Quasi Contracts
A quasi-contract, also an implied-in-law contract, is a legal substitute for a contract. A quasi-contract is a contract that should have been formed, even though in actuality it was not. It is used when a court wishes to create an obligation upon a non-contracting party to avoid injustice.
The defendant's liability under quasi-contract is equal to the value of the benefit conferred by the plaintiff. The value is the fair market value of the benefit and not necessarily the subjective value that the defendant enjoys. For example, accountant prepares tax-payer's taxes, finding a way to get him an unusually large refund. Tax-payer doesn't pay accountant. Assuming a court finds no contract, tax-payer is only liable for the fair market value of tax preparation services, which is not inflated up to account for the unusually large refund he enjoyed.
An example of a quasi-contract is the case of a plumber who accidentally installs a sprinkler system in the lawn of the wrong house. The owner of the house had learned the previous day that his neighbor was getting new sprinklers. That morning, he sees the plumber installing them in his own lawn. Pleased at the mistake, he says nothing, and then refuses to pay when the plumber hands him the bill. Will the man be held liable for payment? Yes, if it could be proven that the man knew that the sprinklers were being installed mistakenly, the court would make him pay because of a quasi-contract. If that knowledge could not be proven, he would not be liable.
Promissory Estopple
In the many jurisdictions of the United States, promissory estoppel is generally an alternative to consideration as a basis for enforcing a promise. It is also sometimes referred to as detrimental reliance. The American Law Institute in 1932 included the principle of estoppel into § 90 of the Restatement of Contracts, stating:
A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. Restatement (Second) removed the requirement that the detriment be "substantial".
The distinction between promissory estoppel and equitable estoppel should be noted:
Equitable estoppel is distinct from promissory estoppel. Promissory estoppel involves a clear and definite promise, while equitable estoppel involves only representations and inducements. The representations at issue in promissory estoppel go to future intent, while equitable estoppel involves statement of past or present fact. It is also said that equitable estoppel lies in tort, while promissory estoppel lies in contract. The major distinction between equitable estoppel and promissory estoppel is that the former is available only as a defense, while promissory estoppel can be used as the basis of a cause of action for damages. 28 Am Jur 2d Estoppel and Waiver § 35
Suppose that B goes to a store and sees a sign that the price of a radio is $10. B tells the shopkeeper that he will get the money and come back later that day to purchase it; there is no discussion of price. The shopkeeper says that when B returns, he will be happy to deal with B as he deals with all his customers but that, if he sells all the radios (he has three), he will not be able to help B. Hearing this, B goes and sells his watch for $10 (it was really worth $15, but since B wanted the money right away, he chose not to wait for the best price). When B returns, the sign says $11, and the owner tells B that he has raised the price. In Equity, can you argue that the shopkeeper is estopped by conduct? B relied upon the implied representation that a radio would be sold for $10 when he returned with the money; B has sold his watch at a price lower than the market price, and thus he has acted to his detriment. (Note that if B's watch was worth $10, and he received a fair price, there would be no detriment.) But the problem is that the shopkeeper did not guarantee to hold one of the radios against the possibility of B's return nor did they agree a fixed price. The shopkeeper's conscience might have been affected if he had known that B was going home to collect the money and would definitely return to buy one of the three radios. Indeed, in some common law jurisdictions, a promise by the shopkeeper to hold a specific radio would create a binding contract, even if B had to go for the money. A promise to pay the owner in the future is good consideration if it is made in exchange for a promise to sell a specific radio (one from three is probably sufficiently specific): one promise in exchange for a second promise creates equal value. So the shopkeeper's actual words and knowledge are critical to deciding whether either a contract or an estoppel arises.
For an example of promissory estoppel in the construction industry, suppose that B Ltd consolidates estimates from a number of subcontractors and quotes a single price on a competitive tender. The client accepts B Ltd's quote and construction begins. But one of the subcontractors then claims reimbursement above its original estimate and, because of this change, B Ltd cannot profit from the works. If both parties knew that the accuracy of the individual estimates was critical to the success of the tender and the profitability of the contract as a whole, a court might apply promissory estoppel and allow B Ltd to pay only what the subcontractor originally estimated rather than the new, higher price. But, if both parties hoped that there would be an opportunity to increase the contract prices to reflect additional expenditure, the subcontractor's conscience would not be as limited in seeking a higher payment and B Ltd might be penalised for not building an adequate contingency sum into the tendered price.
One contentious point during the drafting of the Restatement was how to calculate the amount of damages flowing from a promissory estoppel. During the deliberations, the following example was considered: a young man's uncle promises to give him $1,000 to buy a car. The young man buys a car for $500, but the uncle refuses to pay any money. One view was that the young man should be entitled to $1,000 (the amount promised), but many believed that the young man should only be entitled to $500 (the amount he actually lost). The language eventually adopted for the Second Restatement reads: "The remedy granted for breach may be limited as justice requires." — a formula which leaves quantification to the discretion of the court.
Unjust Enrichment
Unjust enrichment is a legal term denoting a particular type of causative event in which one party is unjustly enriched at the expense of another, and an obligation to make restitution arises, regardless of liability for wrongdoing. A typical example of a claim based on unjust enrichment is that of payment by mistake. Imagine that customer B is accidentally given $10 too much change by shopkeeper A. B does not notice the mistake. There is no way that B can be accused of any wrongdoing. Nonetheless, the law imposes an obligation on B to repay $10 to A. This is because B has been unjustly enriched by $10 by A’s payment. Unjust enrichment, if proved, always triggers an obligation to make restitution. It never triggers an obligation to pay compensation because such an obligation might leave the defendant, who is normally entirely innocent, out of pocket.
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. Having said that, 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.
It is generally accepted that a claim based on unjust enrichment can be submitted to five stages of analysis. These can be summarised in the form of the following questions:
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Was the defendant enriched?
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Was the enrichment at the expense of the claimant?
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Was the enrichment unjust?
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Does the defendant have a defense?
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What remedies are available to the claimant?
Was the Defendant Enriched?
Sometimes the answer to this question will be obvious. Normally, direct monetary enrichment poses no serious problems. In the example above, where shopkeeper A gave customer B $10 too much change by mistake, it is obvious that B has been enriched by $10.
However, the situation is much more difficult when the benefit the defendant received was something other than money. This is because it is often difficult to prove how much, if anything, a non-money benefit is worth to the defendant. Imagine a new case. B’s car is in need of repair. Believing the car to be his own, A carries out repairs on the car. The repairs would have cost $300 if B had gone into the market to employ a mechanic to perform them. A later discovers that the car belongs to B. Does A have a claim against B based on unjust enrichment? The answer seems to be that he does not. Even though B has had the benefit of $300 worth of services, we cannot be certain that B was willing to pay for repairs to the car at all. We cannot hold that B is liable to pay $300 to A because that would leave B in an important sense worse off than he was at the beginning. He would have been forced to pay for repairs he did not want and had no opportunity to reject. The position would be different if we had any proof that B would have been willing to pay for the repairs. Let us assume now that B had already booked a mechanic to do the repairs for a cut-price of $200. Now A is entitled to a claim against B, but for $200 only. Remember that the value of the claim is measured by B’s gain and not by A’s loss. We cannot value B’s gain any higher than $200 because we have no proof that he was willing to pay any more than that.
Was the Enrichment at the Expense of the Claimant?
This requirement is usually not problematic, provided that the defendant’s enrichment is received directly from the claimant. In all the examples discussed so far in this section B’s enrichment has clearly been at A’s expense. In the shopkeeper example A is $10 worse off because of the overpayment. In the car repair example A has provided valuable services for no payment. In both cases it is fairly clear that there is some correlation between B’s gain and A’s loss. This is particularly clear in cases involving money but holds true in non-money cases as well.
The difficulty arises when a third party, C, is interposed between A and B. This new problem is a particularly difficult one. It will not be resolved here, but three examples of the problem itself will be given.
First, suppose that C owes A $100. C is on his way to pay A the money when it falls out of his pocket. It is picked up by B. C does not now have enough money to pay A. Does A have a claim based on unjust enrichment against B in respect of the $100?
Secondly, suppose that A has an account with bank C. C pays $100 to B, mistakenly believing that A has instructed it to do so, and debits A’s account accordingly. C goes into liquidation. Does A have a claim against B to recover the $100?
Thirdly, suppose that A sells a painting to C very cheaply, mistakenly believing C to be his brother. C knows that A has made a mistake and that he will soon be asked to return the painting. In an attempt to make a profit, he sells the painting on to B. The sale is at a low price because B knows that the painting does not really belong to C. Can A recover the painting or its value from B in an action based on unjust enrichment?
Was the Enrichment Unjust?
There are two established approaches to this issue. Traditionally, common law systems such as those of the U.S. 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. Both approaches will be discussed.
The ‘unjust factors’ approach requires the claimant to point to one of a number of factors recognised by the law as rendering the defendant’s enrichment unjust. English law clearly recognises at least the following unjust factors:
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Mistake of fact
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Mistake of law
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Duress
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Undue influence
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Total failure of consideration
The ‘absence of basis’ approach does not deal in individual unjust factors. Instead it seeks to identify enrichments with no legitimate explanatory basis. Imagine that A contracts with B that A will pay $150 up front for B to clean his house. A pays the money. 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.
Does the Defendant Have a Defense?
There are a number of defenses available to claims in unjust enrichment. Defenses may be complete, in which case they defeat the whole claim, or partial, in which case they merely reduce the value of the claim. The most important defences to claims in unjust enrichment are:
1. Change of position - Since the focus of unjust enrichment is on the defendant’s gain, he can reduce the value of the claim against him if he can show that he has changed his position in good faith in reliance on being entitled to keep the enrichment. Change of position is fundamentally a partial defence, although it can be a complete defence if the amount of the defendant’s disenrichment matches or exceeds the initial value of the claim against him.
Let us return to the shopkeeper example used above (in the section entitled ‘Introduction’). B is accidentally given $10 too much change by shopkeeper A. B does not notice the mistake. At this point we alter the example slightly, and imagine that B later discovers that he has $10 more than he thought he had. He does not realise where the additional $10 came from. Pleased at his apparent good fortune, B decides to buy a bottle of wine for $8 that he would not otherwise have bought. He drinks the wine. Now A brings his claim for restitution of the $10. B has a partial defence of change of position because he spent money he would not otherwise have spent in reliance on a genuine belief that he was entitled to the $10. The value of A’s claim is reduced to $2.
2. Agency/ministerial receipt - This defence may be seen as a species of change of position. If the defendant can show that he received the enrichment as an agent for another and that he paid the enrichment over to that other without notice of the claimant’s claim then he will not be liable.
B is C’s secretary. A comes into C’s office, mistakenly believing that he owes C $200. He gives $200 to B to give to C, in payment of the debt. If B pays the $200 over to C before he learns of A’s mistake then he has a defence against A’s claim against him.
3. Bona fide purchase for value without notice - This defence is available only to parties who receive the claimant’s property indirectly, via a third party. ‘Bona fide’ means ‘good faith’ (in latin). ‘For value’ indicates that the defence is only available if the defendant gave something to the third party in return for the property. ‘Without notice’ indicates that the defence is not available if the defendant knew or should have known of the claimant’s title to the property when he purchased the property from the third party.
Recall the example of the painting in the Section 2 above. In that example it is explicitly mentioned that B knows that the painting does not really belong to C. The reason for making that clear was that if B had been unaware of A’s title he would have been able to assert a defence of bona fide purchase for value without notice.
4. Counter-restitution - If the claimant’s claim would leave the claimant unjustly enriched at the expense of the defendant, the defendant can reduce the value of the claim against him accordingly.
Imagine that A employs B to build an extension on his house. The contract provides for A to pay B $1000 up front. The contract is to be terminable by A if B fails to keep to a certain schedule. B does some work, worth $50, but quickly falls behind schedule. A terminates the contract and brings a claim for restitution of the $1000. However, if B repays $1000 to A, A will be left unjustly enriched at B’s expense. Specifically, he will have rendered $50 of services for nothing. B could bring a separate restitutionary claim against A seeking to recover the reasonable value of the work i.e. $50. However, in order to avoid this rigmarole, the law allows B to invoke the defence of counter-restitution in the original action. The defence will allow B to reduce the value of the claim against him to $950.
5. Illegality - If the claimant needs to rely on evidence of his own illegal acts to show that he has a claim against the defendant, the court may refuse to help him. This area of law is complicated and controversial but the above proposition is generally accurate.
A is in financial trouble and wishes to protect his boat from his creditors. With this in mind, he agrees with B that A will transfer the boat to B to keep it from the creditors and B will retransfer the boat to A when the financial difficulties are over. A transfers the boat to B. A is declared bankrupt and his creditors do not get their hands on the boat. A year or so later, A asks B to give him the boat back and B refuses. B is unjustly enriched at A’s expense but, nonetheless, the court will not listen to A’s claim, which would have to rely on evidence of the agreement’s fraudulent purpose.
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