(I) Introduction to Unjust Enrichment: the Nature of the Subject

Restitution

Professor Lionel Smith, Winter 2008, Monika Rahman

I. Introduction

(i) Introduction to Unjust Enrichment: The Nature of the Subject

Lord Denning, “Book Review” (1967), 83 LQR 277 (CBp.3)

Deglman v. Guaranty Trust Co. of Canada, [1954] SCR 725 (CBp.5)

(ii) Historical Development

Peel (Regional Municipality) v. Canada, [1992] 3 SCR 762 (CBp.9)

(iii) Structure of the Subject

Lionel Smith, “The Province of the Law of Restitution” (1992) 71 Can. Bar. Rev. 672 (CBp.29)

Rosenfeldt v. Olson (1986), 25 DLR (4th) 472 (B.C.C.A.) (CBp.42)

(iv) The Canadian Approach

Garland v. Consumers’ Gas Co. (2004), 237 DLR (4th) 385 (SCC) (CBp.262)

Kingstreet Investments Ltd. v. New Brunswick, [2007] 1 S.C.R. 3 (online)

II. Juristic Reasons

(i) Donative Intent/Gift

(a) Conditional Intent

Clarke v. Moir (1987), 82 NSR (2d) 183 (CBp.194)

(b) Unconscientious Receipt

Pettkus v. Becker, [1980] 2 SCR 834 (CBp.237)

(ii) Contract

(a) Never Made Because of Illegitimate Pressure or Doesn’t Materialize

Stoltze v. Fuller, [1939] SCR 235 (CBp.122)

Magical Waters Fountains Ltd. v. Sarnia (City) (1990), 74 OR (2d) 682 (CBp.198)

Magical Waters Fountains Ltd. v. Sarnia (City) (1992), 8 OR (3d) 689 (CBp.204)

(b) Unenforceable; Voidable

Ennis v. Klassen, [1990] 40 DLR (4th) 321 (CBp.109)

(d) Discharge for Breach: Money Paid

Palachik v. Kiss, [1983] 1 SCR 623 (CBp.216)

Rover Intl. Ltd. v. Cannon Film Sales, [1989] 3 All ER 423 (CA) (CBp.222)

(e) Discharge for Breach: Services Rendered

Sumpter v. Hedges, [1898] 1 QB 673 (CA) (CBp.228)

Kemp v. McWilliams (1978), 87 DLR (3d) 544 (Sask CA) (CBp.229)

Campbell, Albo, Low Ltd. v. Black (1995), 26 OR (3d) 111 (CBp.231)

(iii) Disposition of Law

Central Guaranty Trust Co v. Dixdale Mortgage Investment (1994), 24 OR (3d) 506 (CBp.87)

Brook’s Wharf and Bull Wharf Ltd v. Goodman Bros, [1936] 3 All ER 696 (CBp.159)

(iv) Other Valid Obligation

Matheson v. Smiley, [1932] 2 DLR 787 (Man C.A.) (CBp.178)

(v) Risk-Taking

Enron Mortgage Corp. (Trustee of) v. Enron (1998), 53 BCLR (3d) 24 (CBp.185)

Owen v. Tate, [1976] QB 402 (CA) (CBp.246)

(vi) Evaluation of Juristic Reasons

Lionel Smith, “Public Justice and Private Justice: Restitution after Kingstreet” (WebCT)

III. Enrichment of the Defendant

(i) Objective Benefit

(ii) Subject Devaluation

(iii) Overcoming the Plea of Subjective Devaluation: Tests of Enrichment

(a) Request and Free Acceptance

Kuny v. Wigle, [1994] AJ no. 331 (Prov. Ct.) (CBp.274)

Brisebois v. Modern Music Co. (1993), 50 ETR 305 (CBp.276)

(b) Incontrovertible Benefit

BP Exploration Co. (Libya) v. Hunt (No. 2), [1979] 1 WLR 783 (QB) (CBp.280)

Gidney v. Shank (1995), 101 Man. R (2d) 197 (CBp.281)

IV. Corresponding Deprivation

(i) Introduction

(ii) Two-Party Paradigm

Payer v. Peerless Plating Rack Co. (1994), 19 OR (3d) 105 (CBp.298)

(iii) Three-Party Complications

(a) Plaintiff Deprived by Reimbursing a Third Party

R v. M. Geller Inc., [1963] SCR 629 (CBp.302)

(b) Interceptive Subtraction

Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1 SCR 426 (CBp.304)

Furncan Marine Ltd v. Ship MV Woodlands (Cargo Owners) (1994), 81 FTR 278 (CBp.319)

Giffen, Lee & Wagner v. Zellers Ltd. (1993), 15 OR (3d) 387 (CBp.326)

V. Personal or Proprietary Restitution

(i) Obligation vs. Constructive Trust

Peter v. Beblow, [1993] 1 SCR 980 (CBp.335)

(ii) The Domestic Context

VI. Defences

(i) Introduction

(ii) Change of Position

Rural Municipality of Storthoaks v. Mobil Oil, [1976] 2 SCR 147 (CBp. 367)

Lipkin Gorman (a firm) v. Karpnale Ltd., [1991] 2 AC 548 (CBp. 370)

Garland v. Consumers’ Gas Co. (2004), 237 DLR (4th) 385 (SCC) (CBp.373)

RBC Dominion Securities Inc v. Dawson (1994), 111 DLR (4th) 230 (Nfld CA) (CBp.374)

Kenora (Town) Hydro Electric Commission v. Vacationland Dairy Co-operative Ltd., [1994] 1 SCR 90 (CBp.381)

Review

I. Introduction

(i) Introduction to Unjust Enrichment: The Nature of the Subject

January 8, 2008

Hypothetical: a lady is a widow and her husband has recently passed away. She finds a life insurance policy (a contract in which payments are made to beneficiary upon death). Contract provided for payment of $1000. She presents policy to insurance company. When she is about to leave, employee of company calls up the file and he finds out that the policy had lapsed; no one had paid the premiums required by the policy. He yells “wait! We don’t owe you any money at all.” (Based on facts ofKelly v Solari (1841) 152 ER 24).

Question: In a pre-legal way, does she have to give back the money?
Arguments for widow: reliance, good faith, mistake of the teller, ownership of money has passed along to her.
Arguments for insurance: widow has no legal right to the money – no special rules apply to widow. She is still in the office; she has not left. Therefore if she gives back the money she is no worse off than if she walked in. She has suffered disappointment, but is no worse off financially.
Question: does she have an obligation to return the money; does she now owe them $1000.
What if she leaves money and hands over money to a charity? She no longer has the money. What if she accumulates debt prior to picking up the money thinking she was going to get the money? In these cases she is now going to be worse off financially.
LS: She did nothing legally wrong and we thus have no normative ammunition t make her worse off. If the connection is strong enough we may say that if she now gives the money she will not be worse off.
Australian legal thinkers often argue that unjust enrichment is simply about unconscionability. But this only makes sense if she has an obligation to give the money back; if she did not have to give the money back there would be nothing wrong with keeping it. Explaining restitution in this way does not tell us where the obligation comes from.
Most people agree that the obligation does not necessarily arise out of any breach of contract or any wrongdoing.
Deglman v. Guaranty Trust Co. of Canada (p.7):
The nephew could not enforce the promise that was made to him. However, the aunt had received the benefit of the work the nephew had done. Work cannot be given back like property, but the nephew recovered the value of the work he had done. He did not enforce the promise, but he did establish that his aunt was under an obligation of restitution imposed bylaw, not by consent.
The effect is that the aunt (actually her estate) ends up no worse off: she received his work worth $3,000 and had to give him $3,000 back. There is a contract in some sense (though unenforceable) and something goes wrong with it. One side has performed and the other has not; contract was frustrated. He is suing for the value of the house, but this action fails because of statute. The court cannot therefore enforce promise that was made for house. He gets the value of his services instead. Cannot be understood as enforcing an expectation interest (a contract) since he did not get what was agreed to, but rather the value of the services. Giving him his expectation interest would be running counter to the legislative or statutory interests (statute of fraud) that says contract is unenforceable. Giving expectation interest comes to close to giving effect to the contract.

Storthoaks and Lipkin Gorman (p.367-372):
In some cases, particularly where the defendant has parted with wealth in reliance on the validity of the enrichment that later turns out to be an unjust enrichment, we can see that the defendant would be worse off if full restitution was available. Unless a defendant has committed a legal wrong, there is generally no justification for making him or her worse off; hence the claim is lost to that extent. Note that this means that the loss is borne by the plaintiff. In some cases this may, however, justify another claim by the plaintiff: the plaintiff might be granted a claim against a donative recipient.
The mere fact that the moneys were spent does not by itself make the defendant worse off. The defendant must have incurred a detriment.
Defendant must prove that they so altered its position as a result of the receipt of the payments that it would be inequitable to require it to pay.
Bona fide change of position as a defence to claims in restitution: where an innocent defendant’s position is so changed that he will suffer an injustice if called upon to repay, the injustice of requiring him to do so outweighs the injustice of denying the plaintiff restitution. Ex. If the plaintiff pays money to the defendant under a mistake of fact, and the defendant then, acting in good faith, pays the money or part of it to charity, it is unjust to require the defendant to make restitution to the extent that he has so changed his position.
Restitution is different than estoppel in that requirement of a representation in restitution is not necessary.
LS: Lipkan Gorman pleaded as a case of “money had and received” – we see them using old language and fitting facts within traditionally recognized categories of recourse for UE (common counts once used in 1600s - see below for more details on common counts.

Lord Denning, “Book Review” (1967), 83 LQR 277 (CBp.3)

When Denning first started in the law, no one had ever heard of Restitution, but everyone knew about “the money counts” – money had and received, money paid, and quantum meruit
But, “At length, judges began to perceive that, beneath all the old cases, there was concealed a broad principle that no person should be allowed unjustly to enrich himself at the expense of another.”
K and tort don’t cover all causes of action – Restitution is the third category
Law and equity have for 2 centuries their different ways of preventing unjust enrichment.
CML had money counts or implied Ks
Equity had constructive trusts or fiduciary relationships
The book Denning is reviewing draws law and equity together as one coherent whole in the field of Restitution – “At last the fusion of law and equity is seen to work.”

Deglman v. Guaranty Trust Co. of Canada, [1954] SCR 725 (CBp.5)

Jurisdiction
Facts / While attending technical school in Ottawa at age of 20, nephew lived with his aunt (Laura Constantineau Brunet) on Besserer Street. Aunt made promise for the transfer of her house if the nephew “would be good to her and do such services for her as she might from time to time request during her lifetime”. The nephew did do the services. Agreement failed for lack of formality (according to s.4 of the Statute of Frauds, a contract for sale of land must be in writing) which could not be saved by the judicial exception for what is known as “part performance.”
Issues / Can the nephew be compensated for unjust enrichment?
Holding / Yes.
Reasoning / Rand J (+2):

The facts here are the classical case against which the Statute was aimed. The truth of the facts are irrelevant. Equity intervenes only in circumstances that are no present here.
However, nephew can recover for services rendered on the basis of a quantum meruit since services were not given gratuitously.
“The statute in such a case does not touch the principle of restitution against what would otherwise be an unjust enrichment of the defendant at the expense of the plaintiff... it would be inequitable to allow the promisor to keep both the land and the money and the other party to the bargain is entitled to recover what he has paid. Similarly it is in the case of services given.”

Cartwright J (+3):

I agree with my brother Rand that the rspdt is entitled to recover the value of services rendered. This right is based not on the oral contract (i.e. obligation by consent) but on an obligation imposed by law.
Lord Wright said in Fibrosa Spolka (1943): “It is clear that any civilized system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is to prevent a man from retaining the money of or some benefit derived from another which is against conscience that he should keep....”
The obligation belongs to a third category (restitution or quasi-contract) – i.e. distinct from K and tort, but resembling K.
Challenges reasoning in old cases – where there is an express K that turns out to be unenforceable by reason of Statute of Frauds, no other K can be implied from the doing of acts in performance of the unenforceable K.

Comments / Restitution means giving back. Restitution of services cannot be made specifically; it must always be made in money. Note that the aunt did not commit any legally wrongful act since the promise was unenforceable.
In this case, the court had to consider whether the Statute of Frauds excluded any claim in unjust enrichment. This kind of question arises frequently in UE caes. Whenever an UE issue arises because of a statutory imperative, the question also arises whether the legislature intended to exclude any claim in UE. Intention almost always has to be gathered by inference.

Note from Smith on WebCT (re readings for January 8, 2008):

In today's class, we discussed a hypothetical based on Kelly v Solari (1841) 152 ER 24. I was very pleased with the quality of the discussion. Although we did not discuss the assigned readings, the cases you read are direct illustrations of the principles we discussed.

In Deglman, the nephew could not enforce the promise that was made to him. However, the aunt had received the benefit of the work the nephew had done. Work cannot be given back like property, but the nephew recovered the value of the work he had done. The effect is that the aunt (actually her estate) ends up no worse off: she received his work worth $3,000 and had to give him $3,000 back.

You also read extracts from Storthoaks and Lipkin Gorman. In some cases, particularly where the defendant has parted with wealth in reliance on the validity of the enrichment that later turns out to be an unjust enrichment, we can see that the defendant would be worse off if full restitution was available. Unless a defendant has committed a legal wrong, there is generally no justification for making him or her worse off; hence the claim is lost to that extent.

Note that this means that the loss is borne by the plaintiff. In some cases this may, however, justify another claim by the plaintiff: as we touched on in class, the plaintiff might be granted a claim against a donative recipient.

January 10, 2008

Slides on WebCT

Last class there was a good discussion about the mistaken payment problem with a widow.

Implications for tort
The person who becomes liable does so without having done anything that counts as a legal wrong.
There is no legal wrong that triggers the duty to make restitution.
Could argue that if you’ve received a mistaken payment, it’s wrong not to give it back.
Could say this is all about unconscionability, which is what some distinguished Australian scholars say. This only makes sense if the widow has an obligation to give the money back. You can’t decide her conduct is blameworthy unless you’ve already decided she has to give the money back.
Can’t explain that she has to give the money back because she has done something wrong, then she’s done something wrong because she hasn’t given the money back – going in logical circles
Difficult to explain an obligation under law that does not imply any wrongdoing

E.g. Degelman-like Fact Pattern:
There was a contract in one sense, and then something goes wrong with it. One party commits a serious enough breach that the K is discharged. One side has performed, however. Or the K was frustrated, for e.g.
In these cases we’ll be thinking about restitution claims.
Party sues for the value of the promise – value of the house. Unenforceable b/c of the statute of frauds.
It’s one thing to say can’t enforce her side of the bargain, but now the question is can I get back what I did – are we going to let her keep the value of my performance? The performance was only received on the basis of the K’l oblgn.
Doesn’t make sense to have a clause that says “if this K is unenforceable, we will return the value of the performance” because if the K is unenforceable, this clause is unenforceable too!
So even if we’re working in a K’l setting, it doesn’t help.

E.g. Life insurance claim case:
There’s no defence the defendant can raise along the lines of the dft’s own good faith or innocence. What if it was the plaintiff’s own carelessness that led to the unenforceability of the K?
Mont-Royal case and other readings introduce the defence of change in position

(ii) Historical Development

If we look at the historical development of the common law, we’ll understand why this area of law hasn’t had a long tradition. Let’s picture ourselves in England at the dawn of the common law – 13th century – you have the royal courts (created by the King, King appoints the judges, under administration of Crown). What’s important to remember is that these were not the only courts deciding cases. As part of the feudal system, every lord is required to have his own court. It was the job of the lords to resolve the disputes among their tenants in local courts.

The King has an obligation to do justice throughout his jurisdiction; next in line were the barons, and then the lords. The lords have the same obligation on a smaller scale. The royal courts were extraordinary – you don’t go for petty, ordinary disputes. That’s what the local courts were for.

The pleadings in the royal courts were governed by forms of action – e.g. writs. Forms of action were a vehicle for getting your case adjudicated. From the mid 13th century you had effectively had a (closed) list of the kinds of claims that were allowed to be made. Each writ was a “package” and might have different rules about, for example, how you proved your case. In this era, title to land could be established through battle. Let’s say a little bit about some of these packages.