or will receive. Accordingly, if a person builds property on land in the expectation that it will be transferred; the owner may be estopped from denying title and may be obliged to hold an interest in the property on trust for him.
This may occur where persons have been induced to work with limited or no remuneration, on the basis that the property will be left to be them after death. In cases where this expectation is not fulfilled, the courts may be prepared to apply the principle of estoppel.
Tracing and Constructive Trusts I
In some cases where monies are paid by mistake, the recipient holds them on trust for the intended transferee. However, once money is made, it is generally not held on trust, except where the principle of tracing applies. The principle of tracing has been kept within relatively narrow bounds.
Gains made by trustees or other persons in a fiduciary position in breach of trust or duty are subject to the principle of constructive trust. The gain is regarded as the fruit of the underlying trust and the beneficiaries’ or principals have an entitlement to reclaim the proceeds as trust / their assets.
The principle extends wider than the misuse of trust assets. Gains made by a reason of breach of trust, even if not derived from the trust assets, may be the subject of a constructive trust and thereby reclaimable.
The trustee and fiduciary is bound to account for profits derived from the trust or fiduciary position, which properly belong to the beneficiaries/principals and is regarded as holding the same on trust. Tracing does not extend to all fiduciary relationships and it does not apply in all cases where there is a duty to account.
Tracing and Constructive Trusts II
The principles regarding benefits and gains made in breach of trust apply to trustees and other fiduciaries.Benefits received by fiduciary or trustee may be subject to a constructive trust in favour of the claimant.
Where payments are made ultra vires, there is a right of restitution against the payee as a general principle. There has been some support for the proposition that a proprietary remedy may be available on the basis that the asset transfer is invalid.
It is established that monies paid to corporate body ultra vires are not recoverable by way of proprietary remedy on the putative inverse principle that the company is incapable of acquiring the assets.
Constructive Trust Issues
The extent of constructive trustee remedies, against a wrongdoer / the recipient, is limited to where there is a prior trust or fiduciary relationship. Unlike the positions in other jurisdictions and despite occasional indications of a more expansive approach, there is no general remedy by way of constructive trust to recoup or recover assets from recipients, who have wrongly received them. Where the assets can be traced, a proprietary remedy may be available.
The scope of the remedy of constructive trust and tracing beyond its bounds in existing case law, may develop over time. There is significant case law in other common law jurisdictions which contemplates a wider concept of constructive trust remedy.
Monies paid by mistake are held by way of constructive trust in some case, such as where monies are paid into an account twice or are paid to the wrong person in error. There are different strands in the case law, some of which hold to the contrary.
Where a person pays money towards the improvement of land under a mistake as to ownership rights in it, or on an expectation that will obtain ownership rights in it, they may have a lien for the value of improvements.
Subrogation is the general principle by which the person may succeed to another’s rights by reason of paying off his liabilities. If a person uses another’s money to pay off a liability, that other may be subrogated to the right to the creditor who has been discharged. There must be some element of unjust enrichment in relation to the discharge.
Subrogation may occur in cases where monies have been lent to a company under a contract, which is outside its powers and which it uses to pay-off a secured or unsecured creditor. The person paying the monies is entitled to stand in the shoes of the creditor, and even in the case of an unsecured creditor, he may be allowed to succeed to his security.
Where a company borrows money outside of its power in order to discharge liabilities, the lender stands in the shoes of the creditors who have been paid off. Similarly, where a child borrows money to pay for the purchase or discharge of a mortgage on a property, the loan would be invalid under Infant Relief Act.
The lender will be subrogated to the rights of the seller of the property (under his unpaid vendor’s lien) or to the previous mortgagee which was discharged. Similarly, if a new loan is valid but a new security is not valid, the lender is subrogated to the previous valid mortgage which is paid off. In broad terms, where a liability is discharged in circumstances where unjust enrichment arises, subrogation may be available.
Scope of Subrogation I
Subrogation not be permitted to enforce unenforceable contracts. For example, where a loan is invalid under Consumer Credit Act legislation, it is unlikely to be enforceable by restitution. However, where the invalidity arises from a mistake or the technical failure of contract, restitution is likely to be available.
Subrogation is available only to the extent necessary to remedy unjust enrichment. It does not permit a windfall. Therefore, where the subrogated rights are sufficient to pay off the debt, they are exhausted.
A similar equivalent principle applies for the benefit of a bank, which credits a customer who pays off another creditor. The debt concerned may be set off by way of a principle analogous to subrogation.
Scope of Subrogation II
A guarantor/surety who pays off a guaranteed debt stands in the shoes of the creditor. The Mercantile Law Amendment Act assigns the benefit of the creditor’s rights to him together with security. The guarantor takes the benefit of securities, even if he is not aware of them or did not require them, for example in the facility for such a loan.
In some cases, where a co-owner of property pays off a mortgage on behalf of all. He is subrogated to the third-party security holder’s rights in regards to his other co-owners.
The principle of subrogation applies in the context of insurance. (See the separate section on insurance). The insured person is disallowed recovery, where the insurer indemnifies him in respect of the loss. The insurer is subrogated to the insured’s rights against third-party rights arising from the claim.