Unjust enrichment

In law, unjust enrichment is where one person is unjustly or by chance enriched at the expense of another, and an obligation to make restitution arises, regardless of liability for wrongdoing. 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.

The concept of unjust enrichment is based upon the Roman legal maxim "no one should be benefited at another's expense" (nemo locupletari potest aliena iactura or nemo locupletari debet cum aliena iactura).

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 restitution. 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:

• 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 law systems such as those of England and the United States 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:

• Mistake of fact
• Mistake of law
• Duress
• Undue influence
• 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
• Unconscionability
• 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.

The "absence of basis" approach does not deal in individual unjust factors. Instead it seeks to identify enrichments with no legitimate explanatory basis. Example: Imagine that A contracts with B that A will pay $150 up front for B to clean his house. A pays the money, and 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 law 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).

United States

The Restatement (Third) of Restitution and Unjust Enrichment states: 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:

• 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

Effectively, the civil law doctrine is now in effect in North Dakota, as it previously was in Louisiana and in Puerto Rico; both of which are mixed jurisdictions.

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.

United Kingdom

The English unjust enrichment law was reviewed by the Supreme Court of the United Kingdom in 2015. The court held that in the circumstances of the case, involving failure on the part of a firm of solicitors to register a charge, in a mortgaging transaction for the purchase of freehold property (for occupation as a family home), using the proceeds of the sale of another such property, the appropriate equitable remedy was that the lending bank was subrogated to the unpaid seller’s (or "vendor's") lien over the freehold, entitling the bank to recover, by way of "restitutionary subrogation", from an innocent party who had been given ownership of the property.

Examples

Neal Townsend contracts with Keith Knowlton to provide a year's worth of labor at a specific price P. Keith is to pay Neal for his labor at the end of the year. After 9.5 months Neal decides to quit the job. Neal sues Keith and recovers the fair market value of the labor he performed for Keith during those 9.5 months. Note that in this instance, because Neal is in breach of his contract with Keith, Neal 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 again, that Neal is a building contractor who has been awarded a contract to build a skyscraper. Neal hires Keith to handle all necessary steel erection. The contract calls for Neal to furnish the cranes Keith needs to lift the beams into position, but Neal does not furnish these cranes to Keith. At first, Keith performs and hires cranes at his own expense but partway through the contract Keith stops and refuses to go further on account of Neal's breach. Keith sues Neal and recovers the fair market value of the services he has rendered to Neal thus far. As the non-breaching party, Keith is entitled to the fair market value of his services (what it would cost one in Neal's position to hire one in Keith's position to perform the services Keith has rendered to Neal) 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.