Legal Remedies

Restitution

Restitution refers to the interest in the benefits that one party (usually the injured party) has conferred upon the other party, (usually the breaching party).   (See, Rest.2d Contracts, §373) However, the mere fact that one party confers a benefit on another, however, is not of itself sufficient to require the other to make restitution. Retention of the benefit must be unjust.

Restitution is available to a party to an agreement where he performs services for the other believing that there is a binding contract. In order to be granted restitution, plaintiff must demonstrate that defendant received a benefit, that by receipt of that benefit he was unjustly enriched at her expense, and that circumstances were such that in good conscience defendant should make compensation. A benefit may be any type of advantage, including that which saves the recipient from any loss or expense.

Unjust Enrichment

A person who has been unjustly enriched at the expense of another is required to make restitution to the other.  In the absence of a contractual agreement, a trial court may require an individual to make restitution for unjust enrichment if he has received a benefit which would be unconscionable to retain. A person may be deemed to be unjustly enriched if he (or she) has received a benefit, the retention of which would be unjust. (Restatement, Restitution, §  1, Comment a)  A person confers a benefit not only where he adds to the property of another, but also where he saves the other from expense or loss. (Restatement, Restitution, §  1(b).)

The doctrine of unjust enrichment is based upon the principle that one should not be permitted unjustly to enrich himself at the expense of another but should be required to make restitution of or for property received, retained or appropriated.

The general rule is that a payment of money under a mistake of fact may be recovered provided that such payment will not prejudice the payee. It is considered unjust enrichment to permit a recipient to retain money paid because of a mistake, unless the circumstances are such that it would be inequitable to require its return. This is so notwithstanding the fact that the mistake is unilateral and a consequence of the payors negligence, or that the payee acted in good faith. "A person who has conferred a benefit on another by mistake is not precluded from maintaining an action for restitution by the fact that the mistake was due to his lack of care."  (Restatement of Restitution § 59.)  Equity has long allowed a person who pays money to another under the mistaken belief a valid contract exists to recover that money when the contract is subsequently canceled for fraud or mistake and the rights of innocent parties have not intervened.  (Restatement of Restitution §§ 17, 28.)

Waiver of Tort and Suit in Assumpsit

In cases where the tortfeasor has benefitted by his wrong, the plaintiff may elect to waive the tort and bring an action in assumpsit for restitution. Such an action arises out of a duty imposed by law devolving upon the defendant to repay an unjust and unmerited enrichment.

Constructive Trust

A constructive trust is one that arises by operation of law against one who, by fraud, wrongdoing, or any other unconscionable conduct, either has obtained or holds legal right to property which he ought not to, in equity and good conscience, hold and enjoy.  (See, Cal.Civ.Code § 2224)  A constructive trust is an appropriate remedy against unjust enrichment.  Unjust enrichment is an essential fact in nearly every case where a constructive trust is imposed.  However, imposition of a constructive trust is not necessarily dependent on a finding that the person whose property is subjected to it has committed some impropriety, but may rest as well upon a finding of unjust enrichment arising from other circumstances that "render it inequitable for the party holding the title to retain it."  (Starleper v. Hamilton 106 Md.App. 632, 666 A.2d 867 (1995).)

The proper basis for impressing a constructive trust is to prevent unjust enrichment.  (Restatement of Restitution § 160, comment c.)  "Where a person wrongfully disposes of property of another knowing that the disposition is wrongful and acquires in exchange other property, the other is entitled to enforce a constructive trust of the property so acquired."  If the property so acquired is or becomes more valuable than the property used in acquiring it, the profit thus made by the wrongdoer cannot be retained by him; the person whose property was used in making the profit is entitled to it."  (Restatement Restitution § 202.)  When property is given or devised to a defendant in breach of a donor's or testator's contract with a plaintiff, equity will impose a constructive trust upon that property in the hands of the recipient even though (1) the transfer is not the result of breach of a fiduciary duty or an actual or constructive fraud practiced upon the plaintiff, and (2) the donee or devisee had no knowledge of the wrongdoing or breach of contract.  (Jones v. Harrison, 250 Va. 64, 458 S.E.2d 766 (1995 ).)

Equitable Lien

An equitable lien is a creature of equity based on the equitable doctrine of unjust enrichment, and is a right to have a fund or specific property applied to the payment of a particular debt.  A general doctrine of equity permits imposition of an equitable lien where the claimant's expenditure has benefited another's property under circumstances entitling the plaintiff to restitution.  Where debts or claims against property are paid in good faith by another on the express or implied request of the owner of the property, the one so paying is entitled to an equitable lien on the property for his reimbursement.  However, a person is not entitled to such lien if he voluntarily pays the debts of another without such other's request.   An equitable lien is good as against all persons who acquired an interest with knowledge or notice of the equitable lien but would not be good as against one who acquired an interest without such knowledge or notice.  If property which is subject to an equitable lien is transferred to a third person who has notice of the equitable lien or who does not give value, the equitable lien can be enforced against the property in the hands of the third person.  On the other hand, an equitable lien like other equitable interests, is cut off if the property is transferred to a bona fide purchaser.  (Restatement of Restitution § 161., comment, d. ) Thus, if a transferee who pays value of the property, has notice of the lien, he takes the property subject to the lien.  A person has notice of facts giving rise to a constructive trust if he knows the facts or should know them.

An equitable lien may also be the proper remedy in a case in which the defendant has used plaintiff's property to purchase other property and the other property has decreased in value.  Neither an equitable lien nor a constructive trust is available against a bona fide purchaser for value.  (Restatement of Restitution § 172.)

Equitable Lien Distinguished From Constructive Trust

A constructive trust gives complete title to the plaintiff, the equitable lien only gives him a security interest in the property, which he can then use to satisfy a money claim.  Thus an equitable lien may be "foreclosed" by selling the property and applying the proceeds to payment of the plaintiff's claim.

A constructive trust or an equitable lien can be imposed on the product of wrongfully obtained property even when that product has been transferred to an innocent donee, since the equitable interests that attached to the the product before it was transferred are not cut off by the transfer.  (Restatement of Restitution § 168.)

Tracing of Proceeds

 Where a person wrongfully disposes of property of another knowing that the disposition is wrongful and in exchange therefore other property is transferred to a third person, the other can enforce a constructive trust or an equitable lien upon the property, unless the third person is a bona fide purchaser.  (Restatement of Restitution § 208(1).)   A bona fide purchaser is a person "who took in good faith and for reasonably equivalent value." (Cal.Civ.Code § 3439.08(a).)  The tracing doctrine operates against innocent transferees who receive no legal title and transferees who are not bona fide purchasers and receive legal but not equitable title. If either type of transferee exchanges the acquired property for other property, or receives income from the acquired property, tracing may apply.  (See Restatement of Restitution §§ 204, 205.)  Tracing of proceeds into the hands of third, fourth, fifth, etc. party transferees is permitted under the Uniform Commercial Code.

Priority Over Other Creditors

In litigation that grew out of the criminal career of Charles Ponzi, (namesake of the "Ponzi Scheme")  the U.S. Supreme Court held that certain creditors of Ponzi could have followed their money wherever they could trace it and have asserted possession of it on the ground that there was a resulting trust in their favor, or they could have established a lien for what was due them in any particular fund of which he had made it a part without violating any statutory rule against preference in bankruptcy.  However, they could not rescind their contracts and obtain preference over other creditors.  (Cunningham v. Brown, 265 U.S. 1, 44 S.Ct. 424, 68 L.Ed. 873 (1924).)

Subrogation

Subrogation is the substitution of another person in the place of a creditor, so that the person in whose favor it is exercised succeeds to the right of the creditor in relation to the debt.  So, one whose property is applied by others to the satisfaction of a debt or encumbrance is subrogated to the rights of the creditor or encumbrancer, and subrogation may also be allowed where funds to which one is equitably entitled have been applied to the payment of the debts of another, in which case the former is subrogated to the position of the latter.  "Where property of one person is used in discharging an obligation owed by another or a lien upon the property of another, under such circumstances that the other would be unjustly enriched by the retention of the benefit thus conferred, the former is entitled to the subrogated to the position of the obligee or lien-holder."  (Restatement Restitution § 162.)  Restitution is not normally available to one who is acting voluntarily or officiously in paying the debt of another.  However, a person satisfying the debt of another is not acting voluntarily or officiously if he has an interest to protect.   An economic interest may be sufficient. The extent or quantity of the subrogee's interest which is in jeopardy is not material.  If he has any palpable interest which will be protected by the extinguishment of the debt, he may pay the debt and be entitled to hold and enforce it just as the creditor could.  (Nappi v. Nappi Distributors,   691 A.2d 1198 (1997 Me.)

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