In Restitution, Ward Farnsworth presents a guide to this body of law that is compact, lively, and insightful—the first treatment of its kind that the American law of restitution has received. The book explains restitution doctrines, remedies, and defenses with unprecedented clarity and illustrates them with vivid examples. Farnsworth demonstrates that the law of restitution is guided by a manageable and coherent set of principles that have remarkable versatility and power. Restitution makes a complex and important area of law accessible, understandable, and interesting to any reader.
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Civil Liability for Unjust Enrichment
By Ward Farnsworth
The University of Chicago PressCopyright © 2014 Ward Farnsworth
All rights reserved.
Restitution, Tort, and Contract
Restitution, tort, and contract are related bodies of law, each addressing cases where people's entitlements have gotten out of alignment—cases where one person has caused losses to another or has gained at another's expense, and so is obliged to make things right. Lawyers are trained early to spot such situations by looking for the first pattern just mentioned. They quickly observe that someone has suffered losses for which compensation may be due from whoever caused them. The losses may result in a tort claim if they involve damage to the victim's person or property, or in a contract claim if they arise from a broken promise. This book views the whole spectrum of obligations through the opposite lens, which more often is overlooked: the rights that arise not when one person has caused an unjustifiable loss to another, but when the defendant has unjustifiably gained at the plaintiff's expense. Those cases are matters for the law of restitution. Sometimes searching out wrongful gains will catch the same cases found by looking for actionable losses, because a gain to one person is a loss to another (they are just two ways of looking at the same event—say, a theft); but the search for gains also turns up a great many distinctive problems and solutions of its own, which form much of our subject here.
Types of Restitution Claims
Let us begin by asking how it is that one person ever does gain at another's expense. We can divide all such situations into four rough families according to the consent or intent of the parties to a transfer of property; this book is organized mostly around these groupings.
Each of them gives rise to its own claims for restitution with their own difficulties, and in each case we can consider how restitution compares to other kinds of lawsuits as a source of relief.
1. Mistakes. Neither party might have intended the transfer. This typically results in a case of mistake, as when someone pays money he doesn't owe. The law of restitution is the exclusive source of recovery in all such cases and has a well-developed apparatus for dealing with the complications that can arise—mistakes that are only partial, or a party who makes a payment while assuming the risk that it is mistaken, and so forth.
2. Conferrings. The giver might have intended the transfer, but the recipient did not, or in any event didn't intend to pay for it—as when one person confers benefits on another in an emergency where there is no chance to negotiate. Another sort of conferring occurs when one person does something necessary for himself and can't help benefiting another in the process. Perhaps the plaintiff paid a tax bill that could have been collected from either him or the defendant. In that sort of case the benefit might not seem to be conferred on the defendant "intentionally"; it would be more precise, however, to just say that the plaintiff was not motivated by a desire to benefit the defendant. The plaintiff's act in paying the bill was deliberate, and the benefits that accrued to the defendant were neither wished for nor accidental. They were side effects of actions the plaintiff took for other reasons. Again the law of restitution is the only source of help in such circumstances and provides doctrines for separating the good cases for recovery from the bad (typically asking whether the giver's failure to seek a contract for conferral of the benefits was excusable or was a foisting that the law should not reward).
3. Takings. The recipient might have intended the transfer while the giver did not. In other words, one person takes benefits from the other. In these cases restitution tends not to be the only body of law that addresses the problem. The victim of a fraud, for example, can choose whether to seek return of the benefits that the defrauder obtained (by way of a restitution claim) or damages for his losses (by way of a tort claim). Sometimes the choice may not matter, but in many cases one of those measures will be larger than the other. And even when the victim does bring a claim for restitution, tort law—and for that matter criminal law—will often remain relevant. A taking only entitles the victim to recover in restitution if the taking was in some way wrongful, and much of the time the law of restitution defers to tort and criminal law for answers to that question. Sometimes restitution does go further than tort or criminal law in recognizing misconduct that requires gains to be returned. We will touch on those cases. But since restitution law makes only modest contributions of its own to the problem of defining what takings are wrongful, the most interesting questions in this branch of the subject tend to involve measurement of the plaintiff's recovery.
4. Failed contracts. Both parties might have intended the transfer, but it nevertheless resulted in unjust enrichment because the intentions of either side, or both, were in some way frustrated or contaminated. It was a defective contract or gift. (Using "failed contracts" as shorthand for this category is rough because a gift may be a transfer intended by both sides, and so fit into this category, and yet not involve a contract.) Maybe one side or the other was not competent to execute the transfer or was forced into it by duress. Or the intended enrichment of one side was conditioned on an intended enrichment of the other that did not occur, as when the parties had a contract and one side breached. The right to restitution may then depend on familiar points of contract law, just as it may depend on points of tort or criminal law in a case that involves a taking. But here, as there, restitution has plenty of its own work to do, for in many cases that arise from efforts at trade the point is that there is no contract between the parties. Whatever agreement they made is invalid. So contract law is no help, yet one side has been enriched unjustly. The result is a claim for restitution—not as a remedy for breach of contract, but as a freestanding claim of its own.
The categories just offered are informal, and some situations might be sorted into more than one of them. Transfers made under duress could be viewed as extractions made by a wrongdoer without consent (a taking) or as cases where both sides intended the transfer but the consent of one of them shouldn't count (a failed contract). Or cases where the defendant got the plaintiff's assets by fraud or duress could be put with cases where the defendant got them by mistake, because in both cases there was no meaningful consent to the transfer by the plaintiff. (That last pairing is a conventional way for many students of restitution to speak but not the approach used in this book.) Straightening out all these problems conclusively would require precise definitions of "intent," but we don't need to bother about that because in the law of restitution nothing depends on the organization set out above. The actual doctrines used to decide restitution cases are fashioned at a lower level of abstraction than the divisions just shown. In each of the cases just mentioned as ambiguous from the standpoint of intent, for example, there are clear and distinctive rules for decision. The categories merely are convenient for purposes of this book because they organize all gains by one person at the expense of another into typical patterns that are easier to grasp, that tend to be treated according to related principles or logic, and that are useful to learn about together.
With that disclaimer made, the framework just shown does mean to offer a way of looking at restitution that allows the field to be seen more or less whole, and not viewed as merely miscellaneous. Some may insist that the law of restitution really is miscellaneous, but it is not a matter for insistence; the question is not whether restitution "really" is one thing or another. It is whether a way of looking at the subject allows the viewer to better understand it, appreciate it, and see a related logic in its various parts. Whether those effects are achieved by the description of restitution sketched here and elaborated in the chapters to come, the reader will judge.
The Scope of Restitution Compared to the Scope of Tort and Contract
In addition to clarifying the different sorts of restitution claims that can arise, the four-part apparatus described above can serve as a helpful starting point in comparing the scope of restitution on the one hand and the more familiar scope of tort and contract law on the other. Notice that we could have asked how losses of wealth ever happen, and then made a sorting that looks much like the one just shown: Losses can occur (a) that nobody intends, as by accident. These usually are cases of negligently inflicted injury, but self-inflicted losses, such as property mislaid by the owner and found by someone else, also might go here. Or a loss may occur (b) by giving away wealth deliberately or otherwise conferring a benefit on someone else. This doesn't give rise to a legal claim when viewed as a loss. In other words it is not a source of tort liability, though it may create a good claim for restitution, as noted earlier. Or a loss may occur (c) when one party intentionally takes wealth away from another. These usually amount to intentional torts, so the victim can choose between recovering his losses (in tort) or demanding return of the other side's gains (in restitution). This category also can include extractions by the government that may or may not turn out to be wrongful. Or, last, a loss can occur (d) because a party makes an intentional trade that goes awry in some way. If the attempted trade ripens into a valid and enforceable contract, the loss that results is remedied by a suit for breach of that contract, with recovery usually measured in terms of the victim's damages. When the attempted trade doesn't ripen into a contract, the loss can only be remedied by a restitution claim, with recovery measured in terms of the defendant's gains.
As that exercise shows, most transactions, voluntary or not, can be viewed as occasions for either gain or loss; it just depends on how you look at them. But notice that restitution law gives a more complete account of gains than tort and contract law give of losses. If I defraud you out of $500, you can bring a tort claim or a restitution claim as you prefer. If you mistakenly send me $500 that you meant to send to your plumber, however, there is both a loss to you and a gain to me, but tort law has no comment to make, while the law of restitution is just as interested as ever. The reason for the asymmetry is that restitution is the remedy for unjust enrichment, which is a very broad category, whereas tort is not quite a remedy for unjust losses. It is the remedy for wrongs one person commits against another, which is a smaller set of events. Contract law likewise is not about all unjust losses, or even all losses that can arise from voluntary exchanges that go wrong. It is only concerned with losses that arise from properly formed contracts, which again is a smaller category. Contract and tort law can afford to be narrow precisely because the law of restitution picks up the slack in many cases of misallocation that they don't cover.
But it would be a mistake to infer from this that restitution just exists to give plaintiffs some recourse in cases that tort and contract law miss. It might be closer to the truth to think of tort and contract law as exceptional. Recovery is generally available for unjust enrichment that one party makes at another's expense. Granted, "unjust enrichment" is a term with particular legal meaning; there is a great deal of profitable injustice in the world that the law of restitution leaves alone. But principles of restitution law do speak in detail to all four types of problems outlined a moment ago—mistakes, conferrings, takings, and failed contracts—and provide a remarkable array of tools to rectify them. Then come tort and contract law, which provide some special and additional rules that also allow plaintiffs to recover for their losses, even without reference to whether anyone else has gained—but only in a fairly narrow set of cases when particular requirements are satisfied, and then usually by a simple remedy. The plaintiff just presents the defendant with a bill.
It would be tempting and tidy to say that restitution law has the potential to speak to every case covered by tort and contract law (if the cases from those areas are viewed from the standpoint of gains rather than losses) and then many others as well. But it would be a little misleading. In theory, any instance of unjust enrichment can indeed be addressed with a restitution claim. In practice, though, there are occasional types of unjust enrichment that never result in restitution claims because our legal traditions have committed the resolution of them to a different rubric. After a breach of contract, the plaintiff might, in principle, be able to sue in restitution, claiming that the defendant was unjustly enriched by the breach. But this never happens in practice because the law handles those problems as "contract cases"—within which, however, "restitution" is a label given to one possible remedy that operates much like (though not exactly like!) a restitution suit would. And if I steal your goods and you want them back, this too might in principle seem to call for a restitution claim. I certainly have been unjustly enriched. But it just happens that these facts traditionally have been addressed by a suit for replevin rather than restitution. Restitution does become relevant if I have sold your goods and you want the money I obtained for them. These wrinkles might make the scope of restitution sound confusing, but the general result they produce can be stated simply enough. Almost any case of unjust enrichment can be addressed with a restitution claim. There are just a few types that are addressed in some other way, and the two most prominent of them have now been mentioned.
While the scope of restitution law is wider than the scope of tort or contract law, tort and contract undeniably have a more constant practical importance. First, in the cases that tort and contract law cover, plaintiffs usually prefer claims under those headings to restitution claims because their losses are greater than the defendant's gains. In a car accident, for example, the gains to the defendant from skipping whatever precautions he should have taken are minimal, while the losses to the plaintiff are large. The same more or less goes for a punch in the nose. So those incidents invariably result in tort rather than restitution claims. Nobody even thinks of restitution as a plausible line of recovery for them.
The other and larger reason for the greater importance of tort and contract law involves the natural incentives of potential defendants, and the problems those incentives create. Skipping a precaution or not keeping a promise—the stuff that tort and contract claims are made of—usually is easier and cheaper than taking the victim's interests to heart. That is why those types of invasions are common, along with tort and contract suits to redress them. Many classic types of restitution cases are less likely to involve temptations of that sort. If I mistakenly pay you money that I owe to someone else, I have blundered at my own expense, not yours, so I have a built-in reason to be careful not to do it. Likewise, a breach of contract is a more common thing than an invalid contract, because a breach is tempting for one side to commit but an invalid contract is not usually tempting for either side to make. If a contract ends up invalid and useless, it is usually in spite of the original intentions of both parties. In short, tort and contract law get used more, despite covering less ground than restitution, because opportunism is a more powerful force than the altruism, self-injuring carelessness, and other forces that give rise only to claims of unjust enrichment.
So restitution shows up behind tort and contract law in practical importance, but not too far behind, for its reach is vast and covers a lot of situations that come up often enough. People make mistakes, reasonable or unreasonable, about whom or how much to pay. They perform disputed obligations that turn out not to exist. They confer benefits on others in emergencies. They do things for themselves that incidentally make others better off, too. They steal and then resell property or commit other wrongs and greatly enrich themselves in the process. They exchange things without enforceable contracts. Those all are cases for the law of restitution, and the patterns they involve can arise not only on their own but in the thick of other cases that may appear at first glance to be matters for some other body of law. The seasoned expert on restitution sees occasions for it that are easily overlooked by the lawyer overly habituated to look for losses, who asks when confronted with any misallocation whether it somehow can be crammed into the law of contract or tort.
Excerpted from Restitution by Ward Farnsworth. Copyright © 2014 Ward Farnsworth. Excerpted by permission of The University of Chicago Press.
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Table of Contents
Chapter 1. Restitution, Tort, and Contract
Chapter 2. Mistakes
Chapter 3. Conferrings
Chapter 4. Takings
Chapter 5. Failed Contracts
Chapter 6. Money Remedies
Chapter 7. Equitable Remedies
Chapter 8. Defenses