Restitution Claims
General
The law on restitution is not fully coherent. Certain circumstances are well established as raising an entitlement to restitution. Most are based on unjust enrichment. The courts have sought to evolve coherent principles of unjust enrichment in recent times. See the section on unjust enrichment.
Restitutionary remedies also arise outside unjust enrichment. Proprietary remedies such as tracing, constructive trusts and subrogation are restitutionary in nature.
This section deals with some well recognised classes of cases, where restitutionary principles allow recovery. Many arise in the context of failed contracts.
Other sections expand on these categories and deal with other types of case where restitution principles allow for recovery.
Requested Benefits
Where a person requests a benefit he implicitly agrees to pay a reasonable price. If for any reason there is no contract the person must pay the reasonable value of the benefit requested and received.
Quantum Meruit applies when services were provided without an agreed price. Quantum Valebat applies where goods were sold without an agreed price.
There is a claim against the recipient of the benefit based on unjust enrichment. It accrues to the person who has provided the goods or the service.
Monies Had and Received
Monies received which belong to another can be recovered by that other, as monies had and received. As with quantum meruit, it is personal claim against the recipient,based on unjust enrichment.
An action for monies had and received may arise where the claimant’s money is held by the defendant or where a third party has paid money to the defendant for the purpose of being passed to the claimant or in some cases where monies have been paid by mistake or under compulsion
Where there is no contract, money paid by mistake is readily recovered. Money paid by mistake is presumptively recoverable as money had and received. The same principle applies to monies paid by mistake to a third party at another’s request.
Payment by mistake may no longer be recoverable against a bona fide recipient and a recipient who has changed his position to his detriment in reliance on the receipt.
Benefits Received
Benefits received by way of unjust enrichment may be in any form. The most obvious example is where money, property or assets are received. However, there may be enrichment where expenses are foregone, services are received and in some cases, where there is improvement or enhancement to the value of an asset.
In a sense, a service does not enrich in the same way as payment of money or the receipt of an asset. However, modern restitution law accepts that the provision of services may constitute enrichment. If something of value is requested and freely accepted it is generally regarded as a benefit and an enrichment. There are views to the contrary.
Measure & Loss
The measure of enrichment will be straightforward where money or property are transferred. In the latter case, it will be generally the value of the transferred asset. In the case of service, it may be the value of the service or the cost saved.
In some cases, the measure of enrichment is not the amount of the gain. There may be a limitation on the amount to be repaid, due to subjective devaluation or a change of position.
The gain must be unjust. The claimant need not necessarily show that he has lost in financial terms. In fact, he may have recouped what is lost elsewhere or have suffered no net loss. There may be, nonetheless, be unjust enrichment that ought to be reversed.
The fact that more than one party has suffered the same loss on account of the defendant’s actions, does not preclude a claim for unjust enrichment for the whole amount. In more than one claimant has the same claim, then each may have to account for the other, if both take action. If one only takes action, then he is entitled to recover the benefit received.
Mistake & Contracts
Restitution is allowed where a mistake has negated a contract. Traditionally the error had to be fundamental in order to allow negation of contract and recovery. Where property is transferred by mistake, the transfer of property may be invalid if the underlying contract is invalidated.
Most flaws in contracts, such as undue influence, misrepresentation and some classes of mistake, do not negate the contract but make it voidable. Where a transaction is subsequently avoided there is a right of restitution of the property against the transferee.
In some cases, the mistaken transferor of property may have the benefit of a constructive trust. This may be available where the money was paid for a very specific purpose. Sometimes in these cases, the Courts decide that the recipient must hold the money on trust. This gives a proprietary remedy to the payer.
Limits to Recovery
Historically, recovery may not be had for a mistake of law. The House of Lords in the UK has reversed this rule.
If a person takes the risk of a mistake by the terms of the contract, he will not be entitled to recover. Terms and conditions may provide that errors must be dealt with within certain time limits.
There are limits to recovery in restitution, where the transferee has transferred the asset. Recovery may be denied where the payment is to a third party who is a bona fide purchaser. This implies that the recipient is not aware of the invalidating factor and has given value (not a gift).
Recovery may also be denied where the transferee has changed his or position in reliance on the transfer. The principles are similar to those of estoppel.
In Ireland, the old rule that recovery may not be had for a mistake of law may still apply. The House of Lords in the UK has reversed this rule.
Duress
Monies paid under duress may be recoverable. Generally, the threat must be against the payer. More difficult questions arise if the threat is against a third party.
Difficult questions may arise as to whether the unlawful threat caused the payment. If however, the payer has acted unreasonably or obviously foolishly they may not be entitled to recover.
Monies paid under threats of violence are recoverable. In the case of physical duress, the transfer of property is likely to be void. No title passes. Monies paid and assets transferred under threat of violence or harm are recoverable.
In the case of economic duress, it is likely that the transfer of property is voidable at the option of the transferor. This means that a bona fide purchaser may acquire good title before the contract is avoided. It becomes too late to avoid the contract.
In the case of services rendered under duress, a claim for reasonable payment would be likely. In the case of improvements to property, a lien may be allowed.
Lawful Acts
A threat to commit a civil wrong or breach of contract presumptively amounts to duress and allows recovery of benefits. This would be the case even if the person is acting in good faith.
Duress does not generally extend to threats of lawful conduct. The presumptive position is that if a person is entitled to do something he is entitled to keep gains thereby made.
Some case law supports the position that threats of a lawful act might justify restitution where
- the defendant had no reasonable belief that the duress was reasonable
- the defendant acted in bad faith for the purpose of harming the claimant.
Threats of criminal prosecution generally may constitute duress. An agreement to compromise a prosecution is unlawful at common law. Threats of civil proceedings of themselves are insufficient to constitute duress.
Many threats in relation to legal rights may be legitimate and bona fide. For example, in a contractual action, a person may threaten a course of action which technically is a breach of contract.
Generally, benefits rendered in response to a demand by litigation or threats are irrecoverable. The threat of litigation must be in good faith.
Undue Influence
Undue influence may arise where a person abuses a position of trust. Where a presumption of undue influence arises either by means of a relationship, monies and benefits which pass, may be required to be returned.
A relationship of trust is presumed to arise in the case of solicitor and client, doctor and patient, religious office holder and follower, trustee and beneficiary and parent and child. Benefits can be recovered unless they are proved to have been rendered voluntarily and independently.
Apart from this, where an actual relationship of trust is shown, it must be proved that any benefit given is voluntary. Proof of independent legal and other sufficient advice is generally desirable.
Unconscionable Bargains
In Ireland, there is a further category of contract negation, in the case of unconscionable bargains. This may arise where an exchange is patently unequal, where the person undertaking the transaction lacked education or was very vulnerable so as to be unable to look after his interests and had no independent advice.
Sharp practice is usually present, although it is not necessarily essential if it is obvious that a reasonable person would not have consented, if the matter was properly considered. Cases of this nature very often involve the transfer of land at undervalue or no value between a vulnerable sometimes older person and another in a position of influence.
Proprietary Claims I
Restitution may involve the recovery of property belonging to the claimant. A distinction is made between a void and a voidable contract. A void contact does not pass title. A voidable contract is provisionally valid until steps are taken to avoid it.
Property based claims are not restitution claims in the strict sense. For example, they will not be defeated by some change in circumstances or unjust factor. Property, where it exists, is absolute. If an asset belongs to the claimant it will be returned subject to limitations of the types above as to purchase by an bona fide purchaser.
Most equitable property claims are lost, if monies or assets are received by a bona fide purchaser, without notice of the claim. See the section in relation to tracing, which is an equitable remedy. Similarly, constructive trusts which are imposed, in order to do justice, and the principle of salvage, creates equitable rights which may be lost in the above circumstances.
Proprietary Claims II
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.
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 of 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.
Flawed Title
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 transactions 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 an earlier better title to recover that asset by virtue of his title or a constructive trust.
Constructive Trust
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 payments on claims. They succeed to the insured’s rights once they have paid out on the insurance policy.
When 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 it 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.
Free Acceptance I
Where benefits are freely accepted there may be a right of recovery of a reasonable sum on a so-called quantum meruit (what is deserved) basis. There are limiting factors. There cannot be a forced exchange. There may no liability, where there is no opportunity to reject it.
The mere giving of unsolicited benefits and services by itself does not give a right to restitution. There must be some further factor. An “incontrovertible” benefit may constitute the requisite additional factor.
The defendant’s subjective circumstances are relevant as to whether and to what extent the enrichment/benefit is unjust. Where the objective benefit is not such to the recipient, he or she subjectively devalue it, if is demonstrably worth less or nothing to him. If the benefit is incontrovertible, such as the case with money, then subjective devaluation does not apply.
A further form of free acceptance is advantage taking. If a person unlawfully or surreptitiously takes advantage it is generally assumed that they must pay a reasonable sum. A fare dodger or person entering without paying would be obliged to pay a reasonable sum for the advantage taken. In a sense, this is simply restitution of a wrong that has been committed.
Free Acceptance II
Free acceptance may apply where benefits are rendered at the request of the defendant in a non-contractual but equally in a non-gift /gratuitous way. If, for example, A requests B to do work and B does it, restitution will be usually available.
If a person undertakes work unrequested and the benefit of this work is taken up and accepted without a contract, the person concerned is usually entitled to a reasonable sum. The principle may apply where services are provided by an agent and the person later builds on the work of the agent to undertake an alternative transaction.
However, the principle does not go as far as to hold that a contract can be imposed by silence. There must be some specific factor to make it unjustifiable that the benefit is retained.
Consumer credit legislation allows consumers to keep unrequested benefits in certain circumstances.
Acquiesence
If a person mistakenly delivers goods to another, the latter cannot be forced to purchase. If he accepts and uses them, he may be obliged to pay their fair value where there is no forced exchange.
Services rendered by mistake and accepted are presumptively subject to restitution. Generally, this takes the form of payment for the value of the services. Pragmatic considerations arise. Mistaken payments of money can generally be reversed.
However, the provision of services cannot be reversed but may be the subject of payment only. Services done such as repairing a car without request or acceptance are a fait accompli and are not the subject of restitution where unrequested.
Acquiesence / Taking Advantage
Restitution may be available where a benefit which, while unrequested is taken up or acquiesced in by the recipient at the time or after the event. Acquiescence is a halfway house between acceptance and rejection. In this case, if a person stands by and lets the benefit happen.. The Courts may decide on an equitable basis that there should be restitution.
Restitution may be available where the defendant deliberately and conscionably takes advantage of something supplied or done by someone else. This may occur where somebody takes a benefit knowing that it should be paid for.
If a person lets another person improve his property knowing the position, he may be held to be estopped from denying the benefit and the persons providing the benefit may be entitled to a lien for improvement. Proprietary estoppel governs much of this area.
Limits
There must be a free choice by the defendant to accept the benefit. It must be known not to be provided free. Services rendered or goods sent under protest cannot found a claim for free acceptance.
The principle must not turn gifts into sales. If the person had no reason to believe the matter was intended to be charged for, then recovery will not lie.
Where the person has no reasonable opportunity to refuse a benefit, restitution will not usually arise. Unless guilty of a specific wrong such as breach of third party rights, one is entitled to do what one wants with one property. The principle of free acceptance must not inhibit the recipient from arranging his affairs and using his property as he wishes.