Restitution

For the physics term representing energy lost in a collision, see Coefficient of restitution.

The law of restitution is the law of gains-based recovery. It is to be contrasted with the law of compensation, which is the law of loss-based recovery. Obligations to make restitution and obligations to pay compensation are each a type of legal response to events in the real world. When a court orders restitution it orders the defendant to give up his/her gains to the claimant. When a court orders compensation it orders the defendant to pay the claimant for his or her loss.

This type of damages restores the benefit conferred to the non-breaching party . Simply, the plaintiff will get the value of whatever was conferred to the defendant when there was a contract. There are two general limits to recovery, which is that a complete breach of contract is needed, and the damages will be capped at the contract price if the restitution damages exceed it.

The orthodox view suggests that there is only one principle on which the law of restitution is dependent, namely the principle of unjust enrichment.[1][2] However, the view that restitution, like other legal responses, can be triggered by any one of a variety of causative events is increasingly prevalent. These are events in the real world which trigger a legal response. It is beyond doubt that unjust enrichment and wrongs can trigger an obligation to make restitution. Certain commentators propose that there is a third basis for restitution, namely the vindication of property rights with which the defendant has interfered.[3] It is arguable that other types of causative event can also trigger an obligation to make restitution.

Restitution for wrongs

Imagine that A commits a wrong against B and B sues in respect of that wrong. A will certainly be liable to pay compensation to B. If B seeks compensation then the court award will be measured by reference to the loss that B has suffered as a result of A’s wrongful act. However, in certain circumstances it will be open to B to seek restitution rather than compensation. It will be in his interest to do so if the profit that A made by his wrongful act is greater than the loss suffered by B.

Whether or not a claimant can seek restitution for a wrong depends to a large extent on the particular wrong in question. For example, in English law, restitution for breach of fiduciary duty is widely available but restitution for breach of contract is fairly exceptional. The wrong could be of any one of the following types:

  1. A statutory tort
  2. A common law tort
  3. An equitable wrong [4]
  4. A breach of contract
  5. Criminal offences

Notice that (1)-(5) are all causative events (see above). The law responds to each of them by imposing an obligation to pay compensatory damages. Restitution for wrongs is the subject which deals with the issue of when exactly the law also responds by imposing an obligation to make restitution.

Example. In Attorney General v Blake [2001] 1 AC 268, an English court found itself faced with the following claim. The defendant had made a profit somewhere in the region of £60,000 as a direct result of breaching his contract with the claimant. The claimant was undoubtedly entitled to claim compensatory damages but had suffered little or no identifiable loss. It therefore decided to seek restitution for the wrong of breach of contract. The claimant won the case and the defendant was ordered to pay over his profits to the claimant. However, the court was careful to point out that the normal legal response to a breach of contract is to award compensation. An order to make restitution was said to be available only in exceptional circumstances.

Restitution to reverse unjust enrichment

Main article: Unjust enrichment

Cases of intentional torts or breaches of fiduciary duty often allow for claims of unjust enrichment, as well as cases of statutory torts and breaches of contract. A plaintiff can even have a claim in unjust enrichment when there is no other substantive claim. The Uniform Commercial Code ("UCC") entitles a buyer who defaults restitution of the buyer's deposit to the extent it exceeds reasonable liquidated damages or actual damages.[5] If the contract does not have a liquidated damages clause, the UCC provides a statutory sum: 20% of the price or $500, whichever is less, and the buyer who defaulted is entitled to restitution of any excess.

See also

Notes

  1. ↑ Virgo, Graham (2006). The Principles of the Law of Restitution. New York: OUP. p. 6. ISBN 978-0-19-929850-1.
  2. ↑ Goff; Jones (2002). The Law of Restitution 6th edn. London: Sweet and Maxwell. p. 3.
  3. ↑ Virgo, Graham (2006). The Principles of the Law of Restitution. New York: OUP. p. 11. ISBN 978-0-19-929850-1.
  4. ↑ Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447.
  5. ↑ "UCC §2-718". Law.cornell.edu. Retrieved 2014-07-13.

References