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A. Development of restitution
(1) Law of restitution deals with the principle against unjust enrichment and historically overlaps with the law of contract and tort
19.1.1 The law of restitution is a very young subject in the common law, compared to the law of contract and torts. The law of restitution may loosely be described as the law dealing with the principle against the unjust enrichment of the defendant at the expense of the plaintiff. There is much in the historical common law and principles of equity where unjust enrichment has been or could have been the justificatory explanation. But the history of the forms of action in the common law obscured many of the real bases of various causes of action. Authors from the eighteenth century investigated many of the historical cases and managed to carve contract and torts out of them as distinct intellectual disciplines. Few of the early authors ventured beyond this into the residuary case law. Early writings tended to concentrate on “quasi-contracts” because the form of action used in the common law to impose an obligation on the defendant to return an enrichment to the plaintiff had been borrowed from that used for enforcing implied promises to pay in contract, and in the typical development of the early common law through the technique of fictions, the lack of agreement could not be traversed by the defendant.
(2) Recognition of unjust enrichment as an independent source of law of obligations
(3) Chapter only intends to outline restitutionary claims likely to be encountered in the context of a contractual relationship
19.1.3 In the common law world, there is an enormous amount of academic debate and literature on the shape, size and content of the subject; this is due largely to the amorphous nature of the historical case law and the lack of modern judicial elucidation in view of the relative youth of the subject. The question of its independent existence is still moot in some common law countries. The objective of this chapter is very modest. It is only intended to outline the kinds of restitutionary claims that could arise in situations that parties who are, have been, or intend to be, in a contractual relationship are likely to encounter.
B. Elements of the Claim
C. Comparing restitutionary and contractual remedies
19.1.5 Where a contract has been rescinded for misrepresentation, duress, undue influence, or unconscionability, the parties are required to make mutual restitution to restore one another as far as possible to the position before the contract was made (restitutio in integrum). This can be seen as an aspect of the law of restitution to prevent unjust enrichment, but can also be seen as the working out of the consequences of rescission within the law of contract, as well as the law of property, since rescission can also involve the revesting of property transferred under the contract.
A. Money paid under a contract: recoverable under contractual agreement of by showing total failure of consideration
B. Services conferred under a contract: generally recoverable except where claimant is party in breach
19.3.1 In theory, the position should be the same whether the benefit conferred is monetary or non-monetary. However, the law is less clear in respect of contracts terminated by breach where the plaintiff, who is claiming restitution for non-monetary benefits conferred on the defendant, is in fact the party in breach of the contract. Although such a plaintiff is not barred from making a restitutionary claim in principle (Miles v Wakefield Metropolitan District Council [1987] AC 539), such a plaintiff is not likely to attract the sympathy of the court, and there is a concern that a contracting party in such a position may abuse a position of strength by refusing to complete a contract. Techniques have therefore been used to defeat the claim. For example, the court may refuse to recognise a benefit where the defendant who had asked for full performance only obtained partial performance. Where there is a lump sum contract, the court may hold the parties to the risk allocation in the contract and leave the parties to their contractual remedies, with no remedy in restitution.
C. No double recovery
19.4.1 There is in any event a prohibition against double recovery. While in theory an innocent party can recover both damages for breach of contract and restitution of benefits conferred for total failure of consideration, double-counting or double recovery for what is effectively the same loss is not permitted. Thus, for example, if the plaintiff has paid a price for services which were not provided, a claim for damages for breach of contract must take account of the price of the plaintiff’s expectancy, so that if the plaintiff sues for restitution of the price as well, the damages for breach of contract must be reduced accordingly (Baltic Shipping Co v Dillon (1993) 176 CLR 344).
D. Frustrated contracts: governed by the Frustrated Contracts Act
19.5.1 Although the principles discussed above apply to the case of a contract terminated by frustration, where the Frustrated Contracts Act (Cap 115, 1985 Rev Ed) applies, the common law has been modified. The statutory provision goes beyond the common law not only in not requiring total failure of consideration for restitution, but also in directing the court to allocate losses in the form of wasted expenditure incurred in the course of performing the contract. The statute provides that once a contract is frustrated, all sums payable to any party in pursuance to the contract before its discharge would cease to be payable and all sums paid shall be recoverable by the payor, subject, however, to the court’s discretion to make deduction for expenses incurred by the payee before discharge for the purpose of performing the contract. It also provides for the restitution for non-monetary benefits conferred before the discharge, subject also to the court’s discretion to make deductions taking into account the expenses incurred by the benefited party for the purpose of the performance of the agreement, as well as the effect of the frustration on the benefit itself.
E. Anticipated contracts that fail to materialise: recoverable if basis of enrichment is unjust
F. Void or unenforceable contracts: recoverable unless doing so undermines objectives of law that makes contract void or unenforceable in the first place
19.7.1 If a contract turns out to be unenforceable or void, then money paid under it may be recoverable. The enrichment of the defendant is no less unjust if he is not obliged to perform his obligations under the contract. Of course, in such cases, it is likely that there will be cross-claims from both sides. Restitution has been allowed where the contract turns out to be void because it was ultra vires the powers of one of the parties to enter into such a contract (Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669). If services have been conferred under a contract that turns out to be void for failure to comply with formalities, the defendant who stands on his lack of legal (contractual) obligation to pay the contract price could nevertheless be liable in restitution for the value of the services conferred (Pavey & Matthews v Paul (1986) 162 CLR 221). The basis of recovery is likely to be total failure of consideration, mistake of fact or law, possibly the free acceptance of benefit while there had been a reasonable opportunity to reject it, or perhaps absence of consideration (here not meaning contractual consideration but the absence of a legal reason for the conferment of the benefit). However, restitution would be denied if the award of restitution would undermine the objectives of the law which make the contract void or unenforceable in the first place.
A. Restitution not allowed if risks are pre-allocated
B. Deposits generally non-recoverable: unreasonable sums may be treated as advance part-payment and made recoverable
A. General age of majority for contractual capacity is 18
19.10.1 The age of majority for individuals under Singapore law is 18 for most types of contracts, though it remains at 21 for certain contracts relating to land. Depending on the type of contract, a contract with a minor may be: (i) valid (if it is for necessaries or it is a contract of service to the benefit of the minor), or (ii) valid but subject to repudiation by the minor before or shortly after reaching the age of majority (eg, contracts concerning land, shares in companies, or partnership), or (iii) unenforceable against the minor unless it is ratified upon reaching the age of majority.
B. Restitutionary claims against minors governed by the Minor Contracts Act
19.10.2 If the minor chooses to repudiate the second type of contract, or not to ratify the third type of contract, he may be liable in restitution. However, because a restitutionary claim against the minor may amount to an indirect enforcement of the contract, the common law is rather restrictive, and will require either fraud or other wrongdoing on the part of the minor. Having said that, it should be noted that the Minor Contracts Act (Cap 389, 1994 Rev Ed) supplements the common law. Under the statute, the court may, in its discretion, require the defendant who is not liable on a contract on the basis of minority to transfer any property acquired under the contract or any property representing it, if it is just and equitable to do so.
C. Minors may bring a claim in restitution, but minority alone is insufficient grounds to hold enrichment as unjust
19.10.3 Where the contract cannot be enforced, the minor may also claim in restitution in respect of benefits conferred on the other party under the contract. The minority of the party providing the benefit in itself does not make the conferment of the enrichment an unjust one, and the minor has to establish other grounds to seek restitution, eg, total failure of consideration. However, additional protection is provided to the minor in that the minor can make out a claim for total failure of consideration even if the other party stands ready to perform his part of the bargain, and even if the (unenforceable) agreement of the parties was that money had been paid by the minor as a deposit to secure the minor’s performance of the contract.
A. Account of profits may be available as an equitable remedy
B. Proportion of profits based on a sliding scale of what is a reasonable sum
19.11.2 It would appear that exceptional circumstances could be a sliding scale. In some less severe exceptional circumstances, the court may award a proportion of the defendant’s profits instead of the whole, eg, on the basis of a reasonable fee as a price to be paid to be allowed to commit the breach (Experience Hendrix LLC v PPX Enterprises Inc [2003] 1 All ER Comm 830). The court can also grant damages on the basis of a reasonable fee under the statutory jurisdiction to award damages in lieu of an injunction (Supreme Court of Judicature Act, (Cap 322, 1999 Rev Ed), s 18(2), First Schedule at para 14, and Wrotham Park Estate Co v Parkside Homes Ltd [1974] 1 WLR 798). It also appears that common law damages may also be obtained on the same basis (ie, reasonable fee) (awarded in the alternative in Experience Hendrix LLC v PPX Enterprises Inc, above).
A. Change of position: where restitution is inequitable due to a bona fide change of position
B. Contract of compromise between parties defeats restitutionary action
C. Restitutionary action may be barred in interest of finality of transactions
D. Detrimental reliance on a representation may give rise to estoppel by representation
E. Illegality may defeat a restitutionary claim unless there is voluntary withdrawal from illegal enterprise
Updated as at 30 April 2015
By: Yeo Tiong Min
Yong Pung How Professor of Law
School of Law, Singapore Management University