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.
ADVERTISEMENT
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.)
Legal Remedies 101