Unjust enrichment
Encyclopedia
Unjust enrichment is a legal term denoting a particular type of causative event
in which one party is unjustly enriched at the expense of another, and an obligation to make restitution
arises, regardless of liability for wrongdoing.
Definition:
1. n. A benefit by mistake or chance. Morally and ethically the one who gains a benefit that he or she has not paid or worked for should not keep it to the rightful owner's detriment. The party that received money, services or property that should have been delivered to or belonged to another must make restitution to the rightful owner. A court may order such restitution in a lawsuit brought by the party who should rightly have the money or property.
2. n. A general equitable principle that a person should not profit at another's expense and therefore should make restitution for the reasonable value of any property, services, or other benefits that have been unfairly received and retained.
A common example is when a party contracts to provide a service, but the contract is terminated prematurely due to a breach
, and the contractor unjustly receives no compensation for partial services rendered.
. A claim based on a wrong always results in an obligation to make compensation
but may additionally result in an obligation to make restitution
. For discussion of restitution for wrongs, see the page on restitution
.
At common law, a claim based on unjust enrichment can be submitted to five stages of analysis. These can be summarized in the form of the following questions:
systems such as those of England and the US have proceeded on the basis of what may be termed the 'unjust factor' approach. Traditionally, civil law
systems such as those of France and Germany have proceeded on the basis of what may be termed the 'absence of basis' approach. More recently, many common law systems have showed signs of a possible move towards the 'absence of basis' approach (see for example the law of North Dakota in the section on the United States below). Both approaches will be discussed.
The 'unjust factors' approach requires the claimant to point to one of a number of factors recognized by the law as rendering the defendant's enrichment unjust. English law clearly recognises at least the following unjust factors:
It is at least arguable that English law also recognizes the following unjust factors, but some controversy surrounds each:
'Absence of consideration' is particularly controversial because the cases that support its existence as an unjust factor can also be used to support the view that English law has begun to favour the 'absence of basis' approach (see next paragraph).
The 'absence of basis' approach does not deal in individual unjust factors. Instead it seeks to identify enrichments with no legitimate explanatory basis. Imagine that A contracts with B that A will pay $150 up front for B to clean his house. A pays the money. B's enrichment has a legitimate explanatory basis – he was paid under a valid contract. However, let us now change the example and assume that the contract was in fact void. This is discovered after A has paid the money but before B cleans the house. B's enrichment no longer has a legitimate explanatory basis so B must repay the $150 to A.
Notice that in the example just given, exactly the same conclusion would be reached using the 'unjust factors' approach. Under that approach, A would not be able to point to an unjust factor provided that the contract was valid, but could point to the unjust factor of total failure of consideration once we assume that it was void. In the vast majority of cases, a properly developed 'unjust factors' approach and a properly developed 'absence of basis' approach will reach the same result.
or in equity. There are several arguable examples in the English case law of the courts giving a proprietary remedy in an unjust enrichment claim. However, some commentators maintain that, in English law, unjust enrichment only ever triggers a personal remedy.
There are several reasons why it may be important for the claimant to seek a proprietary rather than a personal remedy. The most obvious is that showing that one is entitled to a proprietary interest in some property means that one need not compete with the defendant's unsecured creditors in the event of his insolvency
. It is also generally accepted, although with little justification, that a claimant who is entitled to a personal remedy only will be restricted to simple interest, while a claimant who is entitled to a proprietary remedy can get compound interest
. The availability or non-availability of a proprietary remedy may also have consequences for limitation periods and for the conflict of laws.
English law gives effect to restitutionary proprietary interests (assuming that it does at all) through a number of devices. One of these devices will be discussed and another two will be mentioned briefly.
The most important battleground in this controversial area of law is that of resulting trusts. One view, whose most notable proponent is William Swadling, holds that a resulting trust will arise either because of a presumed declaration of trust in the transferor's favour by the transferor (consent), or when created by a court if a trust fails (for uncertainty of objects, for example)--the so-called 'automatic' resulting trust (according to Swadling we do not know what event causes this: it 'defies legal analysis'). Either way, they do not arise in response to unjust enrichment. The opposing view, whose principal proponents have been Peter Birks
and Robert Chambers, argues the contrary, that resulting trusts arise in response to unjust enrichment. It is possible to cite English cases in support of both views. There is a good deal of discussion of presumptions in the cases, which might be thought to lend particular support to the Swadling view. However, Birks and Chambers explain that discussion by suggesting that the presumption in question is not a presumption of intention to create a trust but a presumption of lack of intention to benefit the recipient (or to make the recipient an express trustee for a third party).
Unjust enrichment is enrichment that lacks an adequate legal basis: it results from a transfer that the law treats as ineffective to work a conclusive alteration in ownership rights."
The North Dakota Supreme Court
has ruled that five elements must be established to prove unjust enrichment http://www.court.state.nd.us/court/opinions/20000191.htm:
In Massachusetts, there are some decisions denying recovery in restitution by the breaching party although this is not generally the rule in the United States.
Here are some examples:
Not all actions in restitution involve contracts. However, whenever one party confers a material benefit upon another with the reasonable expectation he will be compensated for doing so, the party conferring the benefit is entitled to restitution.
Causality
Causality is the relationship between an event and a second event , where the second event is understood as a consequence of the first....
in which one party is unjustly enriched at the expense of another, and an obligation to make restitution
Restitution
The law of restitution is the law of gains-based recovery. It is to be contrasted with the law of compensation, which is the law of loss-based recovery. Obligations to make restitution and obligations to pay compensation are each a type of legal response to events in the real world. When a court...
arises, regardless of liability for wrongdoing.
Definition:
1. n. A benefit by mistake or chance. Morally and ethically the one who gains a benefit that he or she has not paid or worked for should not keep it to the rightful owner's detriment. The party that received money, services or property that should have been delivered to or belonged to another must make restitution to the rightful owner. A court may order such restitution in a lawsuit brought by the party who should rightly have the money or property.
2. n. A general equitable principle that a person should not profit at another's expense and therefore should make restitution for the reasonable value of any property, services, or other benefits that have been unfairly received and retained.
A common example is when a party contracts to provide a service, but the contract is terminated prematurely due to a breach
Breach of contract
Breach of contract is a legal cause of action in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance....
, and the contractor unjustly receives no compensation for partial services rendered.
Determination of liability
Liability under the principle of unjust enrichment is wholly independent of liability for wrongdoing. Claims in unjust enrichment do not depend upon proof of any wrong. However, it is possible that on a single set of facts a claim based on unjust enrichment and a claim based on a wrong may both be available. A claim based on unjust enrichment always results in an obligation to make restitutionRestitution
The law of restitution is the law of gains-based recovery. It is to be contrasted with the law of compensation, which is the law of loss-based recovery. Obligations to make restitution and obligations to pay compensation are each a type of legal response to events in the real world. When a court...
. A claim based on a wrong always results in an obligation to make compensation
Damages
In law, damages is an award, typically of money, to be paid to a person as compensation for loss or injury; grammatically, it is a singular noun, not plural.- Compensatory damages :...
but may additionally result in an obligation to make restitution
Restitution
The law of restitution is the law of gains-based recovery. It is to be contrasted with the law of compensation, which is the law of loss-based recovery. Obligations to make restitution and obligations to pay compensation are each a type of legal response to events in the real world. When a court...
. For discussion of restitution for wrongs, see the page on restitution
Restitution
The law of restitution is the law of gains-based recovery. It is to be contrasted with the law of compensation, which is the law of loss-based recovery. Obligations to make restitution and obligations to pay compensation are each a type of legal response to events in the real world. When a court...
.
At common law, a claim based on unjust enrichment can be submitted to five stages of analysis. These can be summarized in the form of the following questions:
- Was the defendant enriched?
- Was the enrichment at the expense of the claimant?
- Was the enrichment unjust?
- Does the defendant have a defense?
- What remedies are available to the claimant?
Was the enrichment unjust?
There are two established approaches to this issue. Traditionally, common lawCommon law
Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...
systems such as those of England and the US have proceeded on the basis of what may be termed the 'unjust factor' approach. Traditionally, civil law
Civil law (legal system)
Civil law is a legal system inspired by Roman law and whose primary feature is that laws are codified into collections, as compared to common law systems that gives great precedential weight to common law on the principle that it is unfair to treat similar facts differently on different...
systems such as those of France and Germany have proceeded on the basis of what may be termed the 'absence of basis' approach. More recently, many common law systems have showed signs of a possible move towards the 'absence of basis' approach (see for example the law of North Dakota in the section on the United States below). Both approaches will be discussed.
The 'unjust factors' approach requires the claimant to point to one of a number of factors recognized by the law as rendering the defendant's enrichment unjust. English law clearly recognises at least the following unjust factors:
- Mistake of fact
- Mistake of law
- DuressDuressIn jurisprudence, duress or coercion refers to a situation whereby a person performs an act as a result of violence, threat or other pressure against the person. Black's Law Dictionary defines duress as "any unlawful threat or coercion used... to induce another to act [or not act] in a manner...
- Undue influenceUndue influenceUndue influence is an equitable doctrine that involves one person taking advantage of a position of power over another person. It is where free will to bargain is not possible.-Undue influence in contract law:...
- Total failure of consideration
- Miscellaneous policy-based unjust factors such as 'withdrawal within the locus poenitentiae'
It is at least arguable that English law also recognizes the following unjust factors, but some controversy surrounds each:
- Ignorance/powerlessness
- UnconscionabilityUnconscionabilityUnconscionability is a term used in contract law to describe a defense against the enforcement of a contract based on the presence of terms that are excessively unfair to one party...
- Partial failure of consideration
- Absence of consideration
'Absence of consideration' is particularly controversial because the cases that support its existence as an unjust factor can also be used to support the view that English law has begun to favour the 'absence of basis' approach (see next paragraph).
The 'absence of basis' approach does not deal in individual unjust factors. Instead it seeks to identify enrichments with no legitimate explanatory basis. Imagine that A contracts with B that A will pay $150 up front for B to clean his house. A pays the money. B's enrichment has a legitimate explanatory basis – he was paid under a valid contract. However, let us now change the example and assume that the contract was in fact void. This is discovered after A has paid the money but before B cleans the house. B's enrichment no longer has a legitimate explanatory basis so B must repay the $150 to A.
Notice that in the example just given, exactly the same conclusion would be reached using the 'unjust factors' approach. Under that approach, A would not be able to point to an unjust factor provided that the contract was valid, but could point to the unjust factor of total failure of consideration once we assume that it was void. In the vast majority of cases, a properly developed 'unjust factors' approach and a properly developed 'absence of basis' approach will reach the same result.
What remedies are available to the claimant?
It is necessary to distinguish personal remedies from proprietary remedies. A personal remedy asserts that the defendant must pay the claimant a sum of money. By contrast, a proprietary remedy asserts that some property in the defendant's possession belongs to the claimant, either at common lawCommon law
Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...
or in equity. There are several arguable examples in the English case law of the courts giving a proprietary remedy in an unjust enrichment claim. However, some commentators maintain that, in English law, unjust enrichment only ever triggers a personal remedy.
There are several reasons why it may be important for the claimant to seek a proprietary rather than a personal remedy. The most obvious is that showing that one is entitled to a proprietary interest in some property means that one need not compete with the defendant's unsecured creditors in the event of his insolvency
Insolvency
Insolvency means the inability to pay one's debts as they fall due. Usually used to refer to a business, insolvency refers to the inability of a company to pay off its debts.Business insolvency is defined in two different ways:...
. It is also generally accepted, although with little justification, that a claimant who is entitled to a personal remedy only will be restricted to simple interest, while a claimant who is entitled to a proprietary remedy can get compound interest
Compound interest
Compound interest arises when interest is added to the principal, so that from that moment on, the interest that has been added also itself earns interest. This addition of interest to the principal is called compounding...
. The availability or non-availability of a proprietary remedy may also have consequences for limitation periods and for the conflict of laws.
English law gives effect to restitutionary proprietary interests (assuming that it does at all) through a number of devices. One of these devices will be discussed and another two will be mentioned briefly.
The most important battleground in this controversial area of law is that of resulting trusts. One view, whose most notable proponent is William Swadling, holds that a resulting trust will arise either because of a presumed declaration of trust in the transferor's favour by the transferor (consent), or when created by a court if a trust fails (for uncertainty of objects, for example)--the so-called 'automatic' resulting trust (according to Swadling we do not know what event causes this: it 'defies legal analysis'). Either way, they do not arise in response to unjust enrichment. The opposing view, whose principal proponents have been Peter Birks
Peter Birks
Peter Birks QC was the Regius Professor of Civil Law at the University of Oxford from 1989 until his death. He was a Fellow of All Souls College, Oxford. He earned an LLM at University College, London...
and Robert Chambers, argues the contrary, that resulting trusts arise in response to unjust enrichment. It is possible to cite English cases in support of both views. There is a good deal of discussion of presumptions in the cases, which might be thought to lend particular support to the Swadling view. However, Birks and Chambers explain that discussion by suggesting that the presumption in question is not a presumption of intention to create a trust but a presumption of lack of intention to benefit the recipient (or to make the recipient an express trustee for a third party).
United States
The Restatement (Third) of Restitution and Unjust Enrichment states that:Unjust enrichment is enrichment that lacks an adequate legal basis: it results from a transfer that the law treats as ineffective to work a conclusive alteration in ownership rights."
The North Dakota Supreme Court
North Dakota Supreme Court
The North Dakota Supreme Court is the highest court of law in the state of North Dakota. The Court rules on questions of law in appeals from the state's district courts....
has ruled that five elements must be established to prove unjust enrichment http://www.court.state.nd.us/court/opinions/20000191.htm:
- An enrichment
- An impoverishment
- A connection between enrichment and the impoverishment
- Absence of a justification for the enrichment and impoverishment
- An absence of a remedy provided by the law
In Massachusetts, there are some decisions denying recovery in restitution by the breaching party although this is not generally the rule in the United States.
Here are some examples:
- B contracts with T to provide a year's worth of labor at a specific price P. T is to pay B for his labor at the end of the year. After 9.5 months B decides to quit the job. B sues T and recovers the fair market value of the labor he performed for T during those 9.5 months. Note that in this instance, because B is in breach of his contract with T, B cannot recover more than the contract rate for his labor. The non-breaching party is protected from paying more than the contract rate for labor. The supporting reasoning is that it would be unfair to make the party who has lived up to his end of the agreement pay more than he agreed to in the first place. However, the breaching party is afforded no such protection.
- Suppose B is a building contractor who has been awarded a contract to build a skyscraper. B hires A to handle all necessary steel erection. The contract calls for B to furnish the cranes A needs to lift the beams into position. B does not furnish these cranes to A. At first, A performs and hires cranes at his own expense but partway through the contract A stops and refuses to go further on account of B's breach. A sues B and recovers the fair market value of the services he has rendered to B thus far. As the non-breaching party, A is entitled to the fair market value of his services (what it would cost one in B's position to hire one in A's position to perform the services A has rendered to B) even if it exceeds the contract price for such services.
Not all actions in restitution involve contracts. However, whenever one party confers a material benefit upon another with the reasonable expectation he will be compensated for doing so, the party conferring the benefit is entitled to restitution.