Definition of Unjust Enrichment
Unjust enrichment is a legal principle that states that one person should not be unfairly enriched at another’s expense. It is most often used in contract law, and is the basis for the doctrine "quantum meruit" (which means approximately how much), that allows contracting parties to seek damages when there is no written contract or the written contract is incomplete or vague. The general rule of unjust enrichment is that when one party confers a benefit on another , the other party is obligated to pay for that benefit.
The doctrine of unjust enrichment encompasses three principles:
• A person shall not be unjustly enriched at the expense of another.
• A person who has received a benefit is required to make restitution where retention of benefit would be unjust.
• A person who has been unjustly enriched by the receipt of a benefit is required to make restitution.
Unjust enrichment claims are equitable in nature and therefore may be brought only if there is an absence of an adequate remedy by way of a legal claim. Because you cannot bring an equitable claim against an arbitral tribunal, it will be necessary for you to choose between the contract and quantum meruit causes of action for claims less than the arbitrator’s jurisdiction in your jurisdiction.
Legal Aspects of Unjust Enrichment
The Legal Elements of Unjust Enrichment: To prevail on a claim of unjust enrichment, the plaintiff must prove key elements. Those elements include: (1) that one party was enriched; (2) that another party suffered a corresponding loss; and (3) that the enrichment and loss in question are connected in some way. In other words: (1) a benefit has been conferred upon one party; (2) an actual loss has been suffered by the other party; and (3) there is no legal justification for the enrichment and loss. When asserting a breach of contract claim against another person, the elements discussed above (as opposed to the elements of claim for breach of a contract) must be proven by the party asserting the unjust enrichment claim for that party to prevail.
The Evolution of Unjust Enrichment
The historical development of unjust enrichment as a cause of action as well as an equitable concept has evolved incrementally over many centuries in various forms. Enrichment that was unjust has been recognized in legal systems since the time of Justinian, who described it as "an enrichment which it is not just and fair should be allowed to stand." Common law courts have historically taken different approaches to the detection and regulation of unjust enrichment.
During the period when the courts dealt with actions in tort, the alleged wrongdoer was required to pay damages which would not go beyond the amount which reflected his wrong. Precedent for this type of approach can be found in the Roman law. However, those remedies were limited: while they made the alleged wrongdoer compensate the victim, they did not act to restore "unjust gains."
By the mid-19th century, the action for money paid under mistake ("money had and received") became fashionable to the extent that it led to the advent of a new action at common law for unjust enrichment.
The true evolution of the concepts of unjust enrichment took place in the mid-17th century, when the principle became part of equitable jurisdiction. Equity looked at claims for good conscience without concern for liability in fact. Rather than looking for a wrongdoer, equity merely looked for enrichment not founded in good conscience.
In the United States, the first reference to equitable restitution for unjust enrichment was made in an 1821 New England case that arose from the sale of land to the Connecticut Legislature by a group of orphan heirs. The heirs claimed the money and equitable restitution was allowed.
The literal development of equitable restitution for unjust enrichment began in England. During the mid-20th century, leading decisions originating in British case law such as the House of Lords ruling in Miller v. Varley and the House of Lords ruling in Pavey & Matthews Pty. Ltd. v. Paul, as well as the High Court of Australia’s decision in McRae v. Commonwealth Disposals Commission, established the present unwritten remedy. The Canadian Supreme Court provided the Canadian approach to equitable restitution in Moore v. Sweet, 2008.
Unjust Enrichment Case Studies and Illustrative Examples
Cases of unjust enrichment are relatively abundant in case law, as the concept of unjust enrichment has been recognized for a long time, and most contracts have some element of inequity. Partly because of this and partly because it’s reputed to be equitable, unjust enrichment is often cited in contract cases, including a notable early case, Riby v. Murray, 20 W. Va. 822 (1883). Of course, West Virginia case law since then has narrowed the criteria for equitable claims of unjust enrichment in contract cases, making this case less seminal than it otherwise might be.
In that case, Plaintiff was pursuing a legitimate claim against a third party defendant, and to afford himself the right to avoid liability for an unfavorable summary judgment ruling in an insurance coverage case, the third party defendant "settled" the case with the plaintiff by paying and receiving a release. Later, the plaintiff realized the insurance coverage issue had become moot, and, relying on the allegations contained in the complaint, instead sued the third party defendant in his individual capacity for constructive trust and unjust enrichment. In rejecting these claims, the court held that this was not a case involving unjust enrichment, because there was no "unjust" enrichment when the defendant released his liability in the insurance coverage case.
A more recent case is Bullis v. Country Mutual Insurance Company, 2013 IL App (1st) 121689-U (Ill.App. Dist. 2013). In that case, Plaintiffs sued an insurance company for benefits related to their business interruption claim based upon the forced closure of all non-essential businesses during the COVID-19 pandemic. The factual resolution of the case revealed that while the business’s policies were written for six months at a time and were automatically renewed for consecutive six month terms, such that the polices were not applicable at the time of Plaintiff’s injuries, the insurance company charged for only three months of coverage for each six month period. On a motion for summary judgment, the insurance company argued it was entitled to summary judgment because there are no damages. The Court agreed, holding that even if the insurance company owes coverage to the Plaintiffs under the terms of the contract, it could not be liable for unjust enrichment in the absence of damages.
Defenses to the Assertion of Unjust Enrichment
There are common defenses that a contracting party can assert if unjust enrichment is alleged, including the change of position defense and the voluntary nature of the benefit provided.
Change of Position Defense
A defendant in a lawsuit claiming unjust enrichment may claim an affirmative defense that it has changed its position such that it would be inequitable to allow a plaintiff to recover from it. The affirmative defense known as change of position arises as a result of a "change of position" by the defendant after the benefit was conferred by the plaintiff that gives rise to inequity if unjust enrichment is imputed. The "change of position" must be the result of a claim that unjust enrichment is founded upon . In other words, the benefit conferred must have caused the change of position, as opposed to some event that may have predated the benefit conferred upon the defendant.
Voluntary Nature of the Benefit Provided
Another recognized defense is voluntary nature of the benefit received by the party accused of unjustly enriching themselves (which we have also called the "voluntariness defense"). In other words, a defendant can argue (perhaps successfully) that it was not unjustly enriched because a plaintiff voluntarily bestowed a benefit to the defendant, and that the plaintiff was not compelled to give the benefit or did not even desire to give the benefit.
Unjust Enrichment as an Alternative in Time of Breach of Contract
When it comes to unjust enrichment and breach of contract claims, there are some significant differences between the two. First and foremost, breach of contract requires the existence of an agreement. Without a definite agreement that clearly defines the rights and obligations of the parties, you do not have a contract. Unjust enrichment protects against the unjust retention of a benefit; it only arises when otherwise enforcing the agreement would result in the unjust retention of the benefits conferred by one party on another when no real contract exists between the parties. Thus, while an unjust enrichment claim can arise where there is a breach of a contract, it does not always follow that the reverse is true-or that it would be in your best interests to pursue both a contract and an unjust enrichment claim. That being said, there are instances where both claims can co-exist and the Court will adjudicate claims, if appropriate, in the alternative. However, the distinction between the two is important; many contracts contain language that prohibits the parties from pursuing an unjust enrichment claim if there is a breach of contract that applies. While this type of language will be deemed to be an enforceable waiver or exclusion under Pennsylvania law (as the Pennsylvania Supreme Court ruled in the recent case of Hamman v. Grange Mut. Cas.) when the contract is valid and there has been a breach that adversely affected you, the Court will enforce its provisions to bar an unjust enrichment claim.
Unjust Enrichment Remedies
Remedies for Unjust Enrichment can be limited by the remedies for unjust enrichment in the contract that was violated. If those remedies are limited to only money damages then the usual remedy in an unjust enrichment case is restitution. Restitution is the value of the benefit conferred on the defendant or the amount of money necessary to do justice and make the plaintiff whole. The defendant does not get credit for those benefits that were conferred upon the unjustly enriched defendant pursuant to a contract.
The most common form of restitution is the imposition of a constructive trust or an equitable lien. These devices can be used to impose a constructive trust on property acquired from the unjustly enriched defendant or an equitable lien on specifically identified real or personal property possessed by the defendant . A constructive trust requires the defendant to hold the benefit acquired by the violation of the contract for the benefit of the plaintiff. An equitable lien gives the plaintiff a special right to the benefit acquired to the extent of the value of the benefit conferred but it is no more than a security right. Both of these remedies can be less than desirable because the plaintiff has to worry about the defendant’s solvency and determining what specific property benefits should be the subject of the constructive trust or lien.
Restitution can also be in the form of a money judgment. This is usually based on the market value of the benefit conferred, although it can sometimes be based on the loss of the plaintiff.