Law, Faculty of
DSpace
UBCV
Kaufmann, Manfred Max
Master of Laws - LLM
University of British Columbia
In recent years, Canadian courts accepted the doctrine of unjust enrichment as a rationale underlying the law of restitution. This thesis adopts this approach, and examines its impact on questions adhering to the recovery of money mistakenly paid. The discussion is restricted to situations where no contractual obligations existed between the parties. After an introduction in chapter one, chapter two examines what the doctrine of unjust enrichment precisely predicates. Three particular aspects of the recovery of money mistakenly paid are then tackled: the action of the rightful payee, the availability of a remedial constructive trust and the defence of change of position. British and American law provide a background for the discussion. It will be seen that, with respect to restitutionary law, Canadian law has left its British ancestor behind and follows more the American model. The results arrived at are contrasted with the answers which a civil law code, more precisely, the German Civil Code, provides for the questions under review. The doctrine of unjust enrichment, according to this thesis, calls for the abolition of the action of the rightful payee. The doctrine does not necessarily entail the recognition of constructive trusts to remedy an unjust enrichment. However, the remedial constructive trust is a useful remedy for a mistaken payer and, if the payee has become bankrupt, the only one. Finally, it is argued that the recognition of change of position as a defence is a consequent step after the recognition of the unjust enrichment doctrine.
UNJUST ENRICHMENT AND THE RECOVERY OF MONEY MISTAKENLY PAID BY MANFRED MAX KAUFMANN Ref.jur., Albert Ludwigs - Universitaet, Freiburg 1984 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF LAWS i n THE FACULTY OF GRADUATE STUDIES (FACULTY OF LAW) We accept t h i s thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA October 1987 © Copyright Manfred Kaufmann, 1987 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Department of L&MT The University of British Columbia 1956 Main Mall Vancouver, Canada V6T 1Y3 DE-6n/8-n i i THESIS ABSTRACT In recent years, Canadian courts accepted the doctrine of unjust enrichment as a rationale underlying the law of r e s t i t u t i o n . This thesis adopts t h i s approach, and examines i t s impact on questions adhering to the recovery of money mistakenly paid. The discussion i s r e s t r i c t e d to s i t u a t i o n s where no contractual obligations existed between the p a r t i e s . A f t e r an introduction i n chapter one, chapter two examines what the doctrine of unjust enrichment p r e c i s e l y predicates. Three p a r t i c u l a r aspects of the recovery of money mistakenly paid are then tackled: the action of the r i g h t f u l payee, the a v a i l a b i l i t y of a remedial constructive t r u s t and the defence of change of p o s i t i o n . B r i t i s h and American law provide a background fo r the discussion. I t w i l l be seen that, with respect to r e s t i t u t i o n a r y law, Canadian law has l e f t i t s B r i t i s h ancestor behind and follows more the American model. The r e s u l t s a r r i v e d at are contrasted with the answers which a c i v i l law code, more pr e c i s e l y , the German C i v i l Code, provides f o r the questions under review. The doctrine of unjust enrichment, according to t h i s t h e s i s , c a l l s f o r the a b o l i t i o n of the action of the r i g h t f u l payee. The doctrine does not necessarily e n t a i l the recognition of constructive t r u s t s to remedy an unjust enrichment. However, the remedial constructive t r u s t i s a useful remedy f o r a mistaken payer and, i f the payee has become bankrupt, the only one. F i n a l l y , i t i s argued that the recognition of change of p o s i t i o n as a defence i s a consequent step a f t e r the recognition of the unjust enrichment doctrine. i v UNJUST ENRICHMENT AND THE RECOVERY OF MONEY MISTAKENLY PAID THESIS ABSTRACT i i I. INTRODUCTION 1 I I . THE RATIONALE FOR RECOVERY OF MONEY MISTAKENLY PAID 2 1. THE CONCRETE MEANING OF UNJUST ENRICHMENT 6 2. MISTAKE AS A GROUND FOR RESTITUTION 11 3. PRIVITY AND UNJUST ENRICHMENT 13 I I I . THE ACTION OF THE RIGHTFUL PAYEE 19 1. INTRODUCTION 19 2. THE SITUATION IN GREAT BRITAIN 22 a) The n e c e s s i t y o f p r i v i t y 26 3. THE SITUATION IN THE UNITED STATES 31 a) The b a s i s f o r the a c t i o n o f the r i g h t f u l payee 33 b) E l e c t i o n o f remedies by the r i g h t f u l payee ? 38 c) S u p e r i o r i t y o f the c l a i m o f the r i g h t f u l payee over the c l a i m o f the mistaken payer ? 39 4. THE CANADIAN SITUATION 41 IV. PROPRIETARY REMEDIES - THE CONSTRUCTIVE TRUST AS A REMEDIAL DEVICE IN THE CASE OF MONEY MISTAKENLY PAID 48 1. INTRODUCTION 48 2. THE ENGLISH CONSTRUCTIVE TRUST 53 V a) Tracing i n equity and constructive t r u s t s . . . . 5 8 b) The requirement of a f i d u c i a r y r e l a t i o n s h i p fo r t r a c i n g 60 c) The development of tr a c i n g and constructive t r u s t i n Chase Manhattan Bank N.A. v. I s r a e l B r i t i s h Bank (London) Ltd. 62 d) The equitable ownership i n money mistakenly paid 66 e) The inadequacy of the remedy at law 66 f) When does the constructive t r u s t a r i s e ? .... 67 3. THE AMERICAN CONSTRUCTIVE TRUST 68 a) General 68 b) The f i d u c i a r y r e l a t i o n s h i p 69 c) The inadequacy of the remedy at law 71 d) Mistake of fac t and mistake of law 72 e) The innocent volunteer as constructive trustee ? 73 4. THE CANADIAN REMEDIAL CONSTRUCTIVE TRUST 74 a) Remedial constructive t r u s t s . . . 74 b) J u s t i c e and good conscience as a second independant basis f o r constructive trusts....77 c) The requirement of a f i d u c i a r y r e l a t i o n s h i p 79 d) Inadequacy of l e g a l remedies 80 e) Money paid under mistake of law 85 f) Tracing of money mistakenly paid ? 85 g) Constructive t r u s t s and bankruptcy 89 v i 5. THE RIGHTFUL PAYEE AS BENEFICIARY 91 6. CONCLUSION 96 V. CHANGE OF POSITION 97 1. INTRODUCTION 97 2. THE CONDITIONS OF ESTOPPEL IN PAIS OR BY REPRESENTATION IN THE LAW OF GREAT BRITAIN AND CANADA 102 a) Representation 103 b) Reliance of the representee 108 c) Detriment or prejudice of the representee...109 3. CHANGE OF POSITION IN CANADA I l l a) The rat i o n a l e of change of p o s i t i o n I l l b) Misinterpretation of the unjust enrichment doctrine 119 c) The detrimental element of change of p o s i t i o n 123 d) Change of p o s i t i o n only i f the enriched person i s bona f i d e 124 e) Change of p o s i t i o n before i t s formal acceptance 126 f) Change of p o s i t i o n as a defence to a proprietary claim 128 4. CHANGE OF POSITION IN THE U.S.A 130 VI. THE GERMAN SITUATION 133 1. MISTAKE AS A GROUND FOR RESTITUTION ? 134 2. THE ACTION OF THE RIGHTFUL PAYEE 135 v i i 3. REMEDIES IN REM 135 4. CHANGE OF POSITION 137 VII. CONCLUSION 143 VIII. BIBLIOGRAPHY 146 1 I. INTRODUCTION I f A pays money e r r o n e o u s l y t o another i t seems f a i r t h a t the payer should be a b l e t o r e c o v e r the mistaken payment. T h i s paper i s concerned w i t h some qu e s t i o n s which may a r i s e i f r e s t i t u t i o n i s sought. However, the scope of the examination w i l l be r e s t r i c t e d t o s i t u a t i o n s where t h e r e i s no c o n t r a c t u a l o b l i g a t i o n between the p a r t i e s t h a t has t o be s e t a s i d e 1 . I t i s the t h e s i s of t h i s paper t h a t u n j u s t enrichment i s the r a t i o n a l e f o r r e c o v e r y of money m i s t a k e n l y p a i d and, more g e n e r a l l y , the law of r e s t i t u t i o n . T h e r e f o r e , the d o c t r i n e of u n j u s t enrichment, i t i s submitted, governs any remedy f o r the r e c o v e r y of money m i s t a k e n l y p a i d . I t w i l l be f a i r l y obvious t h a t I have r e c e i v e d my l e g a l e d u c a t i o n i n West Germany and drew upon t h i s e xperience. T h e r e f o r e , the German law as t o money m i s t a k e n l y p a i d w i l l be e x p l a i n e d i n the l a s t c hapter. However, the l a s t chapter w i l l g i v e o n l y a b r i e f s k e t c h because of the d i f f i c u l t y t o o b t a i n the necessary German m a t e r i a l a t U.B.C. The f o l l o w i n g t h r e e a s p e c t s o f money p a i d under mistake w i l l be examined: 1 As P r o f e s s o r Palmer says: "The s i g n i f i c a n t common element i n t h e s e cases i s t h a t the r e c i p i e n t o f the money n e i t h e r gave nor promised t o g i v e a n y t h i n g i n exchange. In order t o award r e s t i t u t i o n , no t r a n s a c t i o n needs t o be r e s c i n d e d o r s e t a s i d e except the payment i t s e l f . " 3 Palmer, George, E., The Law of R e s t i t u t i o n (Boston and Toronto 1978) a t p. 144. 2 - The action of the r i g h t f u l payee, - Proprietary remedies: The constructive t r u s t as a remedial device, - Change of p o s i t i o n as a defence. Emphasis w i l l be given to the underlying r a t i o n a l e of recovery which f i r s t w i l l be dealt with. I I . THE RATIONALE FOR RECOVERY OF MONEY MISTAKENLY PAID Before discussing r e s t i t u t i o n a r y questions i t should be asked why does i t seem f a i r to grant a mistaken payer r e s t i t u t i o n ? Often judges and l e g a l writers simply stated that r e s t i t u t i o n rests on the balance of the equities between the pa r t i e s or on natural j u s t i c e 2 . "This kind of equitable action, to recover back money, which ought not i n j u s t i c e to be kept, i s very b e n e f i c i a l , and therefore much encouraged. I t l i e s only f o r money which, ex aequo et bono, the defendant ought to refund ...." 3 [emphasis supplied] More often, the question was not answered at a l l but judges used one of the t r a d i t i o n a l actions i n quasi-contract or equity without explaining i t s underlying r a t i o n a l e . To obtain r e s t i t u t i o n of a mistaken payment a payer can a v a i l himself of an action f o r money paid under mistake or z Cf., e.g., Fridman, G.H.L. and McLeod, James G., R e s t i t u t i o n (Toronto 1982), p. 67 et seq. where the authors said as to the ra t i o n a l e of recovery of money paid under a mistake of f a c t : "[T]he present authors i n c l i n e towards the "moral" approach to recovery.", at p. , 70. J Lord Mansfield i n Moses v. MacFerlan. (1760), 2 Burr. 1005; 1 W.B1. 219; 97 E.R. 676 at p. 680. 3 an action f o r money had and received. The action for money paid under a mistake l i e s : "... where money i s paid to another under the influence of a mistake, that i s , upon the supposition that a s p e c i f i c f a c t i s true, which would e n t i t l e the other to the money, but which fact i s untrue, and the money would not have been paid i f i t had been known to the payer that the fact was untrue . .." 4 The action for money had and received (for the use of the p l a i n t i f f ) l i e s also to recover money which the p l a i n t i f f has paid to someone not e n t i t l e d to i t . 5 This paper adopts another approach which, i t i s submitted, can explain more p r e c i s e l y why r e s t i t u t i o n s h a l l be granted or withheld. The p r i n c i p l e of unjust enrichment provides the basis for recovery of money mistakenly p a i d 6 . The doctrine has gained more and more ground i n Canada since the decision of the Supreme Court i n Deqlman v. Guaranty Trust of Canada 7. Per Parke B. i n Ke l l y v. S o l a r i (1841), 9 M.& W. 54 at p. 58; 152 E.R. 24 at p. 26; 11 L.J.Exch. 10; 6 Jur. 107; c f . Barclays Bank Ltd. v. W.J. Simms Son & Cooke fSouthern) Ltd.. [1980] Q.B. 677; [1980] 2 W.L.R. 218, (1979), 123 S.J. 785, [1979] 3 A l l E.R. 522, [1980] 1 Lloyd's Rep. 225. This action i s an action at law as d i s t i n c t from an action i n equity. One prominent disadvantage of t h i s action i s that i t does not l i e i n the case of money paid under mistake of law. By t h i s action the p l a i n t i f f can also obtain money which the defendant received from a t h i r d party. Although unjust enrichment provides the basis or underlying r a t i o n a l e f o r recovery of money mistakenly paid, other considerations may play a r o l e , too, i n eventually deciding whether r e s t i t u t i o n should be granted. [1954] S.C.R. 725; [1954] 3 D.L.R. 385. 4 U n j u s t enrichment has been a l r e a d y accepted as r a t i o n a l e f o r the law of r e s t i t u t i o n i n the U.S.A. The Restatement of R e s t i t u t i o n 8 p r o v i d e s i n s e c t i o n 1: "A person who has been u n j u s t l y e n r i c h e d a t the expense of another i s r e q u i r e d t o make r e s t i t u t i o n t o the o t h e r . " T h e r e f o r e , from time t o time t h i s paper w i l l examine the American example. U n j u s t enrichment has not y e t found such r e c o g n i t i o n i n the law of Great B r i t a i n 9 . However, t h e r e are a number of cases which support the u n j u s t enrichment d o c t r i n e . In F i b r o s a Spolka Akcyina v. F a i r b a i r n Lawson Combe Barbour, L t d . 1 0 Lord Wright h e l d : " I t i s c l e a r t h a t any c i v i l i z e d system of law i s bound t o p r o v i d e remedies f o r cases of what has been c a l l e d u n j u s t enrichment or u n j u s t b e n e f i t , t h a t i s t o prevent a man from r e t a i n i n g the money of ... another which i t i s a g a i n s t c o n s c i e n c e t h a t he s h o u l d keep." 1 • Lord R a d c l i f f e d e s c r i b e d u n j u s t enrichment as: "a l e s s t e c h n i c a l , i f more d i g n i f i e d , d e s c r i p t i o n of the count f o r money had and r e c e i v e d t o a p l a i n t i f f ' s use which has long been an e s t a b l i s h e d cause of a c t i o n under our system of law." 1 And i n K i r i r i Cotton Co. v. Dewani Lord Denning s a i d : " A l l the p a r t i c u l a r heads of money had and r e c e i v e d , such as money p a i d under a mistake o f f a c t , ... are ° American Law I n s t i t u t e , Restatement of the Law o f R e s t i t u t i o n ( S t . P a u l 1937) [ h e r e i n a f t e r c i t e d as Restatement]. 9 Cases a r e l i s t e d by Goff, Robert and Jones, Gareth, The Law o f R e s t i t u t i o n . (3rd.ed. London 1986) p. 12 e t seq. 1 0 [1943] A.C. 32; [1942] 2 A l l E.R. 122; 111 L.J.K.B. 433; 167 L.T. 101; 58 L.T.R. 308; 86 S.J. 232; 1 1 [1943] A.C. 32 a t p. 61. 1 2 B o i s s e v a i n v. W e i l . [1950] A.C. 327 a t p. 339. 66 T . L . R . ( P t . l ) 771; 94 S.J. 319; [1950] 1 A l l E.R. 728. 5 only instances where the law says the money ought to be returned." 1 In Canada, the p r i n c i p l e of unjust enrichment has been applied many times. In Deglman v. Guaranty Trust of Canada 1 4 Rand J . held that the p l a i n t i f f could recover f o r personal services, rendered pursuant to a contract which was unenforceable due to non-compliance with the Statute of Frauds. Otherwise, i t was held, the defendant would have been unjustly e n r i c h e d 1 5 . What i s remarkable i s that the p l a i n t i f f sought redress on a ground which would not have triggered l i a b i l i t y under the pre-existing forms of a c t i o n 1 6 . Again, i n County of Carleton v. C i t y of Ottawa 1 7 the p r i n c i p l e of unjust enrichment was applied to a s i t u a t i o n i n which the p l a i n t i f f had inadvertently discharged an ob l i g a t i o n of the C i t y of Ottawa. The p l a i n t i f f was e n t i t l e d to recover the money from the c i t y . Moreover, the same p r i n c i p l e has been used i n Rathwell v. R a t h w e l l 1 8 and i n Pettkus v. Becker 1 9. In these cases the i j [1960] A.C. 192 at p. 205; [1960] 2 W.L.R. 127; 104 S.J. 49; [1960] 1 A l l E.R. 177. 1 4 [1954] S.C.R. 725. Ibid, at p. 788. "The statute i n such a case does not touch the p r i n c i p l e of r e s t i t u t i o n against what would otherwise be an unjust enrichment of the defendant at the expense of the p l a i n t i f f . " , i b i d , at p. 728. 1 6 K l i p p e r t , George B.: "The J u r i d i c a l Nature of Unjust Enrichment", (1980), 30 U.of T.L.J. 365 at p. 383. 1 7 [1965] S.C.R. 663; (1965), 52 D.L.R.(2d) 220. See, too, Arnett and Wensley Ltd. v. Good (1967), 64 D.L.R. (2d) 181 (B.C.S.C). 1 8 [1978] 2 S.C.R. 436; [1978] 2 W.W.R. 101; (1978), 1 R.F.L.(2d) 1; 1 E.T.R. 307; 83 D.L.R.(3d) 289; 19 N.R. 91. 1 9 [1980] 2 S.C.R. 834; (1980), 19 R.F.L.(2d) 165; 8 E.T.R. 143; 117 D.L.R.(3d) 257; 34 N.R. 384. 6 d i s p u t e was about the d i s t r i b u t i o n o f p r o p e r t y a c q u i r e d by a man and a woman d u r i n g the p e r i o d i n which they l i v e d t o g e t h e r . (In Rathwell v. Rathwell the p a r t i e s had been married.) And i n both cases, Dickson J . (as he then was) h e l d t h a t a c o n s t r u c t i v e t r u s t would l i e t o pr e v e n t u n j u s t enrichment o f one of the p a r t i e s . F i n a l l y , a f u r t h e r example can be found i n Wilson and W i l s u r H o l d i n g s L t d . v. C o r p o r a t i o n o f S u r r e y 2 0 where t h e p r i n c i p l e o f u n j u s t enrichment was r e f e r r e d t o i n the c o n t e x t o f money p a i d under m i s t a k e 2 1 . Cases o f money p a i d under mistake may i n v o l v e some k i n d of wrong done by the payee t o the payer. But wrong i s not a nec e s s a r y requirement f o r r e s t i t u t i o n o f money m i s t a k e n l y p a i d and, because i t r a i s e s d i f f e r e n t c o n s i d e r a t i o n s , t h e q u e s t i o n s o f wrong done by the e n r i c h e d are not d i s c u s s e d h e r e 2 2 . 1. THE CONCRETE MEANING OF UNJUST ENRICHMENT For many the term u n j u s t enrichment seems t o be much too vague f o r a l e g a l r u l e . Take the statement by Mart l a n d J . i n Pettkus v. Becker, f o r i n s t a n c e : [1981] 3 W.W.R. 266 ( B . C . S . C ) . 2 1 I t has t o be noted t h a t the p r i n c i p l e o f u n j u s t enrichment does not govern y e t the case o f money p a i d under a mistake o f law, Hydro E l e c t r i c Commission o f the Township o f Nepean v. O n t a r i o Hydro, [1982] 1 S.C.R. 347; (1982), 132 D.L.R.(3d) 193; 16 B.L.R. 215; 41 N.R. 1. 2 2 Cf. B i r k s , P e t er, An I n t r o d u c t i o n t o the Law o f R e s t i t u t i o n (Oxford 1985), pp. 6, 23 e t seq. [ h e r e i n a f t e r c i t e d as R e s t i t u t i o n ] . 7 "In my opinion, the adoption of t h i s concept [ i . e . unjust enrichment] involves an extension of the law as so f a r determined i n t h i s court. Such an extension i s , i n my view, undesirable. I t would clothe judges with a very wide power to apply what has been described as "palm tree j u s t i c e " without the benefit of any guidelines. By what t e s t i s a judge to determine what constitutes unjust enrichment ? The only t e s t would be h i s i n d i v i d u a l perception of what he considered to be u n j u s t . " 2 3 But the unjust enrichment p r i n c i p l e , l i k e every other p r i n c i p l e , can be given a more c l e a r l y defined shape. To use the words of Lord Wright: "Like a l l large generalizations, i t has needed and received q u a l i f i c a t i o n s i n p r a c t i c e . " I t i s believed that the p r i n c i p l e of unjust enrichment does not import unfettered j u d i c i a l d i s c r e t i o n into the law of r e s t i t u t i o n but can provide f a i r l y c l e a r and unambiguous ru l e s . In Pettkus v. Becker 2 5. Dickson J . established what might be c a l l e d a three step t e s t to decide whether there i s an unjust enrichment or not. The judge said: "How then does one approach the question of unjust enrichment i n matrimonial causes ? In Rathwell I ventured to suggest there are three requirements to be s a t i s f i e d before an unjust enrichment can be sa i d to e x i s t : an enrichment, a corresponding deprivation and the absence of any j u r i s t i c reason [such as a contract or d i s p o s i t i o n of l aw 2 6] f o r the enrichment." 2 7 According to Dickson J . three points have to be f u l f i l e d . F i r s t , an enrichment. Prima f a c i e , whenever any (1980), 19 R.F.L.(2d) 165 at p. 193. 2Jt [1943] A.C. 32 at p. 62. 2 5 (1981), 19 R.F.L. (2d) 165 (S.C.C). 2 6 Rathwell v. Rathwell. (1978), 1 R.F.L.(2d) 1 at p.15. 2 7 (1981), 19 R.F.L.(2d) 165 at p. 180. 8 kind of benefit has been transferred from A to B a case f o r r e s t i t u t i o n can be made o u t 2 8 . Professor Klippert has pointed out that i n addition "evidence of v o l i t i o n i n the receipt or retention of the benefit" i s necessary before an obliga t i o n to make r e s t i t u t i o n should be imposed 2 9. For example, i f service i s provided f o r somebody by mistake, the r e c i p i e n t may not be able to hand t h i s service back because of the nature of the enrichment. I t seems sensible to require the r e c i p i e n t to make r e s t i t u t i o n , only i f he f r e e l y accepted the service. But i n the case of money mistakenly paid, there i s general agreement that money w i l l enrich the payee. Therefore, the payee i n most cases w i l l f r e e l y accept the payment and t r y to r e t a i n i t . The payee may defend himself i n d i f f e r e n t ways but can hardly do so with the argument that he did not f r e e l y accept or r e t a i n the money. As a consequence, the ' v o l i t i o n a l ' requirement w i l l be disregarded i n the discussion of money mistakenly paid. Secondly, there has to be a corresponding deprivation. This requirement l i n k s p l a i n t i f f and defendant together. Not everyone should be e n t i t l e d to recoup an enrichment i n the hands of the defendant but only the one who has suffered a C r i t i c a l : Birks, R e s t i t u t i o n, p. 9. What may constitute a benefit i s demonstrated by the Restatement, sec. 1, Comm. b. Klip p e r t , George B.: "The J u r i d i c a l Nature of Unjust Enrichment", (1980), 30 U.of T.L.J. 365 at p. 373 et seq. 9 corresponding l o s s J . Save i n some exceptional cases, an unjust enrichment action w i l l not l i e i f there i s no l o s s . Royal Bank of Canada v. Huber 3 1 provides an example. The bank i n t h i s case mistakenly c e r t i f i e d and paid a cheque drawn upon the bank, thereby overlooking a stop payment order. The bank did not s u f f e r a loss through the payment because when the bank c e r t i f i e d the cheque i t withdrew the cheque amount from the drawer's account and credited i t to one t r u s t account. Moreover, the drawer did not demand repayment of the money mistakenly paid. Certainly, the bank paid money under mistake. But the t r i a l judge dismissed the action of the bank on the ground that i t had suffered no l o s s 3 2 . T h i r d l y , according to Pettkus v. Becker, "the absence of any j u r i s t i c reason f o r the enrichment" i s necessary to succeed i n an unjust enrichment claim. In other words, any j u r i s t i c reason defeats the p l a i n t i f f ' s action. 'Any j u r i s t i c reason' ref e r s to other branches of the law such as the law of contract, property, w i l l s e t c . 3 3 I f A has entered Or whose property or other r i g h t s have been infringed by the defendant. (1971), 23 D.L.R.(3d) 209; [1972] 2 W.W.R. 338 (Sask.C.A.). The Court of Appeal upheld the judgment but f o r a d i f f e r e n t reason. Because the payee was as between himself and the drawer of the cheque j u s t l y e n t i t l e d to the payment the court held: " [ I ] t would be against equity and good conscience to i n s i s t that the defendant return the money.", (1971), 23 D.L.R.(3d) 209 at p. 212. One wonders why the bank sued at a l l . In Sorochan v. Sorochan. [1986] 2 S.C.R. 38; (1986) 29 D.L.R. (4th) 1, the j u r i s t i c reason was sai d to be "any 10 into a contract with B f o r consideration that B s h a l l keep a payment by A, the law of contracts provides the j u r i s t i c reason why i t i s j u s t that B r e t a i n the money paid. I f A and B have been j o i n t tenants of a l o t and A dies, the law of property provides that the whole t i t l e vests i n B. In t h i s case, property law explains why i t i s deemed j u s t that A's estate has l o s t the h a l f i n t e r e s t i n the l o t and B has obtained f u l l t i t l e . Of course, there i s another j u r i s t i c reason to r e t a i n the enrichment i f the payer paid v o l u n t a r i l y by admitting l i a b i l i t y to a claim of the payee or by making a g i f t 3 4 . I t has to be emphasized that only j u r i s t i c reasons as opposed to moral, s o c i a l or p o l i t i c a l reasons, f o r example, form a v a l i d base f o r r e t a i n i n g the enrichment. This disposes with concerns, l i k e the one expressed by Martland J . , that a judge's i n d i v i d u a l perception of j u s t i c e w i l l obtain too much weight i f the unjust enrichment doctrine w i l l be a p p l i e d 3 6 . However, there are instances where obli g a t i o n , contractual or otherwise", [1986] 2 S.C.R. at P- 46. J 4 Holland v. Alkemade (1985), 19 E.T.R. 10 (Ont.C.A.); Barclays Bank Ltd. v. W.J. Simms Son & Cooke (Southern) Ltd., [1980] Q.B. 677 at p. 695; Goff and Jones, op.cit.. p. 105 et seg. 3 5 Above. 3 6 Cf. Birks, R e s t i t u t i o n , p. 19: "The answer to the fear of uncertainty i s not to r e j e c t the word [ i . e . unjust enrichment] but to deal fir m l y with any argument which attempts to detach i t from the law." 11 judges, with reference to Lord Mansfield's judgment i n Moses v. MacFerlan 3 7. held otherwise 3 8. 2. MISTAKE AS A GROUND FOR RESTITUTION ? Although unjust enrichment has been recognised as the basis f o r recovery, i t i s s t i l l f e l t by many that there must be a p a r t i c u l a r ground f o r r e s t i t u t i o n , i . e . the fa c t that the p l a i n t i f f acted mistakenly 3 9. I t cannot be disputed that i n nearly a l l r e s t i t u t i o n a r y situations the p l a i n t i f f acted mistakenly. But, i t i s submitted, t h i s requirement might lead to lengthy considerations of which kind of mistake i s necessary to grant r e s t i t u t i o n . For instance, the debate over the d i s t i n c t i o n between mistake of f a c t and mistake of law with a l l i t s n i c e t i e s i s not over yet i n Canada 4 0. I t i s submitted that i t does not make any difference whether the j ; (1760), 97 E.R. 676 at p. 697: "[The defendant] may defend himself by everything which shews that the p l a i n t i f f , ex aequo et bono, i s not e n t i t l e d to the whole of i t s demand, or to any part of i t . " 3 8 See, e.g., Small and Small v. Stanford. [1977] 6 W.W.R. 185 at p. 189 (B.C.Co.Ct.): "In essence the t e s t again i s , would i t be against conscience i n a given case f o r a person so benefited to gain and r e t a i n such enrichment ...?" [emphasis o r i g i n a l ] . The r e s u l t i n the case i s a r b i t r a r y . Dobbs, Dan B., Handbook on the Law of Remedies (St.Paul 1973), p. 757 [hereinafter c i t e d as Remedies]; Palmer, George E., The Law of Re s t i t u t i o n (Boston and Toronto 1978), sec. 14.1, p. 149. 4 0 Hydro E l e c t r i c Commission of the Township of Nepean v. Ontario Hydro. [1982] 1 S.C.R. 347; (1982), 132 D.L.R. (3d) 193; 16 B.L.R. 215. But the d i s t i n c t i o n i s condemned by many, for instance, Law Reform Commission B.C., Report on Benefits Conferred Under A Mistake Of Law. 1981. 12 mistake i s one of fac t or of law 4 1 . Furthermore, why does a p l a i n t i f f have to show that he acted mistakenly i f he can prove that part of h i s property has come into the hands of the defendant without l e g a l j u s t i f i c a t i o n ? 4 2 A s p e c i a l ground f o r r e s t i t u t i o n matters only i f a d i f f e r e n t approach, proposed by Professor Birks, i s followed. He acknowledged too, that unjust enrichment i s "the causative e v ent" 4 3 f o r r e s t i t u t i o n . But f o r him an enrichment i s only unjust i f there i s a reason present which renders the enrichment unjust. The mere tra n s f e r of a benefit from A to B does not mean much within Professor Birks' theory: "One who parts with value cannot j u s t demand i t back, not even i f he received nothing i n return. The other has an i n t e r e s t i n the security of h i s receipt. I f he i s to be disturbed there has to be a good reason, one strong enough to be compatible with respect f o r s t a b i l i t y . [T]he impulse to r e l i e v e mistakes i s something to weigh against the in t e r e s t i n sec u r i t y . " Two s a l i e n t reasons which, according to Professor Birks, c a l l f o r r e s t i t u t i o n are non-voluntary t r a n s f e r of the benefit, and free acceptance by the t r a n s f e r e e 4 4 . I t i s submitted, that t h i s approach i s les s p r a c t i c a l because i t puts the burden upon the p l a i n t i f f to e s t a b l i s h a reason for Cf. the dissenting judgment i n Hydro E l e c t r i c Commission of the Township of Nepean v. Ontario Hydro, above. Koenig observed that the courts have more and more lessened the requirements for a p l a i n t i f f to prove a mistake; Koenig, Detlev, Unorerechtfertigte Bereicheruncr (Heidelberg 1985) at pp. 20-21, 33. Birks, R e s t i t u t i o n , at pp. 17 and 39. Ibid., at pp. 99 and 62. 13 recovery. Moreover, t h i s approach denies i n the r e s u l t that unjust enrichment i s the rationale f o r r e s t i t u t i o n . I t i s submitted rather that i t should be a defence f o r a defendant to show that the p l a i n t i f f wanted the defendant to r e t a i n the enrichment i n any e v e n t 4 5 . In any case, as the law stands now Professor Birks' course i s not compatible with the one taken by the Supreme Court of Canada. As a matter of p r a c t i c e i t i s s t i l l commonplace to frame a claim i n terms of one of the old forms of action for money had and received or money mistakenly paid rather than basing the claim on unjust enrichment per se. In the present stage of development the use of unjust enrichment per se without reference to one of the forms of action i s r a r e 4 6 . 3. PRIVITY AND UNJUST ENRICHMENT Although many courts have decided and l e g a l writers have suggested that the p r i n c i p l e of unjust enrichment forms the underlying r a t i o n a l e for most of the t r a d i t i o n a l quasi-contractual claims, or, even further, the basis of l i a b i l i t y i n r e s t i t u t i o n a r y law, as many decisions do not r e f l e c t t h i s . To adopt a statement by Professor K l i p p e r t : "[0]n the whole the ... judges ... were content to allow the p r i n c i p l e to sleep q u i e t l y i n the background. The reason f o r t h i s j u d i c i a l reticence i s simply that where the conceptual t o o l s borrowed from Cf. K l i p p e r t , (1980), 30 U.of T.L.J. 356 at p. 377. 4 6 Glavin v. MacLean (1972), 5 N.S.R. (2d) 288 (N.S.Ct.C). 14 the law o f contract were f e l t to be adequately serving the purposes of decision-making, [the] judges had l i t t l e incentive to philosophize about unjust enrichment. 1 , 4 7 For example, the statement of the law by Dysart J . i n Royal Bank v. The K i n g 4 8 does not appear to be compatible with the unjust enrichment doctrine. In hi s judgment, Dysart J . set out four conditions before money paid under mistake (of fact) can be recovered: " F i r s t : that the mistake i s honest... The second condition i s that the mistake must be as between the person paying and the person receiving the money. In other words, the receiver must i n some way be a party to the mistake, either as inducing i t , or as responsible for i t , or connected with i t . [Quotations omitted] The t h i r d condition i s that the facts, as they are believed to be, impose an obligation to make the payment... The fourth condition to recovery i s that the receiver of the money has no l e g a l or equitable or moral r i g h t to r e t a i n the money as against the payer." 4 9 I t i s astonishing that Royal Bank v. The King i s s t i l l regarded as v a l i d authority for questions of money mistakenly p a i d 5 0 . I t i s submitted that i t s requirement of p r i v i t y or, i n other words, that the mistake must be as 4 ; K l i p p e r t , (1980), 30 U.of T.L.J. 356 at p. 361. Professor Kl i p p e r t , however, made t h i s statement with reference to the common law judges of England. 4 8 [1931] 2 D.L.R. 685; [1931] 1 W.W.R. 709 (Man.K.B.). 4 9 [1931] 2 D.L.R. at pp. 688-89. 5 0 Dominion Bank v. Jacobs. [1951] O.W.N. 421; [1951] 3 D.L.R. 233 (Ont.H.Ct.); Roval Bank v. Bovce (1966), 57 D.L.R. (2d) 683 (Ont.Co.Ct.); Bank of Montreal v. Molleaaard (1974), 10 N.B.R. (2d) 216 (Co.Ct.); Toronto- Dominion Bank v. Anker E l e c t r i c Motor and Equipment Co. Ltd. (1978), 22 O.R.(2d) 369 (Ont.Co.Ct.); Bank of Nova Scotia v. McKee's Estate (1982), 103 A.P.R. 542; 39 N.B.R.(2d) 542 (N.B.Q.B.); Roval Bank of Canada v. LVG Auctions Ltd. (1983), 25 B.L.R. 30 (Ont.S.C). 15 between the payer and payee, i s no longer a v a l i d requirement i n the law of r e s t i t u t i o n 5 1 . The p r i n c i p l e of p r i v i t y means that "no one but the pa r t i e s to a contract can be bound by i t , or e n t i t l e d under i t . " 5 2 The f a c t that t r a d i t i o n a l l y recovery of money was based on an implied promise l e d to the introduction of p r i v i t y into the law of r e s t i t u t i o n . Now that unjust enrichment has been recognized as the true basis f o r r e s t i t u t i o n , p r i v i t y should no longer play a r o l e 5 3 . I t i s , moreover, i n t e r e s t i n g to observe how e a s i l y the requirement of p r i v i t y was discharged i n Royal Bank v. The King. Royal Bank was a case where a bank mistakenly paid a cheque of one of i t s customers to the wrong person which obtained the money bona f i d e . Dysart J . stated that "the mistake must be as between the person paying and the person receiving the money. In other words, the receiver must i n some way be a party to the mistake, ei t h e r as inducing i t , or as responsible f o r i t , or connected with i t . " 5 4 P r i v i t y i s not a requirement for an unjust enrichment action i n the U.S.A., c f . Dawson, Unjust Enrichment, pp. 24, 126. Barclays Bank Ltd. v. W.J. Simms Son & Cooke (Southern) Ltd.. [1980] Q.B. 677 at p. 695; [1979] 3 A l l E.R. 522 at p. 535; cf . Reynolds, J . : "Countermand of Cheques", (1981), 15 U.B.C.L. Rev. 341 at p. 359 et seq. Anson, The Law of Contract (26th ed. Guest, Oxford 1984), p. 363. For Canada see: Greenwood Shopping Plaza Ltd. v. Beattie (1980), 111 D.L.R. (3d) 257 at p. 262 (S.C.C.). Cf. Goff and Jones, o p . c i t . f p. 23 and see Barclays Bank Ltd. v. W.J. Simms Son & Cooke (Southern) Ltd.. [1979] 3 A l l E.R. 522 at p. 535. [1931] 2 D.L.R. at p. 689. 16 The judge found that by pocketing the proceeds of the mistaken cheque payment the payee had linked i t s e l f with the mistake. But then one wonders what function the requirement of p r i v i t y serves i f simply by taking the money the payee "linked i t s e l f " with the mistake. There are few cases where p r i v i t y was d e c i s i v e 5 5 . And of those some can be explained on other grounds. In Royal Bank v. Boyce 5 6 the f i r s t defendant, the buyer of a used car, issued a cheque. The next day, he wanted to withdraw from the sale and countermanded the cheque. The p l a i n t i f f bank mistakenly paid the cheque to the vendor of the car, the second defendant. The bank demanded payment from e i t h e r defendant. As to r e s t i t u t i o n from the second defendant the court found that he was e n t i t l e d to the payment as against the f i r s t defendant: "Had t h i s been an action against [the drawer] by [the payee] on the cheque, [the payee] would have succeeded as a holder i n due course. There were no grounds for rescinding the contract of sale." Counsel f o r the second defendant argued that the bank was estopped but there was no r e p r e s e n t a t i o n 5 7 . b b Bank of Montreal v. Molleaaard. (1974), 10 N.B.R.(2d) 216 (Co.Ct.); Dominion Bank v. Jacobs. [1951] O.W.N. 421; [1951] 3 D.L.R. 233; McLaughlin v. M i t c h e l l . [1949] 1 D.L.R. 755, reversing i n part [1948] 3 D.L.R. 834; Royal Bank v. Boyce. (1966), 57 D.L.R.(2d) 683 (Ont.Co.Ct.). 5 6 (1966), 57 D.L.R.(2d) 683. 5 7 However, the judge held that t h i s argument was v a l i d and supported by the aut h o r i t i e s , i b i d , at p. 690. There was no change of p o s i t i o n because the vendor had handed the car over before he received payment on the cheque. 17 The judge eventually dismissed the action against the second defendant because the mistake of the bank was not one between the bank and the defendant. I t i s submitted that the judgment f o r the second defendant d i d not r e s t on t h i s ground but on the fa c t that the defendant was e n t i t l e d to the payment as against the f i r s t defendant. As against the f i r s t defendant the judge found that there had been a v a l i d stop payment order and therefore the action f a i l e d 5 8 . Any equitable r e l i e f against both defendants was denied because of the bank's arrogant attitude i n dealing with the car and the bank's customers. I t i s doubtful whether cases applying the doctrine of p r i v i t y i n r e s t i t u t i o n a r y law s t i l l have authority a f t e r the There i s another issue i n whether the bank should have succeeded on the ground of payment of another's debt. I t i s submitted that, at le a s t i n cases of countermanded cheques, payment of another's debt should not be a base fo r r e s t i t u t i o n . See, e.g., Barclays Bank Ltd. v. W.J. Simms Son & Cooke (Southern) Ltd.. [1980] 1 Q.B. 677. This was c r i t i c i z e d by A.M. Tettenborn, "Mistaken Payment of Countermanded Cheques", [1980] New L.J. 273. See, too, Matthews, Paul, "Money Paid Under Mistake of Fact", [1980] New L.J. 587. There i s , however, Canadian and B r i t i s h authority which would support the action for payment of another's debt: B.Liggett (Liverpool) Ltd. v. Barclays Bank Ltd.. [1928] 1 K.B. 48; 97 L.J.K.B. 1; 137 L.T. 443; 43 T.L.R. 449; Shapera v. Toronto-Dominion Bank (1970), 13 D.L.R.(3d) 122 at p. 127; [1971] 1 W.W.R. 422 (Man.Q.B.); Roval Bank of Canada v. Huber (1971), 23 D.L.R.(3d) 209 at p. 212; [1972] 2 W.W.R. 338 at p. 340 (Sask.C.A.) [obiter dictum]; Sparkle Wash Ltd. v. Saskatoon Credit Union Ltd.. [1979] 2 W.W.R. 320 at p. 329 et seq. (Sask.Dist.Ct.). Cf. Reynolds, (1981), 15 U.B.C.L. Rev. 341 at p. 363 et seq. and Friedmann, D., Payment of Another's Debt, (1983), 99 L.O.Rev. 534. formal acceptance of the u n j u s t enrichment d o c t r i n e 5 9 . The concepts are i n c o n f l i c t and p r i v i t y should not be allowed t o confuse r e s t i t u t i o n any longe r . T h e r e f o r e , t h e r e no l o n g e r needs t o be a mistake as between the person paying and the person r e c e i v i n g the money. However, as s e t out above, t h e r e must be a l i n k between the p l a i n t i f f and defendant. Not everyone should be e n t i t l e d t o recoup an enrichment i n the hands of the defendant but onl y the one who has s u f f e r e d a c o r r e s p o n d i n g l o s s . That i s why a corres p o n d i n g d e p r i v a t i o n has t o be e s t a b l i s h e d b e f o r e a p l a i n t i f f might o b t a i n an enrichment i n the hands of the defendant. In many cases, the r e s u l t s w i l l not d i f f e r whether t h e r e i s a requirement t h a t t h e r e must be a mistake as between the person paying and the person r e c e i v i n g the money or whether t h e r e must be a corresponding d e p r i v a t i o n . N e v e r t h e l e s s , i t i s submitted, p r i v i t y as a term of the lav; of c o n t r a c t should remain t h e r e . The law of r e s t i t u t i o n should c o i n i t s own terms and e s t a b l i s h i t s own requirements t o a v o i d c o n f u s i o n w i t h c o n s i d e r a t i o n s which t r u l y belong t o the law of c o n t r a c t . y Cf. Fridman and McLeod, R e s t i t u t i o n , p. 86 e t seq. T h i s paper does not share the viev; taken by the authors. I I I . THE ACTION OF THE RIGHTFUL PAYEE 1. INTRODUCTION Whether the doctrine of unjust enrichment i s followed or not, i f a person (A) owing money to another (B) mistakenly pays the money to a t h i r d person (C), A has l e g a l and equitable remedies to recover the mistaken payment from C unless C i s a bona f i d e purchaser f o r v a l u e 6 0 . The question i n t h i s chapter i s whether B, as the intended payee, has a d i r e c t action against C to obtain the money mistakenly paid. This might avoid c i r c u i t y of action. Instead of two actions, A's claim against C to recover the mistaken payment and B's claim against A on the d e b t 6 1 , there would be only one claim by B against C. B can be described as r i g h t f u l payee or as the one ultimately e n t i t l e d to the payment. There are cases i n Canada and the U.S.A. where courts have allowed B to sue C f o r the money which B, according to C i s a bona f i d e purchaser f o r value i f the debtor was also indebted to him, and he received the money be l i e v i n g that i t was paid to him i n discharge of the debt to him, Restatement, sec. 165, Comment b. See, e.g., Equilease Corp. v. Hentz. 634 F.2d 850 (C.A. 5, 1981). Cf. Dawson, 61 U.B.L.Rev. 563 (1981) at p. 565 et seq. Normally, A's mistaken payment to C w i l l not discharge h i s o b l i g a t i o n towards B. Cf. the reasoning of the court i n C i t v of Norfolk v. Norfolk County. 120 Va. 356, 91 S.E. 820 at p. 826 (Va.Sup.Ct.1917). 20 the payer's intention, should have received or to which B was better e n t i t l e d than C 6 2 . The term " r i g h t f u l payee" i n t h i s chapter r e f e r s to a number of d i f f e r e n t situations but the basic pattern i s always the same. Someone transferred money by mistake to someone other than the obligee and the l a t t e r looks to the transferee f o r the money. Cases include those where the actual payee f a l s e l y represented to the payer that he would be e n t i t l e d to the payment 6 3, or where the payer overlooked the fa c t that the actual payee had assigned the debt to another (the payer having agreed to the assignment) 6 4. In most cases the defendant,i.e. the actual payee, acted fraudulently or knowing that he was not e n t i t l e d to the The appropriate action at law was the action f o r money had and received. Example given, Kincr County v. Odman, 8 Wash.2d 32, 111 P.2d 228, 133 A.L.R. 1440 (Wash.S.C.1941). But see O f f i c i a l Custodian f o r Charities v. Mackev (No. 2). [1985] 1 W.L.R. 1308; (1985), 129 S.J. 853; [1985] 2 A l l E.R. 1016; 274 E.G. 398; 83 L.S.Gaz. 44; (Ch.D.). Le Noir v. Wallace (1875), 10 N.S.R. 247 (N.S.S.C.); Owston v. Grand Trunk R.W. Co. (1881), 28 Gr. 431 (Ont. Ch.Ct.); Roblin v. Jackson (1901), 13 Man.R. 328 (Man.C.A.); Cherry Processing & Packaging Equipment Ltd. v. Chrysler Can. Ltd. (1982), 18 B.L.R. 285 (Ont.S.C). Hamilton Glass Co. v. Shaffer. 12 111.App.2d 407, 139 N.E.2d 799 (1957), held that i t was immaterial whether representation was done w i l f u l l y or innocently; Cocke v. P a c i f i c Gulf Development Corp.. 594 S.W.2d 545 (Tex.Civ.App. 1980); Carson v. Spiegel. 97 Ind.App. 163, 177 N.E. 470 (1931); i n Caskie v. Philadelphia Rapid Tra n s i t Co.. 321 Pa. 157, 184 A. 17, 106 A.L.R. 318 (Pa.Sup.Ct. 1936) the payer and actual payee acted together to defraud the cr e d i t o r . Knoblock v. Waale-Camplan Co.. 14 Cal.App.2d 870, 297 P.2d 765 (1956). 21 payment 6 5 but fraud i s , i f the action of the r i g h t f u l payee i s accepted, not a necessary requirement 6 6. In a number of sit u a t i o n s the question whether B has such an action may not a r i s e . B may not have learned about A's mistaken payment to C, or A w i l l make a (second) voluntary payment to B to discharge h i s debt and t r y himself to recover from C. Normally A's mistaken payment to C w i l l not discharge h i s obli g a t i o n towards B. B cannot be compelled to release A and look to C f o r h i s money. B w i l l be interested i n a d i r e c t claim against C i f A went bankrupt a f t e r he made the mistaken payment. This was the s i t u a t i o n , for instance, i n the American case of Hamilton Glass Co. v. S h a f f e r 6 7 . A builder employed the p l a i n t i f f and defendant as separate contractors to do glazing work fo r him. When the defendant f a l s e l y claimed that he had done some work which i n fa c t had been done by the p l a i n t i f f , the paying agent f o r the bui l d e r (a bank) paid the defendant accordingly. The bui l d e r then became bankrupt. The t r i a l court held that the p l a i n t i f f had an action against the bankrupt but that "there was no cause of action at a l l against the defendant." 6 8 The court of appeal o b Cases u n t i l 1937 are c o l l e c t e d i n 106 A.L.R. 322 (1937). This paper i s not concerned with l i a b l i t y i n t o r t which may a r i s e i n a number of cases, c f . Caskie v. Philadelphia Rapid Transit Co.. 184 A. 17. Caskie v. Philadelphia Rapid Transit Co.. 184 A. 17; Hamilton Glass Co. v. Shaffer, 139 N.E.2d 799; Seastrand v. D.A. Foley & Co.. 144 Minn. 239, 175 N.W. 117 (Minn.Sup.Ct. 1919); Palmer, op.cit.. sec. 21.5, p. 315. Supra. 6 8 As quoted i n 139 N.E.2d 799 (1957) at p. 800. 22 reversed and decided that the p l a i n t i f f had an action f o r money had and received against the defendant. (The trustee i n bankruptcy d i d not intervene to assert h i s r e s t i t u t i o n a r y claim f o r money mistakenly paid. The question who had p r i o r i t y , the mistaken payer or the r i g h t f u l payee was therefore not discussed.) In the following, the s i t u a t i o n i n Great B r i t a i n w i l l be examined f i r s t . Against t h i s background the s i t u a t i o n i n the U.S.A. and f i n a l l y i n Canada w i l l be explained. 2. THE SITUATION IN GREAT BRITAIN I t i s doubtful whether B r i t i s h law allows generally an action by the r i g h t f u l payee against the mistaken r e c i p i e n t 0 . The action for money had and received at law i s seemingly confined to a li m i t e d number of si t u a t i o n s i n which the p l a i n t i f f can sue for money which the defendant received from a t h i r d p e r s o n 7 0 . These s i t u a t i o n s w i l l be described. I t w i l l then be explained why the action f o r money had and received was so r e s t r i c t e d . The action l i e s f i r s t i f the defendant i s holding a s p e c i f i c sum of money f o r a t h i r d person at whose request ° & See, f o r instance, United A u s t r a l i a Ltd. v. Barclays Bank Ltd.. [1941] A.C. 1. 7 0 9 Halsbury's Laws of England (4th ed), sec. 675 et seq.; However, there i s an action i n equity f o r money had and received which supplements the action at law for money had and received. This action i s i n some respects not as narrow as the one at law, but i t i s only a v a i l a b l e f o r b e n e f i c i a r i e s under a t r u s t . 23 the defendant promised to pay the money over to the p l a i n t i f f (attornment) 7 1. This category of cases i s not on a l l fours with the action of the r i g h t f u l payee as discussed here because i t i s only the request of the t h i r d person and the promise of the defendant which give the p l a i n t i f f h i s ri g h t to s u e 7 2 . Furthermore, i t i s doubtful whether attornment i n respect of a debt should be possible at a l l 7 3 . Secondly, the action f o r money had and received i s available i f the defendant has usurped an o f f i c e and received money from t h i r d persons to which the p l a i n t i f f was e n t i t l e d 7 4 . Many si t u a t i o n s of mistaken payments where a r i g h t f u l payee wants to claim money d i r e c t l y from the mistaken payee f a l l within t h i s category of cases. But there i s s t i l l doubt whether i n the case of a simple mistaken payment, without a representation of the payee to be e n t i t l e d to the payment, the action f o r money had and received w i l l l i e because "the acts and grants of a de facto occupier of an o f f i c e are v a l i d and binding upon the true holder, and the de facto occupier can, therefore, give a v a l i d G r i f f i n v. Weatherbv (1868), L.R. 3 Q.B. 753; Shamia v. Joory. [1958] 1 Q.B. 448; J.D. Davies, "Shamia v. Joory. A Forgotten Chapter i n Quasi-Contract", (1959), 75 L.O.Rev. 220-233; Goff and Jones, o p . c i t . . p. 517 et seq. ("attornment i n respect of money"). " I f [the debtor] does promise [to pay to another person than h i s creditor] he has only himself to blame.", Shamia v. Joory. [1958] 1 Q.B. 448 at p. 459. Goff and Jones, op. c i t . . pp. 520/21. A r r i s & A r r i s v. Stukelv. (1678), 2 Mod. 260, 86 E.R. 1060; Howard v. Wood. (1679), 2 Show.K.B. 21, 2 Lev. 245, 89 E.R. 767; Jacob v. A l l e n . (1703), 1 Salk. 27; c f . Goff and Jones, o p . c i t . . p. 568 et seq. 24 discharge of a debt so that the true holder loses h i s r i g h t s against the debtor . " 7 5 In the case of a simple mistaken payment, the mistaken payment w i l l not discharge the obl i g a t i o n and, the cr e d i t o r s t i l l having h i s debtor, i t i s not cl e a r whether courts w i l l allow him to sue the mistaken payee 7 6. Lord Goff and Professor Jones argue that " t h i s category of cases [where someone intervenes without r i g h t ] should not be regarded as c l o s e d " 7 7 . They r e l y on an obit e r dictum of Nourse, J . (as he then was) i n O f f i c i a l Custodian of C h a r i t i e s v. Mackev (No.2) 7 8. In t h i s case the p l a i n t i f f s had leased property to a company which mortgaged the lease and subleased the property. When the company became insolvent, the lease was f o r f e i t e d but the receivers who had been appointed on behalf of the mortgagees c o l l e c t e d the rent payable by the subtenants. The p l a i n t i f f s f i r s t claimed against the company for mesne p r o f i t s and obtained judgment. In a second action against the mortgagees and receivers p l a i n t i f f s t r i e d to obtain the rent which had been c o l l e c t e d from the sub-tenants (and which amount was considerably D Goff and Jones, op . c i t . . p. 569; the same i s true f o r acts done by an executor de son t o r t i n the character of executor; those acts w i l l bind the estate. 6 In Thomas v. Thomas (1850), 5 Exch. 28, 155 E.R. 13, for example, i t was held that the action f o r money had and received was not available f o r one tenant i n common against h i s co-tenant who had received more than h i s share of the p r o f i t s . However, the court held that the action of acccount lay. 7 Goff and Jones, op.cit.. p. 571. 8 [1985] 1 W.L.R. 1308 (Ch.D.). 25 l a r g e r than the amount obtained under the f i r s t judgment). I t was argued on behalf of the p l a i n t i f f s "that the moneys were mesne p r o f i t s owed by the sub-tenants to the p l a i n t i f f s and wrongly c o l l e c t e d by the receivers. [Therefore,] they were moneys had and received to the p l a i n t i f f s u s e . " 7 9 Nourse J . said, r e f e r r i n g to the action f o r money had and received i n such a case, " [ i ] t would be a waste of time and money i f [the c r e d i t o r / p l a i n t i f f ] had to sue [the debtor/subtenants] and the l a t t e r had to sue the defendant [payee]. The s u i t f o r money had and received avoids c i r c u i t y of a c t i o n . " 8 0 Such a broad statement seems to indicate that courts w i l l allow the action f o r money had and received whenever the r i g h t f u l payee wants to avoid c i r c u i t y of action and claim the money mistakenly paid from the actual payee. In O f f i c i a l Custodian of Charities v. Mackey (No.2). however, the judge found that the subtenants had not been indebted to the p l a i n t i f f s i n the precise amount of the sum which the defendants c o l l e c t e d as rent, and therefore the action did not succeed 8 1. Moreover, i t i s doubtful whether the p l a i n t i f f s had an action against the mortgagees or the receivers a f t e r they had elected to sue the tenant f o r mesne p r o f i t s . The judge did not have to decide t h i s point. T h i r d l y , the action f o r money had and received w i l l l i e where the defendant as an agent or employee of the p l a i n t i f f [1985] 1 W.L.R. 1308 at p. 1314. 8 0 [1985] 1 W.L.R. 1308 at pp. 1314/15. 8 1 The decision seems to be i n some contrast to the American decision of King County v. Odroan, 8 Wash.2d 32, 111 P.2d 228, 133 A.L.R. 1440 (1941). 26 received money from a t h i r d person. This group of cases, however, i s of l i t t l e i n t e r e s t here since i t presupposes an agency r e l a t i o n s h i p . Why was the action f o r money had and received r e s t r i c t e d to the situations shown above ? The reason given was, again, lack of p r i v i t y . a) The necessity of p r i v i t y The necessity of p r i v i t y as a prerequisite f o r the action f o r money had and received was emphasized by B r i t i s h courts i n the 19th c e n t u r y 8 2 and seems s t i l l to be v a l i d l a w 8 3 . As was shown above, the f a c t that recovery of money mistakenly paid was based on an implied promise le d to the introduction of the p r i n c i p l e of p r i v i t y into the law of r e s t i t u t i o n . Although the p r i n c i p l e of unjust enrichment has gained ground again i n recent years, i t i s not c l e a r whether courts w i l l dismiss the argument of p r i v i t y . Transvaal & Delagoa Bay Investment Co. v. A t k i n s o n 8 4 i s a case where the claim f o r r e s t i t u t i o n was dismissed f o r lack of p r i v i t y . In t h i s case the secretary of the p l a i n t i f f company had 6 * Leader v. Leader (1871). I.R. 6 C.L. 20. Other courts put the same matter i n d i f f e r e n t terms and held that, to recover money paid under mistake, the mistake had to be between payer and payee. 8 3 But see Barclays Bank Ltd. v. W.J. Simms Son & Cooke (Southern) Ltd., [1980] Q.B. 677 at p. 696, where Goff J . rejected the idea of p r i v i t y : "That to ground recovery, the mistake must have been "as between" the payer and the payee ... mean[s] no more than that the mistake must have caused the payment." 8 4 [1944] 1 A l l E.R. 579. 27 fraudulently acquired cheques of the company and directed the payments be made into h i s wife's banking account. When the fraud was discovered the wife's account was not i n c r e d i t . The company sued i t s secretary and h i s wife. The secretary d i d not enter an appearance. As to the l i a b i l i t y of the wife, Atkinson J . quoted from Lord Sumner's decision i n S i n c l a i r v. Brougham 8 5: "The money no doubt reached the defendant's c o f f e r s . She had the money i n that sense of possession which i s necessary to found 'tracing orders', but she d i d not get i t , and there was no receipt of i t , i n the sense which i s necessary to r a i s e the implication of a promise to repay. Receipt and p r i v i t y are e s s e n t i a l to found such an i m p l i c a t i o n . " 8 6 Accordingly he refused to hold the wife l i a b l e . The r e s u l t i s sensible because the wife was innocent of the fraud and d i d not have the money anymore. But i t i s submitted that the court nowadays would reach the same r e s u l t by applying the change of p o s i t i o n d o c t r i n e 8 7 . The p o s i t i o n of S i n c l a i r v. Brougham i s supported by Re D i p l o c k 8 8 . Describing the action for money had and received at law, the court said, obiter: "[T]he proper claimant i s normally the person who o r i g i n a l l y made the payment... I t i s indeed d i f f i c u l t to see how, save between the pa r t i e s to the o r i g i n a l transaction ... any implied promise to repay could be imported... Further whatever may have been the nature 0 3 [1914] A.C. 398; 83 L.J.Ch. 465; 111 L.T. 1; 30 T.L.R. 315; 58 S.J. 302. 8 6 [1944] 1 A l l E.R. 579 at p. 582 G. I t should not be overlooked that the judge secondly tackled the question of r e s t i t u t i o n on the base of unjust enrichment. He reached the same r e s u l t . 8 7 I n f r a. 8 8 [1948] Ch. 465. 28 of the mistakes made by the [payer], the [ r i g h t f u l payees] have never made any mistake at a l l whether of law or of f a c t . " 8 9 Although a majority of cases have dismissed the action fo r money had and received f o r want of p r i v i t y , most of them were not concerned with a mistaken payment but with a d i f f e r e n t s i t u a t i o n : someone had transferred money to the defendant with the order to pay t h i s fund over to the p l a i n t i f f . One instance i s Baron v. Husband 9 0. In t h i s case the defendant received a cheque from a t h i r d person i n order to pay the money to the p l a i n t i f f . The t h i r d person was indebted to the p l a i n t i f f i n that amount. There was some dispute between the p l a i n t i f f and defendant as to the conditions of the payment and eventually the p l a i n t i f f commenced an action. Parke J . held that no action lay by the p l a i n t i f f against the defendant for want of p r i v i t y between them. The judge said, i n t e r a l i a : "I doubt whether money had and received be maintainable here, because there i s no p r i v i t y between the p l a i n t i f f and defendant... I f I give a sum of money to my servant to pay a tradesman, the l a t t e r cannot maintain an action for money had and received against the servant." B y [1948], Ch. 465 at p. 481. But see A r r i s & A r r i s v. Stukelv (1687), 86 E.R. 1060. 9 0 (1833), 4 B.& Ad. 611, S.C. 1 N.& M. 728, 110 E.R. 586. See too: Cobb v. Becke (1845), 6 Q.B. 930, 115 E.R. 350, Barlow v. Browne (1846), 16 M.& W. 126, 153 E.R. 1127; Moore v. Bushell (1857), 27 L.J.Ex. 3; H i l l v. Royds (1869), 8 L.R.Eq. 289; Johnson v. Robarts (1875), 10 L.R.Ch.App. 505, 44 L.J.Ch. 473. L i t t v. Martindale (1856), 18 C.B. 314, 139 E.R. 1390, however, allowed the action; but i n t h i s case the payee acted fraudulently. 29 Can i t be argued, a f o r t i o r i , that i f the defendant received the money i n dispute not v o l u n t a r i l y with an order to hand i t over to the p l a i n t i f f but by mistake, an action fo r money had and received should not l i e e i t h e r ? Other judges used the language of agency to dismiss the action. Agency would create the necessary p r i v i t y between the p l a i n t i f f and defendant. Thus i t was held that to claim the action f o r money had and received, agency had to be c l e a r l y e s t a b l i s h e d 9 1 . However, i n a number of cases an action f o r money had and received was allowed. Where somebody had obtained execution of a judgment against h i s debtor who had become bankrupt i n the time between the judgment and i t s execution, the trustees i n bankruptcy could recover from the one who had obtained (preferred) e x e c u t i o n 9 2 . For example, i n Kitchen v. Campbell the court, dealing with the argument of missing p r i v i t y , held (per curiam): "[W]hoever has received the money f o r the bankrupt's goods i s supposed, i n j u s t i c e , to have received the same f o r the use of the assignees, i n whom the property of those goods by law was vested... there i s a supposed p r i v i t y of contract between the persons whose money i t lawfully i s , and the person who has got or received i t . " 3 x Clarance v. Marshall (1834), 2 Cr.& M. 495, 149 E.R. 856 at p. 859. Cf. 9 Halsbury's Laws of England (4th ed), sec. 682, 683. 2 Kitchen v. Campbell (1772), 3 Wib.K.B. 304, 95 E.R. 1069; Allanson v. Atkinson (1813), 1 M.& S . 583, 105 E.R. 218; F o l l e t V. HQPPe (1847), 5 C.B. 226, 136 E.R. 836. 3 Kitchen v. Campbell (1772), 95 E.R. 1069 at p. 1071 [emphasis added]. Cf. the American decision of Brand v. Williams. 29 Minn. 238; 13 N.W. 42 (Minn.Sup.Ct.1882). 30 I t i s d i f f i c u l t to see what distinguishes these cases from others where the action for money had and received was dismissed for lack of p r i v i t y . As a r e s u l t , the question whether the action for money had and received i s open to the r i g h t f u l payee who i s not a beneficiary under a t r u s t 9 4 i s s t i l l unsettled i n B r i t i s h law. Therefore, i t i s submitted, B r i t i s h law does not provide guidance i n t h i s area. Lord Goff and Professor Jones argue that i n the cases discussed the mistaken payee i s unjustly enriched at the expense of the r i g h t f u l payee 9 5. But the p r i n c i p l e of unjust enrichment, although put forward by some, has not yet found as widespread a recognition as i n the U.S.A. Moreover, as w i l l be seen below, i t hardly can be said that the actual An unpaid beneficiary under a t r u s t has a d i r e c t equitable claim, analogous to the action for money had and received at law, against the wrongly or overpaid r e c i p i e n t although there i s authority to the contrary. Pro: Fordham v. Wallis (1853), 10 Hare. 217, 68 E.R. 905; Harris v. Harris (1861), 29 Beav. 110, 54 E.R. 568; the case was, however, explained i n Re Robinson. [1911] 1 Ch. 502 at p. 505, as an example of equitable t r a c i n g . Re Diplock. [1948] Ch. 465. Cf. Goff and Jones, op.cit., p. 573 et seq. Denning J . (as he then was) i n Nelson v. Larholt. [1948] 1 K.B. 339, treated the action by an unpaid beneficiary f o r money had and received as an action at law, thereby s e t t i n g aside the d i s t i n c t i o n between law and equity. Contra: Leader v. Leader (1871), I.R. 6 C.L. 20; In re Robinson. [1911] 1 Ch. 502 at p. 513. This action w i l l be important i f the payee received the money bona f i d e , because then a constructive t r u s t cannot be imposed on him. The action i s seemingly dependant on the unpaid beneficiary having f i r s t sued the mistaken payer, i . e . executor, Leader v. Leader (1871), I.R. 6 C.L. 20; In re Robinson. [1911] 1 Ch. 502 at p. 513. Goff and Jones, OP . c i t . . p. 23 et seq. 31 payee i s unjustly enriched at the expense of the r i g h t f u l payee. 3. THE SITUATION IN THE UNITED STATES Professor Palmer stated that "nearly a l l courts have granted r e s t i t u t i o n to the [ r i g h t f u l payee]" i n the s i t u a t i o n under r e v i e w 9 6 . Yet there are many older cases where courts refused to give B a d i r e c t action against C 9 7 . The main argument against such an action was that B had s t i l l h i s o r i g i n a l claim against the mistaken payer and, therefore, was not prejudiced by the mistaken payment. Thus the court s a i d i n Shultz v. Boyd 9 8: " I t i s not alleged that the [mistaken payer's] assets are i n s u f f i c i e n t . [ P l a i n t i f f ' s ] r i g h t has been infr i n g e d no more by the [mistaken] payment to [the actual payee] than i t would have been by payment of the same amount to ... any one else upon another c l a i m . " 9 9 Another argument against B's d i r e c t claim was that there was no p r i v i t y between B and C 1 0 0 . ^6 97 Palmer, op. c i t . . sec. 21.4, p. 298; c f . 106 A.L.R. 322 (1937). The r i g h t of action was denied i n Carson v. Spiegel. 97 Ind.App. 163, 177 N.E. 470 (1931); Patrick v. Metcalf. 37 N.Y. 332 (1867); Smith v. Goldsborough. 236 N.Y. 340, 140 N.E. 718 (N.Y.C.A.1923); Pumphrev v. Hunter. 270 S.W. 237 (Tex.Civ.App.1925); Finn v. Adams, 138 Mich. 258, 101 N.W. 533, 4 Ann.Cas. 1186 (Mich.Sup.Ct.1904). Early cases are c o l l e c t e d i n Warren A. Seavey and Austin W. Scott, Notes On Certain Important Sections Of Restatement Of R e s t i t u t i o n (St. Paul 1937), sec. 126 [hereinafter c i t e d as Restatement, Reporters' Notes]. 152 Ind. 166, 52 N.E. 750 (1899). 52 N.E. 750. 1 0 0 Carson v. Spiegel. 97 Ind.App. 163, 177 N.E. 470 (1931). Board of Education of Lyme Township v. Board of Education 98 99 32 The f a c t that courts denied B a d i r e c t claim against C seems to be s u r p r i s i n g taking into account the amount of time and money which a claimant may have already spent on the case. Why not give B a remedy against the mistaken (or even fraudulent) payee (C) ? The l a t t e r had to make r e s t i t u t i o n to the mistaken payer (A) and B was e n t i t l e d throughout to claim from A an amount equal to the one mistakenly paid. Yet i t i s not always c l e a r that both these prerequisites are p r e s e n t 1 0 1 . C may have, as against A's r e s t i t u t i o n a r y claim, a defence which C cannot assert against B's claim. Or C may have the r i g h t to a s e t o f f against A's claim which, again, C could not r a i s e against B. In these cases a d i r e c t claim by B against C would be detrimental f o r C. Furthermore, why should B obtain a second debtor simply because of A's mistake ? The s i t u a t i o n may be d i f f e r e n t i f C knew that he was not e n t i t l e d to the mistaken payment. C could then have avoided the s i t u a t i o n by not accepting the payment or by handing i t back immediately. of Special S c h o o l - D i s t r i c t No. 1. 44 Ohio St. 278, 7 N.E. 12 (Ohio Sup.Ct.1886); c f . Palmer, o p . c i t . . sec. 21.4, p. 307, notes 33, 34. Contra: Caskie v. Philadelphia Rapid Tr a n s i t Co.. supra; Heywood v. Northern Assur. Co., 133 Minn. 360, 158 N.W. 632 (Minn.Sup.Ct.1916); C i t y of Norfolk v. Norfolk County. supra; Brand v. Williams. 29 Minn. 238, 13 N.W. 42 (Minn.Sup.Ct.1882); Smith v. Rubel, 13 P.2d 1078 at p. 1080, 140 Or. 422 (Or.Sup.Ct.1932). • Cf. Dawson, John P., Uniust Enrichment (Boston 1951), p. 126. 33 Whatever the s i t u a t i o n u n t i l 1937, the Restatement of Re s t i t u t i o n , published that year, took a view favourable to the intended p a y e e 1 0 2 . In section 126 i t provides: "(1) Where a person has paid money ... to another i n the erroneous b e l i e f , induced by a mistake of f a c t , that he owed a duty to the other so to do, whereas such duty was owed to a t h i r d person, the transferee, unless a bona f i d e purchaser, i s under a duty of r e s t i t u t i o n to the t h i r d person." Indeed, most cases decided a f t e r 1937 allowed the r i g h t f u l payee to claim d i r e c t l y 'his' money from the actual p a y e e 1 0 3 . However, the question remains, why can the r i g h t f u l payee assert a d i r e c t claim against the mistaken payee ? a) The basis for the action of the r i g h t f u l payee The j u s t i f i c a t i o n f o r permitting the r i g h t f u l payee to assert a d i r e c t claim against the mistaken payee can be Restatement, sec. 126, 133. The Restatement, however, l i m i t e d r e s t i t u t i o n to cases i n which the payer owed a duty to the p l a i n t i f f to make the payment. This i s c r i t i c i z e d by Palmer, op. c i t . . sec. 21.4, p. 301. 1 0 3 Scott v. Boma Inv. Co.. 72 P.2d 274 (Colo.Sup.Ct. 1937); Du Bois v. U.S. F i d e l i t y & Guaranty Co.. 18 A.2d 802 (Pa.Sup.Ct. 1941); V i l l a g e of Indian H i l l v. Atkins. 153 Ohio 562, 93 N.E.2d 22 (Ohio Sup.Ct.1950); Laurent v. Williamsburgh Savings Bank. 137 N.Y.S.2d 750 (N.Y.Sup.Ct.1954) [obiter dictum]; Knoblock v. Waale- Camplan Co.. 14 Cal.App.2d 870, 297 P.2d 765 (1956); Steward v. Holland. 95 Ga.App. 28, 96 S.E.2d 623 (1957); Altuskv v. Jabar Realty Co.. 199 N.Y.S.2d 917 (N.Y.Sup.Ct.1960); King v. King. 13 A.D.2d 437, 218 N.Y.S.2d 230 (1961); City of College Park v. Eastern A i r l i n e s Inc., 250 Ga. 741, 300 S.E.2d 513 (Ga.Sup.Ct. 1983); Pavne v. White. 101 A.D.2d 975, 477 N.Y.S.2d 456 (1984). 34 based on two d i f f e r e n t grounds. One was put forward i n the ear l y case of Crook v. F i r s t Nat. Bank of B a r a b o o 1 0 4 / . In t h i s case the p l a i n t i f f , the administrator of the estate of Ms. Austin, claimed f o r the estate a deposit which the deceased had established with the defendant bank. One nephew of the deceased, however, had withdrawn the deposit from the bank and contended that he had got the money as a g i f t . The administrator sued f i r s t the nephew and l a t e r , i n a second action, the bank. The bank argued, i n t e r a l i a , that because he had sued the nephew the administrator was precluded from suing the bank. The court found: "[T]he question i s whether the p l a i n t i f f d i d not [by hi s f i r s t action against the nephew] a f f i r m that the money was properly paid over by the defendant bank ... to [the nephew] f o r h i s use, so as to preclude him from now asserting as a basis of recovery i n t h i s action that such payment was wrongful... I f the alleged g i f t to [the nephew] was void or inoperative for any reason, the bank s t i l l remained the debtor of [the deceased], and the money i t paid to [the nephew] was i t s own money, and the p l a i n t i f f had no claim whatever to i t . This money so paid could not become the money of the p l a i n t i f f except upon h i s r a t i f i c a t i o n of the act of rthe nephew] i n c o l l e c t i n g and of the bank i n paying i t to him; so that the money he thus received from the bank became and was money received and held by him to and f o r the use of the p l a i n t i f f » 1 0 5 As a r e s u l t of the administrator having f i r s t sued the nephew, he could not then successfully sue the bank because he was treated as having r a t i f i e d the payment by the 52 N.W. 1131 (Wis.Sup.Ct.1892). The s i t u a t i o n i s d i f f e r e n t with respect to r i g h t f u l payees who have an equitable i n t e r e s t i n the fund mistakenly paid, e.g. b e n e f i c i a r i e s under a t r u s t . 1 I b i d . f at p. 1133 [emphasis added]. 35 b a n k 1 0 6 . The court made i t c l e a r that the mere fac t that the administrator was e n t i t l e d to the money and the defendant nephew had obtained an equal amount of money from the bank was not s u f f i c i e n t to vest an action i n the p l a i n t i f f . Only because the administrator r a t i f i e d the (mistaken) payment could he sue the nephew. The court sustained i t s fi n d i n g with the observation that the defendant bank might have mat e r i a l l y changed i t s p o s i t i o n while r e l y i n g upon the fa c t that the administrator sued the nephew and that i t would be unjust now to allow the p l a i n t i f f ' s c l a i m 1 0 7 . Indeed, i t i s the fa c t that the r i g h t f u l payee r a t i f i e d the payment to the mistaken payee as having been made to h i s use which gave him the action for money had and received i n these c a s e s . 1 0 8 But t h i s theory has been c r i t i c i z e d as too narrow 1 0 9 because i f the r e c i p i e n t of the money did not purport to act on behalf of the p l a i n t i f f , the r i g h t f u l l l J o The court i n t h i s case had already found that the nephew had obtained a v a l i d g i f t . 1 0 7 I b i d . . at p. 1134. 1 0 8 Fowler v. Bowerv Savings Bank. 113 N.Y. 450, 21 N.E. 172, 4 L.R.A. 145, 10 Am.St.Rep. 479 (N.Y.C.A. 1889) ; Crane v. Atlanta & L. Nat. Bank. 40 Ga.App. 83, 149 S.E. 58 (1929); Midland Sav. & Loan Co. v. Tradesmen's Nat. Bank. 57 F.2d 686 ( C C A . 10th, 1932), cert.den. 287 U.S. 615, 77 L.Ed. 534, 53 S.Ct. 17 (1932); Union Guardian Trust Co. v. F i r s t Nat. Bank. 271 Mich. 323, 259 N.W. 912 (Mich.Sup.Ct.1935); Mace v. Rockland County Trust Co.f 249 App.Div. 754, 291 N.Y.S. 835 (1936); Leadbetter v. Meadow Brook National Bank. 37 Misc.2d 627, 236 N.Y.S.2d 659 (N.Y.Sup.Ct.1963); c f . 116 A.L.R. 601 (1938); and William A. Keener, A Treatise On The Law Of Quasi-contracts ( New York 1893), 109 P* 1 6 7 ' X U 5 ' Heywood v. Northern Assurance Co. of Detroit, 133 Minn. 360, 158 N.W. 632 (1916); Restatement. Reporters' Notes. p. 180. 3 6 payee, there can be no r a t i f i c a t i o n i n the agency sense by the l a t t e r . Consequently courts and l e g a l writers have denied an action to the intended payee i f the r e c i p i e n t of the money d i d not purport to act on behalf of the one t r u l y e n t i t l e d to the money but claimed i n h i s own r i g h t 1 1 0 . What i s s u r p r i s i n g i n Crook v. F i r s t Nat. Bank i s that although the nephew d i d not act on behalf of h i s aunt the court had no d i f f i c u l t y i n finding a r a t i f i c a t i o n of h i s behaviour by the p l a i n t i f f . Other courts explained the action of the r i g h t f u l payee on the basis of the doctrine of unjust enrichment. In Hevwood v. Northern Assurance Co. of Detroit, the court said, r e f e r r i n g to Lord Mansfield: "The action of money had and received i s founded on the p r i n c i p l e that no one ought unjustly enrich himself at the expense of another, and the g i s t of the action i s that the defendant has received money which i n equity and good conscience should have been paid to the p l a i n t i f f , and under such circumstances that he ought, by the t i e s of natural j u s t i c e , to pay o v e r . " 1 1 1 The court based the action f o r money had and received i n t h i s case on the p r i n c i p l e of unjust enrichment. Professor Palmer argued more cautiously: "The f a c t i s that the r e c i p i e n t of the payment i s unjustly enriched, and h i s enrichment i s f a i r l y at the expense of the one e n t i t l e d to the payment. Most 1 1 y Keener, op.cit, p. 167. 1 1 1 158 N.W. 632 at p. 633; see, too, C i t y of Norfolk v. Norfolk County. 91 S.E. 820; c f . Seastrand v. D.A. Foley & Co.. 144 Minn. 239, 175 N.W. 117 (1919) at p. 119: "The one e s s e n t i a l i s that the money i n equity and good conscience belongs to [the] p l a i n t i f f . " 37 courts have been s a t i s f i e d with the manifest j u s t i c e of such a recovery ....*' 1 1 2. Yet i t i s d i f f i c u l t to see how the payee i s unjustly enriched at the expense of the intended payee. I t i s true that the r e c i p i e n t of money mistakenly paid w i l l be unjustly enriched but, i t i s submitted, not at the expense of the intended payee, nor " f a i r l y " at h i s expense. The l a t t e r did not lose anything: he s t i l l had h i s claim against h i s debtor. The mistaken payer suffered from the deprivation. I t was h i s money which reached the hands of the actual payee. How can one say that one mistaken payment was made at the expense of both the mistaken payer and the r i g h t f u l payee ? Nevertheless, the court i n City of College Park v. Eastern A i r l i n e s I n c . 1 1 3 also used the unjust enrichment doctrine to allow the claim of the r i g h t f u l payee. Eastern A i r l i n e s had paid to the Ci t y of Atlanta taxes to which Atlanta was not e n t i t l e d . The one t r u l y e n t i t l e d to the tax payments was the Ci t y of College Park. College Park sued Atlanta and Eastern A i r l i n e s as well as the Revenue Commissioner of the State of Georgia who had misdirected the tax payments. The court gave judgment f o r the p l a i n t i f f against Atlanta: "As the ... facts p l a i n l y demonstrate, the Ci t y of Atlanta has been enriched by the payment of taxes from Eastern A i r l i n e s which should properly have been paid to College Park. Retention of the benefit so conferred Palmer, op . c i t . . sec. 21.4, pp. 300/01. 250 Ga. 741, 300 S.E.2d 513 (Ga.Sup.Ct.1983). 38 upon Atlanta at the expense of College Park i s u n j u s t . " 1 1 4 As a r e s u l t i t i s submitted that neither explanation f o r the action of money had and received to the use of the intended payee i s r e a l l y convincing. But the doctrine of unjust enrichment seems to be the basis of the current law i n the United States. b) E l e c t i o n of remedies by the r i g h t f u l payee ? I f one takes the view that the r i g h t f u l payee has to r a t i f y the mistaken payment i n order to succeed i n h i s claim against the actual payee, the former has to e l e c t between the two remedies which are open to him. He can sue h i s debtor on the o r i g i n a l debt or the mistaken payee a f t e r r a t i f i c a t i o n : but he can not have i t both ways 1 1 5. In other words, the two remedies are inconsistent. I t i s an advantage to the r i g h t f u l payee, however, i f he can wait u n t i l a t r i a l before he has to make the e l e c t i o n . He may then sue both h i s obligor and the mistaken payee, as i n the case of C i t y of College Park v. Eastern A i r l i n e s I n c . 1 1 6 (where, however, the action was based on unjust enrichment). C i r c u i t y of action i s avoided, but the d i r e c t claim of the r i g h t f u l payee cannot lead to prejudice of the mistaken p a y e r 1 1 7 . A 1 1 4 300 S.E.2d 513 at p. 515. 1 1 5 Pavne V. White. 101 A.D.2d 975, 477 N.Y.S.2d 456. 1 1 6 See too Knoblock v. Waale-Camplan Co., 297 P.2d 765. 1 1 7 In Knoblock v. Waale-Camplan Co.. 297 P.2d 765, the court gave the p l a i n t i f f judgment against both the mistaken payer and the mistaken payee " j o i n t l y and 39 r i g h t f u l payee has an option to sue both the mistaken payer and the actual payee. But the payer i s not an indispensable party i f the r i g h t f u l payee sues only the actual p a y e e 1 1 8 . c) Superiority of the claim of the r i g h t f u l payee over the claim of the mistaken payer ? The Restatement predicates that the mistaken payer i s e n t i t l e d to r e s t i t u t i o n from the payee as long as the r i g h t f u l payee d i d not el e c t to hold the payee s o l e l y l i a b l e or the payer becomes i n s o l v e n t 1 1 9 . In other words, i f the payer becomes insolvent, the r i g h t f u l payee rather than the payer has the option to receive " r e s t i t u t i o n " from the payee. I t i s submitted that i t should be the other way round. The r i g h t f u l payee should be able to claim the mistaken payment as long and only i f the payer agrees. The mistaken payer should have a r i g h t to r e s t i t u t i o n superior to the claim of the r i g h t f u l p a y e e 1 2 0 . I f the o r i g i n a l debt i s discharged by the mistaken payment i t seems f a i r that the r i g h t f u l payee should obtain t h i s money from the mistaken r e c i p i e n t because the r i g h t f u l payee has l o s t h i s r i g h t of severally", at p. 766. Cf. Caskie v. Phildadelphia Rapid T r a n s i t Co.. supra. at p. 319. 1 1 8 Cocke v. P a c i f i c Gulf Development Corp.. 594 S.W.2d 545 at p. 548. 1 1 9 Restatement. sec. 126, Comment d; According to the Restatement. Reporters' Notes, p. 180 " [ i ] n the absence of cases d i r e c t l y deciding the question, Comment d has been written based upon the theory that the intended transferee has a r i g h t superior to that of the transferor or h i s c r e d i t o r s . " 1 2 0 Cf. Goff and Jones, op.cit.. p. 25. 40 action against the mistaken payer. But what r i g h t can a c r e d i t o r assert to a mistaken payment i f he does not want to regard the payment as discharging the debt ? As to the payer, i t i s submitted that h i s agreement i s necessary before the r i g h t f u l payee may obtain the mistaken payment. The l a t t e r does not lose anything i f he cannot obtain the mistaken payment. The mistaken payment w i l l not discharge the o r i g i n a l debt, on which the payer w i l l s t i l l be l i a b l e towards the r i g h t f u l p a y e e 1 2 1 . Moreover, the intended payee cannot be forced to accept the actual payee as the only debtor and to release the payer. I f , f o r instance, the payee becomes insolvent before he handed the money back, the loss f a l l s upon the payer. The intended payee w i l l hardly look to the payee i n such a case, and i t seems to be f a i r that the one committing the mistake should bear the l o s s . But i f the payer has to bear the loss i n the case of the payee's insolvency, why should the intended payee be able to secure himself the payee as debtor i f the l a t t e r i s solvent but the mistaken payer becomes insolvent ? This would mean that because of the mistaken payment the intended payee would be able to choose f r e e l y between the payer and the payee, whoever i s solvent. As to the s i t u a t i o n of the payee, i n most cases i t w i l l not matter to the payee to whom he has to pay the money which he got by mistake and which he i s not e n t i t l e d to l i ! 1 But c f . Friedmann, D., Payment of Another's Debt, (1983), 99 L.O.Rev. 534. 41 keep. What i s important f o r him i s that he does not have to pay twice. But there may be instances i n which he may wish to set o f f against h i s obli g a t i o n to make r e s t i t u t i o n a debt which the mistaken payer owes him. I t i s arguable that i f the payee wants to se t o f f h i s obli g a t i o n towards the payer i t i s not f a i r to deprive him of t h i s p o s s i b i l i t y by allowing the intended payee to claim . But the actual payee i s a mere volunteer who, i t i s submitted, cannot obtain more ri g h t s by the mistaken payment than he had before. As a r e s u l t , i t i s submitted, that the claim of the r i g h t f u l payee, i f admitted at a l l , should not take p r i o r i t y over the claim of the mistaken payer. 4. THE CANADIAN SITUATION Canadian courts seem always to have allowed the action of the r i g h t f u l payee against the mistaken r e c i p i e n t . One early example i s the case of Le Noir v. W a l l a c e 1 2 2 . Here, the p l a i n t i f f had a second mortgage on the property of a t h i r d person, the defendant having the f i r s t mortgage. When the defendant obtained an amount of money which discharged both mortgages, the p l a i n t i f f claimed h i s proportionate share by an action f o r money had and received to h i s use. Although i t was argued on behalf of the defendant that the action should f a i l f o r lack of p r i v i t y , the court allowed the claim. Counsel f o r defendant argued, moreover, that (1875), 10 N.S.R. 247 (N.S.S.C.). 42 " [ t ] o recover from defendant, p l a i n t i f f must release [the mortgagor], otherwise there i s no consideration to support a payment or a promise from the defendant." 1 2 3 In other terms, the defendant argued that the p l a i n t i f f had s t i l l h i s claim against the mortgagor. However, the court d i d not accept the defendant's counter-argument. I t may have been doubted that Le Noir v. Wallace stood fo r a more general ru l e because, according to one witness, i n t h i s case the defendant had repeatedly promised to pay the p l a i n t i f f before the p l a i n t i f f eventually commenced an action. Therefore, the court did not have to imply a promise. But only a few years l a t e r i t was held i n Owston v. Grand Trunk R.W. Co. that "[an] action for money had and received w i l l l i e wherever a c e r t a i n amount of money belonging to one person has improperly come to the hands of another.» 1 2 4 There a railway company had by mistake paid the executors of a tenant f o r l i f e f o r the fee simple of land which was taken by the company fo r the purposes of t h e i r r a i l r o a d . The remainderman, the p l a i n t i f f , was e n t i t l e d to a proportion of the money. The p l a i n t i f f sued both the company and the executors f o r payment. The court found that "the executors were properly made pa r t i e s with a view to the company being compelled to make good the money i n the f i r s t instance, ... and the b i l l alleged a l l fa c t s necessary to e n t i t l e the p l a i n t i f f s to a d i r e c t degree against [the executors]." Ibi d . . at p. 248. 1 2 4 (1881), 28 Gr. 431 (Ont.Ch.Ct.). 43 Of s p e c i a l i n t e r e s t i s a t h i r d case, Roblin v. J a c k s o n 1 2 5 , i n which a court again allowed the action f o r money had and received. Moreover, Killam C.J. had l i t t l e d i f f i c u l t y i n finding that there was a f i d u c i a r y r e l a t i o n s h i p between the p l a i n t i f f and the mistaken payer. Bain J . was more cautious as to the f i d u c i a r y r e l a t i o n s h i p and doubted that t r a c i n g was possible i n t h i s case, but held that because the money could not "consistently with conscience" be retained, a constructive t r u s t a r o s e 1 2 6 . The facts of the case were as follows: The defendant C shipped a quantity of wheat to the p l a i n t i f f B to be cleaned and dried. The employees of the p l a i n t i f f , supposing t h i s wheat to be property of the l a t t e r , added some more of the p l a i n t i f f ' s own wheat to make up a car load and forwarded the car to i t s destination, one Brown. The defendant transferred to Brown the b i l l of lading with order to s e l l the wheat. B claimed the proportionate amount of money obtained by the defendant f o r B's wheat which Brown had sold. The court found that there was a mixture of goods by accident and that the owners became tenants i n common of the whole proport i o n a l l y to t h e i r contributions. Bain J . held that the p l a i n t i f f was e n t i t l e d to recovery from the defendant i n an action f o r money had and r e c e i v e d 1 2 7 but because t h i s was a case for the a p p l i c a t i o n of a TT5 126 127 (1901), 13 Man.R. 328 (Man.C.A.). Ibid., at p. 340. I b i d . . at p. 339. 44 constructive t r u s t , the action f o r money had and received was not important i n the case. I t i s s u r p r i s i n g that Brown was held not only to be a debtor of the p l a i n t i f f but "that he was i n a r e l a t i o n to him that may properly be described as a f i d u c i a r y o n e . " 1 2 8 Although there are cases where i t was said that to recover money paid by mistake the mistake has to be between the person paying and the person receiving the money 1 2 9, and i t therefore could have been expected that the action of the r i g h t f u l payee might accordingly have been denied, most of these cases d i d not deal with the action of the r i g h t f u l payee and d i d not have any impact on i t . Only i n McLaughlin v. M i t c h e l l 1 3 0 d i d a court refuse the action of a r i g h t f u l payee on the ground of missing p r i v i t y 1 3 1 . A more recent decison on the claim of a r i g h t f u l payee against the mistaken r e c i p i e n t i s Cherry Processing & Packaging Eguipment Ltd. v. Chrysler Canada L t d . 1 3 2 . The following facts l e d to the dispute. Land Ranger Co. was a corporation producing, i n t e r a l i a , truck caps. When the corporation became insolvent, one Clarkson Co. was appointed receiver. Clarkson sold Land Ranger as a going concern to the p l a i n t i f f , Cherry, which informed Land Ranger's debtors ^ ; i b i d . 1 2 9 Roval Bank v. The King. [1931] 1 W.W.R., [1931] 2 D.L.R. 685 (Man.K.B.); Dominion Bank v. Jacobs. [1951] 3 D.L.R. 233, [1951] O.W.N. 421 (Ont.H.C); Bank of Nova Scotia v. McKee's Estate (1982), 103 A.P.R. 542, 39 N.B.R. (2d) 542 (N.B.Q.B.). 130 [ 1 9 4 9 ] 2. D.L.R. 755 (Ont.C.A.). 1 3 1 Above. 1 3 2 (1982), 18 B.L.R. 285 (Ont.S.C). 45 to make future payments to the p l a i n t i f f . During the whole time, Chrysler was a major customer of Land Ranger. By mistake Chrysler made some cheque-payments which were due to the p l a i n t i f f instead to "Land Ranger Co. & Clarkson Co.". Clarkson claimed to be e n t i t l e d to parts of the payment and re-transferred the res t to Chrysler. Eventually Cherry sued Clarkson and Chrysler f o r payment. The court gave judgment against both defendants. Against Chrysler recovery was under the action f o r goods sold and delivered. Against Clarkson and the bank which had appointed him receiver "the judgment i s supported on a number of grounds. They are moneys paid under mistake of fa c t , money had and received, constructive t r u s t , implied contract and conve r s i o n . 1 3 3 The judge quoted from Owston v. Grand Trunk R.W. Co. to support the action for money had and received. The judgment i s unclear with respect to the l e g a l ground on which the p l a i n t i f f ' s r i g h t ultimately r e s t s . But i t i s c l e a r that the action f o r money had and received l i e s i n favour of the r i g h t f u l payee against the mistaken payee. F i n a l l y , i n Kimwood Enterprises Ltd. v. Roynat I n c . 1 3 4 a r i g h t f u l payee was held e n t i t l e d to claim a mistaken payment. The court, however, did not mention the action f o r money had and received because i t granted a constructive t r u s t . The facts of the case are b r i e f l y as follows. Kimwood sold some companies to Balkan. While the sale took place •* I b i d . . at p. 318. 4 (1985), 18 E.T.R. 285 (Man.C.A.). 46 Revenue Canada was examining the f i n a n c i a l matters of the companies. I t was agreed that the purchase p r i c e should be reduced by the amount of any tax reassessment and $500,000 of the p r i c e was to be held i n t r u s t by the vendor's s o l i c i t o r s to cover these tax re-assessments. Thereafter parts of the t r u s t fund were used accordingly and paid d i r e c t l y to Revenue Canada. When Kimwood disputed the tax assessments Revenue Canada eventually agreed to lower the amount due and refunded some $31,000. However, Revenue Canada did not pay the amount into the s o l i c i t o r s ' t r u s t account but made the rebate cheques payable to Capital I I I which had been formed out of Balkan and the sold companies. By then Capital III was i n receivership and Capital's secured c r e d i t o r s claimed the money. Kimwood, on the other hand, claimed f o r a declaration to be e n t i t l e d to the funds. The court held i n favour of Kimwood: "As between Kimwood and Capital I I I , there can be no doubt which i s e n t i t l e d to the money. The money belonged to Kimwood when i t was i n the t r u s t account. The tax l i a b i l i t y was overpaid and the excess should be returned to the t r u s t fund - to Kimwood... Although the cheques were made payable to the various companies amalgamated into Capital I I I , a l l of the equity i s with Kimwood. Under these circumstances the law w i l l imply a t r u s t i n favour of Kimwood." 1 3 5 Three of the f i v e foregoing judgments did not mention the basis of the claim of the r i g h t f u l payee. But i n Roblin v. Jackson the court drew a p a r a l l e l to the action of trover: ° Ibid., at pp. 289-290. 47 "But i f Brown, instead of s e l l i n g the p l a i n t i f f ' s wheat and paying the proceeds to the defendant, had turned over the wheat i t s e l f to the defendant, i t i s c l e a r that the p l a i n t i f f could have sued the defendant d i r e c t l y e i t h e r i n trover or f o r the value of the wheat i n an action for money had and received; and now that the defendant has received the p r i c e of the p l a i n t i f f ' s wheat without having given any consideration therefor, i t would seem to be inequitable and anomalous i f the p l a i n t i f f could not recover d i r e c t l y from him i n an action as f o r money had and r e c e i v e d . " 1 3 6 Indeed, i f the wheat had not been sold the p l a i n t i f f could have recovered h i s property from the defendant or from Brown. But because the defendant had sold the wheat to Brown and Brown had sold the wheat to other customers the defendant had had the use of the p l a i n t i f f ' s property. He, therefore, was unjustly enriched at the p l a i n t i f f ' s expense. Again, Huband J.A. said i n the Kimwood case: "In the present case, i n the absence of a constructive t r u s t , the secured cr e d i t o r s Jof Capital III] would also be unjustly e n r i c h e d . " 1 3 7 The judge d i d not say e x p l i c i t l y at whose expense the secured c r e d i t o r s would have been unjustly enriched but he obviously thought the enrichment to be at Kimwood's expense. As a r e s u l t i t can be said that the action of the r i g h t f u l payee seemingly based on the doctrine of unjust enrichment i s part of the Canadian law. Canadian law, on t h i s point, has become very much l i k e the law i n the U.S.A. °(1901), 13 Man.R. at p. 337 [emphasis added]. 7 (1985), 18 E.T.R. at p. 292. I t i s submitted that although the judge referred to the constructive t r u s t he would have made a s i m i l a r statement with respect to a personal action. 48 I I I . Proprietary remedies - The constructive t r u s t as a remedial device i n the case of money mistakenly paid "The p r i n c i p l e of unjust enrichment l i e s at the heart of the constructive t r u s t . " 1 1. INTRODUCTION This chapter i s concerned with the conditions under which a mistaken payer, or even a r i g h t f u l payee, may a v a i l himself of a proprietary remedy. More s p e c i f i c a l l y , the question w i l l be under what conditions the payee of a mistaken payment w i l l be held to be a constructive trustee. B r i t i s h law with i t s constructive t r u s t as a substantive i n s t i t u t i o n w i l l provide the background for the discussion again. I t w i l l become clea r that nowadays the Canadian constructive t r u s t has much more i n common with the American model than with i t s B r i t i s h ancestor. I t i s not long since that the Canadian law turned away from i t s B r i t i s h roots to a remedial constructive t r u s t l i k e the one i n the U.S.A. However, i t w i l l be seen that there i s some movement i n B r i t i s h law towards the American model, too. The p o s i t i o n of the payer as beneficiary w i l l be dealt with f i r s t . Per Dickson J . (as he then was) i n Pettkus v. Becker. [1980] 2 S.C.R. 834, (1980), 19 R.F.L.(2d) 165 at p. 179; 117 D.L.R.(3d) 257 at p. 273, 8 E.T.R. 143, 34 N.R. 384 at p. 396. 49 The constructive t r u s t can give the p l a i n t i f f a remedy i n rem. The use of the term "remedy i n rem" recognises that a constructive t r u s t i s a proprietary remedy which gives not only a money judgment l i k e remedies i n personam but also e n t i t l e s the p l a i n t i f f to s p e c i f i c r e s t i t u t i o n 2 . In many cases, the imposition of a personal o b l i g a t i o n on the defendant to make r e s t i t u t i o n to the p l a i n t i f f w i l l be s u f f i c i e n t . 3 But suppose, f o r example, the defendant has transferred the funds to a t h i r d party. May the p l a i n t i f f ask the l a t t e r to restore the mistaken payment to him? At common law the answer to t h i s question hinged on whether the p l a i n t i f f can trace h i s funds into the hands of a t h i r d party. Without entering into a f u l l discussion of tr a c i n g at common law i t may be said that the action f o r money had and received w i l l l i e against t h i r d p a r t i e s as long as the asset i s s t i l l i d e n t i f i a b l e and the t h i r d party i s not a bona f i d e purchaser f o r value. 4 To quote Lord Haldane: Spry, Equitable Remedies ( Melbourne 1971), p. 26 et seq.; Hanbury and Maudsley, Modern Equity (12th ed., London 1985), p. 17 et seq.; E.J. Mockler (1962), 40 Can.Bar.Rev. 270 at p. 279: "[A] r i g h t enforceable against the world [except bona f i d e purchasers for value] with respect to a p a r t i c u l a r thing." Except, e.g., i n the cases, already mentioned, where money was paid under mistake of law. Besides the actions at law there i s an equitable action for money had and received, but i t s ambit i s very l i m i t e d ; Re Diplock. [1948] Ch. 465 at p. 479 et seq. Cf. Goff and Jones, op.cit.. pp. 573-74. Examples given by Goff and Jones, The Law of Resti t u t i o n , p. 64 n. 29; c f . Lord Haldane i n S i n c l a i r v. Brougham. [1914] A.C. 398 at p. 418 et seq., 83 L.J.Ch. 465, 111 L.T. 1, 30 T.L.R. 315, 58 S.J. 302. 50 "[W]nether the case be that of a t h i e f or of a fraudulent broker, or of money paid under mistake of fact, you can, even at law, follow [the money]." 5 Yet, i n practice, the common law of t r a c i n g has been of l i t t l e importance 6. One of the reasons f o r t h i s i s the p a r t i c u l a r character of money as a universal means of exchange. In most cases i t w i l l be mixed with the money of another person and w i l l cease to be i d e n t i f i a b l e 7 . An exceptional case i s Banque Beige pour l'Etranger v. Hambrouck8 i n which the mere f a c t that the defendant had paid the money i n question into a bank account d i d not bar an action f o r money had and received against the bank. To quote Atkin L.J. (as he then was): "[A]s the money paid into the bank can be i d e n t i f i e d [traced] as the product of the o r i g i n a l money9, the p l a i n t i f f s have the common law r i g h t to claim i t , and can sue fo r money had and r e c e i v e d . " 1 0 But even i f t r a c i n g at common law i s sometimes availa b l e , i n the usual case i t w i l l not be. Therefore, personal actions at law are quite often i n s u f f i c i e n t . *; S i n c l a i r v. Brougham. [1914] A.C. 418. 6 Goff and Jones, op . c i t . . p. 63. Klippert, (1980), 30 U.of T.L.J. 365 at p. 403, n. 239. 7 But see Robert A. Pearce, A Tracing Paper (1976), 40 Conv. 277-291 at p. 282, who argues that the rul e i n Lupton v. White (1808), 15 Ves. 432, applies; the cases do not sustain such an argument, Re Diplock. [1948] Ch. 465 at p. 520; c f . Goff and Jones, op.cit. p. 72. 8 [1921] 1 K.B. 321; 90 L.J.K.B. 322; 37 T.L.R. 76; 65 S.J. 74; 26 Com.Cas. 72. 9 In substance no other funds were paid into the account than the amount i n dispute. 1 0 [1921] 1 K.B. 321 at p. 335; Atkin, L.J., d i d not t r e a t t r a c i n g at common law as a remedy of i t s own but as a means f o r ascertainment whether the money claimed as money had and received was i n the hands of the defendants. 51 Equity, by contrast, has developed rules which make i t easier to follow money into the hands of the payee and t h i r d p a r t i e s . " I t i s always said that i n t h i s area equity's s i g n i f i c a n t contribution was i t s r e f u s a l to accept that money had no ear-mark [to i d e n t i f y the money] and i t s readiness to allow a p l a i n t i f f to trace into a mixed fund. Chancery judges may have exaggerated the d e b i l i t y of the common law rules. But t h e i r intervention was so successful that few p l a i n t i f f s ever contemplated t r a c i n g at common law. 1 1 Compared with personal actions, proprietary claims have the following advantages: - the p l a i n t i f f may obtain p r i o r i t y over general c r e d i t o r s i f the defendant i s i n s o l v e n t 1 2 ; - the d i s t i n c t i o n between mistake of f a c t and of law i s not c r u c i a l 1 3 ; - the p l a i n t i f f may recover the p r o f i t s made by the defendant, and trace the claimed fund into other property acquired with i t 1 4 ; Goff and Jones, op. c i t . . p. 69. Cf. Goff and Jones, op.cit.. p. 65 n. 31; Pearce, o p . c i t . . p. 284; Scott, Austin W., The Law of Trusts (4th ed.Fratcher, Boston and Toronto 1987), sec. 202, 306-309.1, 508-521.6. Re Diplock. [1948] Ch. 465. But otherwise i n the U.S.A., see i n f r a . The case of Barclays Bank Ltd. v. W.J. Simms Son & Cooke fSouthern) Ltd.. [1980] 1 Q.B. 677; [1980] 2 W.L.R. 218; [1979] 3 A l l E.R. 522; [1980] 1 Lloyd's Rep. 225; seems to indicate that the d i s t i n c t i o n between mistake of fa c t and of law i s not v a l i d any longer i n Great B r i t a i n . The case i s noted i n [1980] New L.J. 273 (Tettenborn). Re Diplock. [1948] Ch. 465 at p. 557; Restatement, sec. 160, Comment g,h, sec. 168, 202-215. Interest can be obtained from the date on which the defendant became aware of the mistaken payment, e.g., Bottoms v. Brent Petroleum Industries Ltd. (1984), 17 E.T.R. 48 (B.C.S.C). 52 - the l i m i t a t i o n period could be longer- 1 ,* - the p l a i n t i f f could obtain an order f o r the preservation of the property pending the hearing of the a c t i o n 1 6 ; and - the proprietary remedy may be avail a b l e though no personal action w i l l l i e 1 7 . Equity's methods of compelling a defendant to restore property which he should not keep i s eithe r to make him a constructive trustee, provided the p l a i n t i f f can trace h i s property into the hands of the defendant, or to give the p l a i n t i f f the equitable proprietary remedy of t r a c i n g . 1 8 "The p r i n c i p l e i s that where a person who holds property i n circumstances i n which i n equity and good conscience i t should be hold or enjoyed by another, he w i l l be compelled to hold the property on t r u s t f o r that o t h e r . " 1 9 This other person, the beneficiary of the t r u s t , has an equitable proprietary i n t e r e s t i n the t r u s t property. The The p l a i n t i f f may obtain an order f o r s p e c i f i c r e s t i t u t i o n of the benefit conferred or the proceeds of i t s investment, see, e.g., Brooks v. Conston. 364 Pa. 256, 72 A.2d 75 (Pa.Sup.Ct.1950); Elmer Co. v. Kemp. 67 F.2d 948 (9th Cir.1933); Flannerv v. Flannerv Bolt Co.. 108 F.2d 531 (3d Cir.1939). Cf. 1 Palmer, op . c i t . . p. 15 1 7 8 ' :™ Scott, The Law of Trusts, sec. 12.4. 1 6 Goff and Jones, op.cit.. p. 60 n. 5; c f . A v. C.. [1981] Q.B. 956. 1 7 S i n c l a i r v. Brougham. [1914] A.C. 398; but see Trades H a l l Co. v. E r i e Tobacco Co. (1916), 29 D.L.R. 779 (Man.C.A.), and Re Gen. Finance Corp. (Yarmouth) Ltd., [1941] 1 D.L.R. 746. 1 8 Re Diplock, [1948] Ch. 465; c f . Hanbury and Maudsley, Modern Eguity. pp. 304/5 on the one side and Goff and Jones, o p . c i t . . p. 69 on the other side. 1 9 Hanbury and Maudsley, Modern Equity, p. 301. 53 l e g a l ownership, however, i s f u l l y vested i n the t r u s t e e 2 0 . I t has to be added at the outset that i f the holder of the property i n question i s a bona f i d e purchaser for value, equity w i l l not compel him to part with the property. Unlike an express t r u s t , the constructive t r u s t i s not based upon the intention of a s e t t l o r . Rather, "[t]he hallmark of the constructive t r u s t i s that i t i s imposed i r r e s p e c t i v e of intention; indeed, i t i s imposed quite against the wishes of the constructive t r u s t e e . " 2 1 2. THE ENGLISH CONSTRUCTIVE TRUST 2 2 I t i s a r t i f i c i a l to attempt to analyze the prerequisites f o r constructive t r u s t s , because of the apparent concern of English judges to do j u s t i c e i n in d i v i d u a l cases, at the expense of constructing an o v e r a l l systematical framework. Nevertheless, three groups of constructive t r u s t cases may be i d e n t i f i e d 2 3 . The t r a d i t i o n a l approach seems to be to regard constructive t r u s t s as a c o r o l l a r y to the i n s t i t u t i o n of express t r u s t s 2 4 . Generally speaking, constructive t r u s t s of i 0 This i s not a requirement f o r constructive t r u s t s as soon as one regards the l a t t e r as a remedial device, c f . Palmer, The Law of Restitution, sec. 1.3 n.15. 2 1 Dickson J . (as he then was) i n Rathwell v, Rathwell (1978), 1 E.T.R. at p. 326, 1 R.F.L. at p. 14. 2 Palmer, f o r example, gives a b r i e f survey of the hist o r y of the English constructive t r u s t , o p . c i t . . sec. 1.3. 2 3 Cf. Waters, Law of Trusts i n Canada (2d ed. Toronto 1984), pp. 398-427 as to situations i n which constructive trusteeship has been imposed by the courts. 2 4 Cf. Martland J . (dissenting) i n Rathwell v. Rathwell. [1978] 2 S.C.R. 436, [1978] 2 W.W.R. 101, (1978), 1 54 the f i r s t group w i l l l i e to protect the t r u s t property of express t r u s t s . Whenever t r u s t property i s found i n the hands of a stranger to the t r u s t who knows that the property was transferred to him i n breach of t r u s t , equity w i l l t r e a t t h i s party as a constructive trustee and compel him to hold the property i n t r u s t f o r the b e n e f i c i a r i e s . The equitable i n t e r e s t of the beneficiary of the express t r u s t property does not cease. I t i s inequitable to allow the new holder of the property to keep i t . The b e n e f i c i a r i e s of the express t r u s t or - as i n Re Diplock - the persons t r u l y e n t i t l e d to the t r u s t money have equitable proprietary remedies. 2 5 A second group of constructive t r u s t cases i s concerned with p r o f i t which the trustee has acquired f o r himself by reason of h i s p o s i t i o n as express t r u s t e e . 2 6 The trustee w i l l be held to have obtained the p r o f i t f o r the benefit of the t r u s t 2 7 , regardless of how honestly the trustee a c t e d 2 8 . R.F.L. (2d) 1, 83 D.L.R. (3d) 289, 1 E.T.R. 307 at p. " See Re Diplock. [1948] Ch. 465, below, no constructive t r u s t i n the case of the innocent volunteer but equitable t r a c i n g ; c f . Lord Parker i n S i n c l a i r v. Brougham. [1914] A.C. 398 at p. 442. Equally, strangers who a s s i s t knowingly i n a dishonest and fraudulent design on the part of the (express) trustee may be l i a b l e as constructive trustees, Barnes v. Addv (1874), L.R. 9 Ch.App. 244, 43 L.J.Ch. 513, 30 L.T. 4, 22 W.R. 505. 2 6 Keech v. Sandford (1726), 2 Eq.Cas.Abr. 741, 25 E.R. 223; Cf. Goff and Jones, op.cit.. p. 632 et seq. 2 7 Cf. Parker and Mellows, The Modern Law of Trusts (5th ed. 1983), p. 170 n. 85 and accompanying text. 2 8 But see, e.g., Loring v. Baker. 329 Mass. 63, 106 N.E.2d 434 (Mass.Sup.Ct.1952): A trustee had not been 'conscious' that a p r o f i t a b l e investment was unauthorized. A beneficiary was denied to obtain a pro rata share i n the p r o f i t s . But Loring v. Baker seems to 55 In t h i s second group of cases the equitable i n t e r e s t of the be n e f i c i a r y i n the (constructive) t r u s t property d i d not e x i s t , but was created by the courts. Courts have imposed t h i s kind of o b l i g a t i o n not only on express trustees but on a v a r i e t y of f i d u c i a r i e s . Directors of a company, for example, who personally acquired a contract which they ought to have entered into f o r t h e i r company were held to be i n a f i d u c i a r y p o s i t i o n and g u i l t y of a breach of duty. They were therefore l i a b l e as constructive trustees f o r the gains which they had consequently made. 2 9 F i n a l l y , there i s a t h i r d group of mixed cases wherever the l e g a l and equitable ownership of property i s separated. Equity w i l l t r e a t the person i n whom the l e g a l t i t l e i s vested as a constructive trustee (provided there i s no express, implied or r e s u l t i n g t r u s t ) . 3 0 To sum up, i n English law the constructive t r u s t was regarded as a substantive i n s t i t u t i o n c l o s e l y linked to the express t r u s t rather than as a remedial device. In 1979, be an exception to the American law, c f . Restatement. sec. 190 et seq. 2 9 Cook v. Peeks. [1916] 1 A.C. 554 at pp. 563/65 ( P . C ) , 85 L.J.P.C. 161, 114 L.T. 636: "[The directors] cannot r e t a i n the benefit of such contract f o r themselves, but must be regarded as holding i t on behalf of the company. ... I t follows that the defendants must account to the ... company for the p r o f i t s which they have made out of the transaction." There seems to be some overlap between constructive t r u s t s and the equitable action f o r account which requires a wrongdoer "to restore any gain acquired from using another's property", Klippert, Unjust Enrichment. Toronto 1983, p. 217. 3 0 Cf. P e t t i t , Equity and the Law of Trusts (5th ed. 1983), p. 55. 56 Brown-Wilkinson J . (as he then was) described the notion of a remedial constructive t r u s t as a "novel concept". 3 1 In the case of money mistakenly paid the a p p l i c a b i l i t y of the constructive t r u s t was quite r e s t r i c t e d . The r i g h t of the be n e f i c i a r i e s of an express t r u s t to follow t r u s t money found i n the hands of a knowing stranger has already been mentioned. But what about the trustee himself ? Or what about a s i t u a t i o n which does not involve express t r u s t s at a l l ? In these cases, i n the normal course of events, neither the mistaken payer nor the intended payee could a v a i l himself of a constructive t r u s t . The reason f o r t h i s lay i n the t r a d i t i o n a l separation of common law j u r i s d i c t i o n and equitable j u r i s d i c t i o n . A mistaken payer had an action at law. Equity was rather concerned with f i d u c i a r y r e l a t i o n s h i p s than with mistaken payers. How then could equity step i n to help with a constructive t r u s t ? The simple f a c t , that the remedy at law was inadequate was obviously not s u f f i c i e n t to bring equity into play. I t was Lord Denning who put forward the constructive t r u s t on a "new model" 3 2 which l i e s "whenever j u s t i c e and good conscience require i t . " 3 3 The same judge went on to say: • i ± Re Sharoe. T19801 1 W.L.R. 219 at p. 225 g; (1979), 124 S.J. 147, 39 P.& CR. 459, [1980] 1 A l l E.R. 198. Eves v. Eves. [1975] 1 W.L.R. 1338, 119 S.J. 394, [1975] 3 A l l E.R. 768 (CA.) . 3 3 Hussev v. Palmer. [1972] 1 W.L.R. 1286 at p. 1290, 116 S.J. 567, [1972] 3 A l l E.R. 744, [1973] C.L.J. 41. 57 "[The constructive trust] i s an equitable remedy by which the court can enable an aggrieved party to obtain r e s t i t u t i o n . " 3 4 Although Lord Denning's approach was subject to c r i t i c i s m , i t offered one way to help - under appropriate circumstances - the mistaken payer with a constructive t r u s t . Lord Denning's approach would have meant a r e a l fusion between l e g a l and equitable remedies. In Chase Manhattan Bank N.A. v. I s r a e l - B r i t i s h Bank (London) L t d . 3 5 one court went another way and held that the mistaken payer retained an equitable proprietary i n t e r e s t i n the money. The equitable proprietary i n t e r e s t was the basis f o r a f i d u c i a r y r e l a t i o n s h i p between the mistaken payer and payee. As soon as a f i d u c i a r y r e l a t i o n s h i p was established equity could step i n and help the mistaken payee with a constructive t r u s t . The court therefore imposed upon the mistaken payee a constructive t r u s t f o r the benefit of the payer. The d i s t i n c t i o n between constructive t r u s t s and equitable t r a c i n g has to be set out i n order to understand the ground on which Chase Manhattan Bank r e s t s . • j 4 I b i d . . T19721 1 W.L.R. 1286 at p. 1290; see too: Re Sharoe. [1980] 1 W.L.R. 219. 3 5 [1981] Ch. 105; [1980] 2 W.L.R. 202; (1979), 124 S.J. 99; [1979] 3 A l l E.R. 1025. 58 a) Tracing i n equity and constructive t r u s t s I t has been said that equity's means to compel somebody to restore property which he should not keep i s to make him a constructive trustee. There i s , however, a second proprietary remedy available i n equity, equitable t r a c i n g . I t i s not always c l e a r whether t r a c i n g i n equity i s a remedy on i t s own or simply the method of ascertainment of the constructive t r u s t p r o p e r t y . 3 6 The Court of Appeal i n Re D i p l o c k 3 7 c l e a r l y distinguished between constructive t r u s t s and t r a c i n g i n equity. In t h i s case, executors under a w i l l had paid a substantial part of the t r u s t fund to a number of c h a r i t i e s when the residuary bequest was challenged by the next-of-kin and held to be void. The question was whether the c h a r i t i e s were constructive trustees, the equitable ownership i n the t r u s t funds s t i l l being vested i n the b e n e f i c i a r i e s (next-of-kin) . The court held that the c h a r i t i e s were not constructive trustees because they had received the money bona f i d e . But then the court tackled at length the question of the requirements f o r equitable t r a c i n g . Discussing the J O "The d i s t i n c t i o n between t r a c i n g and constructive trusteeship appears to be absent from cases concerned with r e a l property.", Harpum, Charles: "The Stranger as Constructive Trustee", (1986), 102 L.O.Rev. 114-162, 267-291 at p. 270. 3 7 [1948] Ch. 465. 59 judgment of Lord Dunedin i n S i n c l a i r v. Brougham'3° the court held: "Lord Dunedin i n S i n c l a i r v. Brougham appears ... to tr e a t the equitable remedy [of tracing] as applicable i n any case where a s u p e r f l u i t y [ i . e . unjust enrichment], expressed or capable of being expressed i n terms of money, i s found to e x i s t . Such a view would dispense with the necessity of est a b l i s h i n g as a s t a r t i n g point the existence of a f i d u c i a r y or quasi-f i d u c i a r y r e l a t i o n s h i p or of a continuing r i g h t of property recognized i n equity. We may say at once that ... we cannot f i n d that any p r i n c i p l e so wide i n i t s operation i s to be found enunciated i n English law." 3 9 The existence of a f i d u c i a r y r e l a t i o n s h i p i s necessary to give r i s e to an equitable r i g h t of p r o p e r t y 4 0 . According to the court t h i s was the case with the Diplock money 4 1, the executors holding the money because of t h e i r p o s i t i o n as executors on t r u s t . As a r e s u l t , the p l a i n t i f f s could trace the t r u s t money into the hands of the c h a r i t i e s . 4 2 In Re Diplock the court seemingly equated the duties of express and constructive trustees. On t h i s footing the court did not want to impose on the innocent c h a r i t i e s "the heavy obligations of t r u s t e e s h i p " 4 3 , but gave the p l a i n t i f f s the [1914] A.C. 398; 83 L.J.Ch. 465; 111 L.T. 1; 30 T.L.R. 315; 58 S.J. 302. [1948] Ch. 465 at pp. 520-21. Ibid . . at p. 540. Trades H a l l Co. v. E r i e Tobacco Co. (1916), 29 D.L.R. 779 at p. 795 (Man.C.A.). The s i t u a t i o n i s d i f f e r e n t with regard to tr a c i n g at common law, S i n c l a i r v. Brougham. [1914] A.C. at p. 420, per Lord Haldane. See, however, Pearce, op.cit.. at p. 288: "The claimants i n Re Diplock had at no point been equitable owners of the property they sought to trace. [T]hey had no b e n e f i c i a l i n t e r e s t i n the property." But the defendants could r a i s e the defence of change of po s i t i o n . I b i d . r at p. 478. 60 remedy of equitable t r a c i n g . Indeed, there are differences between the p o s i t i o n of a constructive trustee and an innocent volunteer i n whose hands property i s traced. The defence of change of p o s i t i o n which could be raised i n Re Diplock i s not a v a i l a b l e f o r the constructive trustee. He does not cease to be constructive trustee when he i s no longer i n the possession of the t r u s t p r o p e r t y . 4 4 Furthermore, the innocent volunteer i s l i a b l e "only to the extend that those who transferred the property to him cannot compensate the b e n e f i c i a r i e s fo r t h e i r l o s s . " 4 5 F i n a l l y , a constructive trustee has to make good a loss of the t r u s t property, while the innocent transferee shares pro rata with the b e n e f i c i a r i e s i n a devaluation of t r u s t p r o p e r t y . 4 6 b) The requirement of a f i d u c i a r y r e l a t i o n s h i p fo r t r a c i n g 4 ' Explaining S i n c l a i r v. Brougham 4 8, the Court of Appeal i n Re Diplock held that a f i d u c i a r y r e l a t i o n s h i p was e s s e n t i a l for t r a c i n g , or, to use the words of the judges, the " s t a r t i n g p o i n t " 4 9 f o r t r a c i n g . This f i d u c i a r y 4 4 Selancror United Rubber Estates v. Cradock (No.3) . [1968] 1 W.L.R. 1555; c f . P e t t i t , o p . c i t . . at p. 55. 4 5 Oakley, op.cit., p. 69. 4 6 S i n c l a i r v. Brougham. [1914] A.C. 418 at p. 442-3. But see Scott, op.cit., sec. 12.1, p. 133, and sec. 12.5. 4 7 Cf. Waters, The Constructive Trust (1964), p. 33, and Maudsley, Proprietary Remedies fo r the Recovery of Money (1959), 75 L.O.Rev. 234. 4 8 [1914] A.C. 398. 4 9 [1948] Ch. 465 at p. 529. 61 r e l a t i o n s h i p was the basis f o r the equitable proprietary i n t e r e s t : "Lord Parker and Lord Haldane [in S i n c l a i r v. Brougham] both predicate the existence of a r i g h t of property recognized by equity which depends upon there having existed at some stage a f i d u c i a r y r e l a t i o n s h i p of some kind (though not necessarily a p o s i t i v e duty of trusteeship) s u f f i c i e n t to give r i s e to the equitable r i g h t of property." There are, however, remarks i n Re Diplock which indicate that t r a c i n g can be based on other grounds, "... namely, that when once the proprietary i n t e r e s t has been created by equity as a r e s u l t of the wrongful or unauthorized dealing by the o r i g i n a l r e c i p i e n t of the money, that i n t e r e s t w i l l p e r s i s t and be operative against an innocent t h i r d party who i s a v o l u n t e e r " . 5 0 An examination of t h i s sentence out of i t s context might lead to an expectation that whenever the r e c i p i e n t of money mistakenly paid deals with the money i n a wrongful or unauthorized way equity w i l l create a proprietary i n t e r e s t i n favour of the person t r u l y e n t i t l e d to the money. I t might further be argued that there are few ways not to deal i n a wrongful way with money paid by mistake, the payee's ob l i g a t i o n being to restore the money to the payer or to pay i t into the court. This l i n e of reasoning, however, would neglect the o v e r a l l context of Re Diplock where the court put s p e c i a l emphasis on the requirement of a f i d u c i a r y r e l a t i o n s h i p . [1948] Ch. 465 at pp. 536-7 [emphasis added]. 1 62 c) The development of tr a c i n g and constructive t r u s t i n Chase Manhattan Bank N.A. v. I s r a e l B r i t i s h Bank (London) Ltd." 5 1 In Chase Manhattan Bank the p l a i n t i f f , a New York Bank, paid to the defendant under a mistake of f a c t more than US $2,000,000. Two days l a t e r the defendant learned of the payment and the mistake. 5 2 The defendant then became insolvent. The p l a i n t i f f claimed the f u l l amount paid, arguing that the defendant had become constructive trustee for the p l a i n t i f f . The learned judge said: "I am asked ... to answer the i n i t i a l question of p r i n c i p l e , whether the p l a i n t i f f i s e n t i t l e d i n equity to trace the mistaken payment and to recover what now represents the money."53 Examining the law the judge found f i r s t that there was no d i r e c t authority on t h i s question. He then quoted at length from Re B e r r y 5 4 , an American decision i n which, on s i m i l a r f a c t s , the court had imposed a constructive t r u s t on the payee. Furthermore, the judge quoted Scott on Trusts: "[Where] chattels are conveyed or money i s paid by mistake, so that the person making the conveyance or payment i s e n t i t l e d to r e s t i t u t i o n , the transferee or payee holds the chattels or money upon a constructive t r u s t . ... The b e n e f i c i a l i n t e r e s t remains i n the person who conveyed the chatt e l or who paid the money, since the conveyance or payment was made under a mistake." 5 5 5 1 [1979] 3 A l l E.R. 1025. 5 " [ I t ] e i t h e r knew i t was a mistake, or was put f u l l y on enquiry by facts that should have indicated i t might be a mistake.", per Goulding J . , i b i d , at pp. 1028-9. 5 3 I b i d . . at p. 1029 j [emphasis added]. 5 4 147 F. 208 (CCA.2d.1906) . See i n f r a . 5 5 Scott, The Law of Trusts (3rd ed. Boston and Toronto 1967), p. 3428. Cf. Restatement, sec. 163. Goulding J . then addressed himself b r i e f l y to the question of whether, i n the l i g h t of Re Diplock. he could follow the American model. The judge held that on t h i s question there was no relevant difference between B r i t i s h and American law, saying: "The court [ i n Re Diplock] held that an i n i t i a l f i d u c i a r y r e l a t i o n s h i p i s a necessary foundation of the equitable r i g h t of tr a c i n g . ... I t i s enough that, as i n S i n c l a i r v. Brougham, the payment into wrong hands i t s e l f gave r i s e to a f i d u c i a r y r e l a t i o n s h i p . " 5 6 As a r e s u l t the judge declared that the defendant became a constructive trustee for the p l a i n t i f f of the sum mentioned 5 7 (although the judge did not decide whether i n the case before him the p l a i n t i f f could a c t u a l l y trace the fund i n dispute into the hands of the payee). The judgment has attracted as much approval as c r i t i c i s m . 5 8 But i t i s d i f f i c u l t i f not impossible to reconcile with the decision i n Re Diplock and raises a number of questions: - Although t r a c i n g i n equity and constructive trusteeship are d i s t i n c t concepts, the court i n Chase Manhattan Bank intertwined them. Because the p l a i n t i f f had r i g h t to trace h i s money i n equity the p l a i n t i f f became a constructive trustee. [1979] 3 A l l E.R. at p. 1032. Ibid., at p. 1040. The case i s noted i n [1980] Camb.L.J. 272 (Andrew Tettenborn) and i b i d , at p. 275 (Gareth Jones). 64 - The court did not answer the question of whether the defendant was an innocent volunteer or (perhaps at a l a t e r point i n time) ceased to be one. Because of Re Diplock i t might have been expected that i n Chase Manhattan Bank no constructive t r u s t would l i e because the defendant was an innocent volunteer at the moment when i t received the money. Nevertheless, i t became a constructive trustee. The judge did not f i n d i t "necessary to determine the p o i n t " 5 9 of whether the defendant knew of the mistake or not. - The money paid by mistake d i d never belong to the defendant b e n e f i c i a l l y . But then the court went on to say: "There may ... be sp e c i a l cases where the conduct or inaction of a party who has paid money by mistake s i m i l a r l y makes i t inequitable f o r him to recover i t to the prejudice of t h i r d p a r t i e s , but nothing ... i n the present case discloses any such s i t u a t i o n . " 6 0 Such a statement makes i t d i f f i c u l t to predict when a constructive t r u s t w i l l l i e . When i s i t inequitable f o r the payer to recover ? - In Re Diplock the Court of Appeal based the equitable r i g h t of t r a c i n g upon the existence of a f i d u c i a r y r e l a t i o n s h i p . Chase Manhattan Bank explains the f i d u c i a r y r e l a t i o n s h i p as depending upon some equitable proprietary r i g h t . Goulding J . said: " [A] person who pays money to another under a fac t u a l mistake retains an equitable property i n i t and the conscience of that other i s subject to a f i d u c i a r y duty to respect h i s proprietary r i g h t . " 6 1 b * [1979] 3 A l l E.R. 1025 at p. 1028 g. 6 0 [1979] 3 A l l E.R. 1025 at p. 1034 a. 6 1 [1979] 3 A l l E.R. 1025 at p. 1032. 65 This seems to be c i r c u i t o u s . Furthermore, i t i s d i f f i c u l t to see why, i n the l a t t e r case, i n the p l a i n sense of the word, the payee of a mistaken payment occupies a fi d u c i a r y p o s i t i o n i n r e l a t i o n to the payer. Although Goulding J . expressly rejected the p o s i t i o n of Lord Dunedin i n S i n c l a i r v. Brougham 6 2 he arrived at a r e s u l t which can be better explained i n the terms of Lord Dunedin's language 6 3. I t i s therefore submitted that i n Chase Manhattan Bank the court abandoned the requirement of a fi d u c i a r y r e l a t i o n s h i p 6 4 . To put i t i n other words: "[C]ategories of f i d u c i a r y r elationships ... are ... no more than formulae f o r equitable r e l i e f . " 6 5 As a r e s u l t Chase Manhattan Bank can not be reconciled with i t s B r i t i s h precedents but adopts the American model. By v i r t u e of the construction of an equitable i n t e r e s t and a fi d u c i a r y r e l a t i o n s h i p , Goulding J . introduced the remedial constructive t r u s t into the common law area of money mistakenly paid. I t remains to be seen whether Chase Manhattan Bank w i l l be followed by other courts and, i f so, ^ [1914] A.C. 398; Goulding J . said: "The Court of Appeal's in t e r p r e t a t i o n of S i n c l a i r v. Brougham [in Re Diplock] was an es s e n t i a l part of t h e i r decision and i s binding on me.... The court thought that the majority of the House of Lords i n S i n c l a i r v. Brougham had not accepted Lord Dunedin's opinion i n that case, and themselves rejected i t . " , [1979] 3 A l l E.R. 1025 at p. 1032. 3 Cf. supra. 4 Professor Palmer remarked: "The court paid l i p service...", The Law of Restitution, 1986 Supplement, at p. 6 (ad sec. 1.3, p.12, note 11). 5 English v. Dedham Vale Properties Ltd.. [1978] 1 W.L.R. 93; [1978] 1 A l l E.R. 382, (1977), 35 P.& CR. 148, 121 S.J. 320, 245 E.G. 747, 839, [1978] J.P.L. 315; at A l l E.R. 398g. 66 how lo n g judges w i l l endeavour t o " f i n d " f i d u c i a r y r e l a t i o n s h i p s t o c r e a t e e q u i t a b l e i n t e r e s t s . Can one say t h a t every mistaken payer r e t a i n s an e q u i t a b l e i n t e r e s t i n the payment because of the mistake ? d) The e q u i t a b l e ownership i n money m i s t a k e n l y p a i d Chase Manhattan Bank i s not the o n l y case where a c o u r t has h e l d t h a t the mistaken payer r e t a i n s an e q u i t a b l e p r o p r i e t a r y r i g h t i n the money. In A v. C . 6 6 Goff J . (as he then was) was asked t o grant a Mareva i n j u n c t i o n . The p l a i n t i f f s , here, claimed t o t r a c e money which they s a i d had been p a i d under a mistake of f a c t induced by the f r a u d of the defendants. Although the c o u r t d i d not e x p l i c i t l y h o l d t h a t the p l a i n t i f f r e t a i n e d an e q u i t a b l e p r o p r i e t a r y r i g h t i n the money the l e a r n e d judge s a i d : "There i s ... simply a c l a i m t o t r a c e money i n t o the bank's hands which the p l a i n t i f f s say i s t h e i r p r o p e r t y i n e q u i t y . " 6 7 The i n j u n c t i o n was g r a n t e d 6 8 . e) The inadequacy o f the remedy a t law One q u e s t i o n which was o n l y i n d i r e c t l y addressed i n Chase Manhattan Bank i s whether a c o n s t r u c t i v e t r u s t w i l l be °° [1981] Q.B. 956. 6 7 I b i d , a t p. 957 F. 6 8 Cf. Bankers T r u s t Co. v. S h a p i r a . [1980] 1 W.L.R. 1274, (1980), 124 S.J. 480, [1980] 3 A l l E.R. 353. 67 ava i l a b l e only i f common law remedies are inadequate. Obviously, i n t h i s case remedies at law would have been inadequate because of the insolvency of the defendant. Goulding J . d i d not discuss the point, but i t i s a general r u l e i n B r i t i s h law that "[t]he need f o r equitable intervention does not a r i s e unless i t appears ... that there i s no other adequate remedy at law." ( S p r y ) 6 9 f) When does the constructive t r u s t a r i s e ? In Chase Manhattan the court held that the equitable proprietary i n t e r e s t of the p l a i n t i f f had been vested before the commencement of the winding-up at the moment when the money came into the hands of the defendant. The money paid by mistake never d i d belong to the defendant b e n e f i c i a l l y . Thus, Chase Manhattan adopted the view taken by the American Restatement of R e s t i t u t i o n . 7 0 As the law seems to stand now 7 1, the mistaken payer retains an equitable proprietary r i g h t i n the money paid by mistake and can ask the court to impose a constructive t r u s t on the money provided the payer can trace the money into the hands of the payee and remedies at law are inadequate. I t i s 9 Spry, o p . c i t . . at p. 352, and at p. 57 et seq. See, e.g., Adderley v. Dixon (1824), 1 Sim.& St. 607, and New Brunswick etc. Co. v. Mucrcreridcre (1859), 4 Drew. 686. 7 0 Infra. Cf. McClean, "Constructive And Resulting Trusts -Unjust Enrichment In A Common Law Relationship - Pettkus V. Becker" (1982), 16 U.B.C.L.Rev. 155 at p. 174. 7 1 Chase Manhattan i s currently under appeal. 68 d i f f i c u l t to predict whether courts w i l l apply t h i s reasoning i n mistake of law c a s e s 7 2 . 3. THE AMERICAN CONSTRUCTIVE TRUST a) G e n e r a l 7 3 The American Restatement of R e s t i t u t i o n contains a general perspective on the constructive t r u s t i n the law of r e s t i t u t i o n . Section 160 of the Restatement provides that: "Where a person holding t i t l e to property i s subject to an equitable duty to convey i t to another on the ground that he would be unjustly enriched i f he were permitted to r e t a i n i t , a constructive t r u s t a r i s e s . " This means that whenever money i s paid by mistake and the payer i s therefore e n t i t l e d to r e s t i t u t i o n 7 4 , the payee holds the money upon constructive t r u s t 7 5 . I t i s another question whether a court w i l l enforce the constructive t r u s t and order s p e c i f i c r e s t i t u t i o n . In many cases an ordinary money judgment w i l l be s u f f i c i e n t . In these cases, the f a c t Cf. Barclays Bank, supra. 7 3 Dawson, Unjust Enrichment, p. 26 et seq. gives a h i s t o r y of constructive t r u s t s i n the U.S.A. 7 4 According to the Restatement, the payee must have notice of the mistake before h i s o b l i g a t i o n to r e s t i t u t i o n a r i s e s , Restatement sec. 63. I t seems to follow that the constructive t r u s t does not a r i s e e a r l i e r . But what i f the payee goes bankrupt before he learns about the mistaken payment ? 7 5 5 Scott, The Law of Trusts (3d ed.), Sec.462.3, 462.4, 465 (p. 3428) and Scott, The Law of Trusts. Supplement. Sec. 462.4; Professor Scott nevertheless seems to regard the constructive t r u s t as a remedy; D r i s c o l l v. Burlington-Bristol Bridge Co.. 28 N.J.Super 1, 99 A. 2d 829 at p. 832 (1953); Restatement, sec. 160, Comment f. 69 that a payee holds money upon constructive t r u s t w i l l be without l e g a l relevance. Constructive t r u s t s , however, can be regarded i n a d i f f e r e n t way. That i s to say, they do not ar i s e whenever a payer i s e n t i t l e d to r e s t i t u t i o n but w i l l be granted by a court only when l e g a l r e s t i t u t i o n a r y remedies are inadequate. The f i r s t theory seemingly regards the constructive t r u s t as part of substantive law while the second theory regards i t as a remedy 7 6. For the purposes of t h i s paper the two approaches do not d i f f e r i n r e s u l t 7 7 . Under both views, f o r example, the time at which a payee or defendant becomes a constructive trustee i s the same. Sometimes i t i s said that constructive t r u s t s w i l l be enforced or granted only when there i s some f i d u c i a r y r e l a t i o n s h i p between a prospective constructive trustee and the beneficiary, when the remedy at law i s inadequate, and - i n the case of money mistakenly paid - when the mistake i s one of f a c t . These three points w i l l be b r i e f l y discussed. b) The f i d u c i a r y r e l a t i o n s h i p "[T]he circumstances which give r i s e to a constructive t r u s t may or may not involve a f i d u c i a r y r e l a t i o n s h i p . " 7 8 ° Palmer, The Law of Restitution. Sec.14.3, discusses the constructive t r u s t under 'remedies'. See too, Palmer, The Law of Rest i t u t i o n . Supplement 1986. Sec. 1.4, p. 17 n. 7 I-' But see, e.g., Chase Manhattan Bank v. I s r a e l B r i t i s h Bank. [1979] 3 A l l E.R. 1025 at p. 1034 et seq. 8 Meadows v. Bierschwale, 516 S.W.2d 125 at p. 128 (Tex.Sup.Ct.1974); Restatement, sec. 160, Comment a, at p. 641; Scott, o p . c i t . . p. 3415. 70 A f i d u c i a r y r e l a t i o n s h i p i s not a conditio sine qua non for a constructive t r u s t 7 9 . This underlines i t s remedial character and distinguishes the American doctrine from the B r i t i s h . But i f there i s a f i d u c i a r y r e l a t i o n s h i p the p l a i n t i f f does not have to show that the remedy at law would be inadequate and can therefore more e a s i l y obtain a constructive t r u s t 8 0 . An agent, f o r example, i s a f i d u c i a r y with respect to matters within the scope of h i s agency 8 1. An agent who was employed to purchase property f o r h i s employer has been held to be constructive trustee of property which he purchased f o r h i m s e l f 8 2 . There are, however, a number of quite recent cases which e x p l i c i t l y hold that fraud or abuse of a c o n f i d e n t i a l r e l a t i o n s h i p are prerequisites for a constructive t r u s t 8 3 . The relevance of these cases i s d i f f i c u l t to assess. But why Bank of W i l l i s t o n v. Alderman. 106 S.C. 386, 91 S.E. 796 (1917), Cocke v. P a c i f i c Gulf Development Corp.. 594 S.W.2d 545 at p. 548 (Tex.Civ.App.1980); Palmer, op.cit.. sec. 1.3, pp. 12-13. Restatement, sec. 160, Comment e. Restatement of Agency. 2d, sec. 13. B.J. McAdams. Inc. v. Boqgs. 439 F. Supp. 738 at p. 752 (E.D.Pa.1977). Cf. Carter v. Long & Bisby (1896), 26 S.C.R. 430. Honk v. Karlsson. 80 A r i z . 30, 292 P.2d 455 (Ariz.Sup.Ct.1956) at p. 460: In order to e s t a b l i s h a constructive t r u s t fraud of some kind must be found i n the transaction. Charles Hester Enterprises. Inc. v. I l l i n o i s Founders Ins. Co.. 137 111.App. (3d) 84, 91 111.Dec. 790, 484 N.E. 2d 349 (1985); Reed & Noyce, Inc. v. Municipal Contractors. Inc.. 106 Mich.App. 113, 308 N.W.2d 445 (1981); Pavne v. White. 101 A.D.2d 975, 477 N.Y.S.2d 456 (1984) . But see United States v. Shepp. 444 U.S. 507, 100 S.Ct. 763, 62 L.Ed.2d 704 (1980), rehearing denied 445 U.S. 972, 100 S.Ct. 1668, 64 L.Ed.2d 250 (1980). 71 should there not be a d i s t i n c t i o n between f i d u c i a r i e s and "conscious wrongdoers" 8 4 on the one side, and innocent transferees on the other side ? This would be a solution s i m i l a r to the one i n Re Diplock. An equitable l i e n seems to be more appropriate i n the case of an innocent transferee who should be allowed to keep the p r o f i t s made 8 5. c) The inadequacy of the remedy at law — In T r i e s e l e r v. Helmbacher 8 7 i t was held that the court w i l l give a remedy i n equity only i f the remedy at law i s inadequate 8 8. One exception to t h i s rule i s D r i s c o l l v. Bur l i n a t o n - B r i s t o l Bridge Co. 8 9. where the court found that inadequacy of the l e g a l remedy would not be a requirement for a constructive t r u s t . In the normal case, however, ^ 4 Restatement, sec. 202. 8 5 Palmer, op. c i t . . sec. 2.14, pp. 180-81. Cf. Note, Must the Remedy at Law Be Inadequate Before a Constructive Trust W i l l Be Impressed ?, (1951), 25 St. John's L. Rev. 283; Scott, op.cit.. p. 3428; Restatement. sec.160, Comment g; Dawson, op.cit.. p. 32 n. 22. 8 7 350 Mo. 807, 168 S.W.2d 1030 (Mo.Sup.Ct.1943) at p. 1036. Cf. Detroit Trust Co. v. Struggles. 283 Mich. 471, 278 N.W. 385 (Mich.Sup.Ct.1938), and Capuano v. Boghosian, 54 R.I. 489, 175 A. 830 (R.I.Sup.Ct. 1934). 8 8 For example, i f the defendant i s insolvent. Palmer, op. c i t . . sec. 3.7, p. 262: In t h i s instance, courts normally w i l l f i n d that l e g a l remedies are inadequate. Restatement, sec. 160, Comment f. 8 9 99 A.2d 829 (N.J.Sup.Ct., App.Div.1953) at p. 832. In Hochman v. Z i g l e r ' s Inc.. 139 N.J.Eq. 139, 50 A.2d 97 (1946) the court gave a constructive t r u s t f o r money paid under duress although the l e g a l remedy would have been adequate. The question of adequacy was not discussed. See too Superior Glass v. F i r s t B r i s t o l Cty. Nat. Bank, 406 N.E.2d 672 (Mass.Sup.Ct.1980). 72 inadequacy of the remedy at law i s required. The tentative d r a f t of the Restatement of the Law of Restitution. Second provides as follows: "When r e l i e f i s sought i n the form of a constructive t r u s t , and another remedy i s available to the claimant, the court w i l l not usually withhold r e l i e f as sought on that ground alone; but i t may do so d) Mistake of fac t and mistake of law A constructive t r u s t arises or w i l l be imposed on a payee i f the payer i s e n t i t l e d to r e s t i t u t i o n . This leads to the question of the circumstances under which a payer who paid money under mistake can obtain r e s t i t u t i o n . I t i s commonly accepted that a payer who paid under mistake of fact i s e n t i t l e d to r e s t i t u t i o n while (in the majority of the American states) a payer who paid under mistake of law cannot claim the money back 9 1. The leading case on money paid under mistake (of fact) i s In re B e r r y 9 2 . Here, the p l a i n t i f f paid Berry & Co. US $1500.00 by mistake of fa c t . Due to a bookkeeping error American Law In s t i t u t e , Restatement of the Law. Second. R e s t i t u t i o n . Tentative Draft No. 1 (Philadelphia 1983), sec. 9 et seq. The mistake of law doctrine was not applied i n , e.g., Ci t y of College Park v. Eastern A i r l i n e s . 250 Ga. 741, 300 S.E.2d 513 (Ga.Sup.Ct.1983). This, however, was not an action by the mistaken payer but by the r i g h t f u l payee. 147 F. 208 (CCA.2d. 1906); see, too, Knight Newspapers v. Commissioners of Internal Revenue. 143 F.2d 1007 (6th C i r . 1944), Bank of W i l l i s t o n v. Alderman. 106 S.C. 386, 9-1 S.E. 796 (1917), and Cocke v. P a c i f i c Gulf Development Corp.. 594 S.W.2d 545 (Tex.Civ.App.1980). 73 money which the p l a i n t i f f owed to Berry was credited twice to the l a t t e r and therefore a second payment made. The mistake was not discovered before Berry & Co. went bankrupt. The court held: When the money was paid under a p l a i n mistake of f a c t equity impressed upon i t a constructive t r u s t which followed i t through the bank and into the hands of the trustees [ i n bankruptcy]." 9 3 I f the payer paid under mistake of law the s i t u a t i o n i s l i k e l y to be d i f f e r e n t . As Professor Palmer said: "[T]here i s nothing to suggest that the payor would escape the mistake of law doctrine i f he sought r e l i e f i n equity, such as ... [a] constructive t r u s t . " 9 4 This opinion i s sustained by the Restatement 9 5. e) The innocent volunteer as constructive trustee ? In Re Diplock the court d i d not impose upon the innocent volunteer a constructive t r u s t but gave the p l a i n t i f f the remedy of equitable t r a c i n g . The question thus arises whether American courts draw the same d i s t i n c t i o n . The answer i s that they do, although the innocent volunteer continues to be c a l l e d a constructive t r u s t e e 9 6 . The d i s t i n c t i o n i s one between the knowing and the innocent constructive trustee. Change of p o s i t i o n as a defence i s only possible i f a person unjustly enriched i s ignorant of *•? Ibid.. at p. 211. 9 4 Palmer, op. c i t . . sec.14.27. 9 5 Cases are c o l l e c t e d by Scott, o p . c i t . f p. 3430 with supplement. 9 6 Scott, o p . c i t . . sec. 507. the circumstances which oblige him to make r e s t i t u t i o n 9 ' . The innocent r e c i p i e n t does not have to "restore" p r o f i t s made out of the money mistakenly paid to hi m 9 8 . To sum up, a court i n the United States w i l l grant (or enforce) a constructive t r u s t when a mistaken payer i s e n t i t l e d to r e s t i t u t i o n and remedies at law would be inadequate, provided the payer can trace the money mistakenly paid into the hands of the defendant 9 9 . 4. THE CANADIAN REMEDIAL CONSTRUCTIVE TRUST In the law of constructive t r u s t Canadian courts t r a d i t i o n a l l y followed the B r i t i s h example. But i n recent times Canadian courts have both adopted the unjust enrichment doctrine and accepted the notion of a remedial constructive t r u s t . a) Remedial Constructive Trusts As i n Great B r i t a i n , the question i n Canada was how to blend equitable constructive t r u s t s with the common law action f o r money mistakenly p a i d 1 0 0 . The B r i t i s h example of Chase Manhattan has been discussed above. In Canada, the law ^ Scott, o p . c i t . . sec. 480. Palmer, op . c i t . . sec. 2.2o, p. 224. Marosis v. Alamo Amusement Co., 60 S.W.2d. 876 (Tex.Civ.App.1933). 9 9 Tracing i s necessary according to the Restatement, sec. 160, Comment i . But see Simonds v. Simonds. 408 N.Y.S.2d 359 (N.Y.Ct.App.1978). 1 0 Cf. Klipp e r t , George B., Unjust Enrichment (Toronto 1983), p. 181 et seq. took a d i f f e r e n t course. Here, the recognition that unjust enrichment i s the underlying p r i n c i p l e of both the action for money mistakenly paid and the constructive t r u s t , made i t possible to combine them. "The step from accepting that unjust enrichment and not implied contract forms the basis f o r the law of r e s t i t u t i o n to holding that the constructive t r u s t i s a remedial device designed to prevent unjust enrichment i s not, by any means, an automatic s t e p . " 1 0 1 The step was taken by Dickson J . 1 0 2 i n Rathwell v. Rathwell quoting Professor Scott: "The court does not give r e l i e f because a constructive t r u s t has been created; but the court gives r e l i e f because the defendant would be unjustly enriched; and because the court gives t h i s r e l i e f i t declares that the defendant i s chargeable as constructive t r u s t e e . " 1 0 3 But i t was not u n t i l Pettkus v. Becker that the remedial constructive t r u s t became fi r m l y entrenched i n Canadian l a w 1 0 4 . Here Dickson J . delivered the judgment fo r the majority of the Supreme Court: "The p r i n c i p l e of unjust enrichment l i e s at the heart of the constructive t r u s t . . . How then does one approach the question of unjust enrichment i n matrimonial cases ? In Rathwell I ventured to suggest there are three requirements to be s a t i s f i e d before an unjust enrichment can be said to e x i s t : an enrichment, 1 0 1 McLeod, Annotation to Pettkus v. Becker. (1981), 19 R.F.L. (2d) 166 at p. 167. 1 0 2 Laskin C.J. and Spence J . concurring. 103 [1978] 2 S.C.R. at p. 455. The quotation i s taken from Scott, Constructive Trusts, (1955), 71 L.Q.Rev. 39 at p. 41. Only a minority of the Supreme Court, however, supported the theory of a remedial constructive t r u s t . C r i t i c a l to the theory of unjust enrichment as a basis f o r constructive t r u s t s : Birks, R e s t i t u t i o n , p. 56. 1 0 4 One e a r l i e r example i s provided by Re Spears and Levy (1974), 52 D.L.R. (3d) 146 (N.S.S.C., A.D.). 76 a corresponding deprivation and absence of any j u r i s t i c reason [such as a contract or d i s p o s i t i o n of l a w 1 0 5 ] f o r the enrichment." 1 0 6 The judge held that a l l three requirements were s a t i s f i e d . Therefore, he concluded that t h i s was a case f o r the a p p l i c a t i o n of a constructive t r u s t 1 0 7 . Professor K l i p p e r t has pointed out that Pettkus cannot be l i m i t e d to matrimonial property c a s e s 1 0 8 , and indeed, the judgment i s framed broadly enough to cover non-matrimonial cases. In the case of money mistakenly paid to the wrong person, f o r example, a l l three requirements are f u l f i l l e d : there i s an enrichment of the payee who obtained the money, a corresponding deprivation of the payer and the absence of any j u r i s t i c reason f o r the enrichment. This "three step t e s t " of unjust enrichment has been applied i n a multitude of matrimonial cases but also outside t h i s branch of the l a w 1 0 9 . Rathwell v. Rathwell. (1978), 1 R.F.L. (2d) at p. 15. 1 0 6 (1980), 19 R.F.L. (2d) at p. 180, 117 D.L.R. (3d) at pp. 273-74. Cf. Goff and Jones, op.cit.. at p. 16; and Goff J . (as he then was) i n B.P. Exploration Co. v. Hunt (NO.2). [1979] 1 W.L.R. 783 at p. 839 (Q.B.D.). 1 0 7 Otherwise Martland J . , (1980), 19 R.F.L. (2d) at pp. 191-93. Waters pointed out that Lord Denning*s constructive t r u s t and the unjust enrichment constructive t r u s t are not necessarily the same; Waters, op. c i t . . at p. 393. 1 0 8 K l i p p e r t , (1980), 30 U.Qf T.L.J. 356 at p. 411. Yorkshire Trust Co. v. Empire Acceptance Corporation Ltd.. Irwin v. Empire Acceptance Corporation Ltd. (1986), 22 E.T.R. 96 (B.C.S.C); Phoenix Assurance Co. of Canada v. C i t v of Toronto (1981), 35 O.R. (2d) 16, 129 D.L.R. (3d) 351 (Ont.H.Ct.), appeal dismissed, (1982), 39 O.R. (2d) 680n, 142 D.L.R. (3d) 767n, 48 N.R. 240n. See, too, Kimwood Enterprises Ltd. v. Roynat Inc. (1985), 18 E.T.R. 285 (Man.C.A.). 77 Seemingly, the only case of money paid under mistake (of fact) which was decided i n Canada a f t e r Pettkus v. Becker and where a constructive t r u s t was imposed i s Bottoms v. Brent Petroleum Industries L t d . 1 1 0 . But t h i s case was decided on other grounds. Money which had to be paid to a company was mistakenly transferred to the personal account of one of i t s d i r e c t o r s . A dispute arose whether he had to pay i n t e r e s t to the company as long as the money was i n h i s account. The court held that the di r e c t o r , because of h i s po s i t i o n as a di r e c t o r , held the money as trustee f o r the company 1 1 1. The question whether the payee was unjustly enriched was not raised at a l l . b) J u s t i c e and good conscience as a second independent basis for constructive t r u s t s I t has to be noted that courts have imposed constructive t r u s t s i n circumstances beyond those required to e s t a b l i s h an unjust enrichment. Relying on another s t r i n g of arguments courts have been prepared to impose constructive t r u s t s "whenever j u s t i c e and good conscience require i t . " 1 1 2 This l i n e of argument reaches back to the (1984), 17 E.T.R. 48 (B.C.S.C). Cf. In re Wayne Coal Co. Ltd. (In Liquidation) Schultz's Case. [1920] 3 W.W.R. 642, (1920), 55 D.L.R. 327 ( A l t a . S . C ) , and Cherry Processing and Packaging Equipment Ltd. v. Chrysler Canada Ltd. (1982), 18 B.L.R. 285 (Ont.S.C). ; (1984), 17 E.T.R. 48 at p. 52. : Per Lord Denning M.R. i n Hussev v. Palmer. [1972] 1 W.L.R. 1286 at p. 1290, [1972] 3 A l l E.R. 744 (C.A.). For Canada see, e.g., Roblin v. Jackson (1901), 13 Man.R. 328 at p. 340 (Man.C.A.). 78 famous statement of Lord Mansfield i n Moses v. M a c F e r l a n 1 1 3 where he s a i d i n an action f o r money had and received: "the g i s t of t h i s kind of action i s that the defendant, upon the circumstances of the case, i s obliged by the t i e s of natural j u s t i c e and equity to refund the money." Lord Mansfield's statement was quoted by Dickson J . (as he then was) i n Pettkus v. Becker to support a constructive t r u s t . 1 1 4 But Dickson J . added one r e s t r i c t i o n to such a general basis f o r constructive t r u s t s . He e x p l i c i t l y held that f o r the p r i n c i p l e to succeed, the facts must display an enrichment, a corresponding deprivation and the absence of any j u r i s t i c reason f o r the enrichment 1 1 5. The courts d i d not always adhere to t h i s r e s t r i c t i o n but rather rested t h e i r judgments on the general p r i n c i p l e . In Yorkshire Trust Co. v. Empire Acceptance Corporation Ltd. McLachlin J . said (ob i t e r ) : "In the event I may be found to have erred i n concluding that a constructive t r u s t arises by v i r t u e of unjust enrichment, I note, without deciding on i t s v a l i d i t y , that another basis for imposition of a constructive t r u s t may be available ... In the present case, the concept of good conscience, i f applicable, would require payment to the [ p l a i n t i f f s ] of the money obtained by the receiver [of the defendant] on the basis that [the defendant] owed i t to them." 1 1 6 ^•J (1760) , 97 E.R. 676. 1 1 4 (1980), 19 R.F.L. (2d) 165 at p. 179. Lord Mansfield i s also the authority on which Lord Denning based h i s ..-constructive t r u s t of a "new model". See above. 1 1 5 (1978), 1 R.F.L. (2d) 1 at p. 15. 1 1 6 (1986), 22 E.T.R. 96 at pp. 105-06 (B.C.S.C). See, too, the judgment of the t r i a l court i n Nicholson v. St. Denis (1974), 4 O.R. (2d) 480, 48 D.L.R. (3d) 344 (Dist.Ct.); revd. (1975), 8 O.R. (2d) 315, 57 D.L.R. (3d) 699 (C.A.); leave to appeal to S.C.C. refused 8 O.R. (2d) 315n, 57 D.L.R. (3d) 699n. 79 As long as the doctrine of unjust enrichment i s s t i l l i n statu nascendi i t i s not s u r p r i s i n g that a court f e l t i t had to sustain i t s findings with reasoning as to what "good conscience" required. This procedure, however, i s always vague and o f f e r s l i t t l e help for a p l a i n t i f f i n deciding when to claim an unjust enrichment. Moreover, the rules of unjust enrichment already established may be e a s i l y blurred by resort to "good conscience". c) The requirement of a f i d u c i a r y r e l a t i o n s h i p Before Pettkus v. Becker, i n the two cases of Goodbodv v. Bank of Montreal. Goodbody v. L e s t e r 1 1 7 and Steffanson v. Jaasma and Jaasma 1 1 8 a f i d u c i a r y r e l a t i o n s h i p was held to be necessary f o r t r a c i n g i n e q u i t y . 1 1 9 In Goodbody stolen share warrants were sold and the proceeds deposited i n a bank account. The p l a i n t i f f claimed that the defendant had acquired the share warrants by fraud or with knowledge that they had been stolen. The court held: "On the authority of S i n c l a i r v. Brougham ... the Court w i l l e s t a b l i s h a f i d u c i a r y r e l a t i o n s h i p to (1974), 4 O.R. (2d) 147, 47 D.L.R. (3d) 335 (Ont.H.C). [1976] 4 W.W.R. 449 (B.C.S.C). See too Mercantile Bank & Trust Co. Ltd. v. Credit Europeen S.A. (1980), 32 N.B.R. (2d) 239 at p. 275, 9 E.T.R. 195, 78 W.P.R. 239 (N.B.Q.B.); appeal dismissed, (1981), 10 E.T.R. 165. Simpson - Sears Ltd. v. Fraser (1974), 7 O.R. (2d) 61; 54 D.L.R. (3d) 225; B.C. Teachers' Credit Union v. Betterly (1975), 61 D.L.R. (3d) 755 (B.C.S.C). I t i s submitted that the reasoning of these cases applies to constructive t r u s t s too. 80 enable the p l a i n t i f f s to follow t h e i r property i n equity into [the defendant's] bank a c c o u n t . " 1 2 0 The case shows that the requirement of a f i d u c i a r y r e l a t i o n s h i p i s nothing more than a hollow formula and i s reminiscent of the construction i n Chase Manhattan. The court d i d not t r y to f i n d a f i d u c i a r y r e l a t i o n s h i p but rather established one. Pettkus v. Becker, by contrast, does not mention the requirement of a f i d u c i a r y r e l a t i o n s h i p 1 2 1 , and i t s approach to what i s required to e s t a b l i s h a constructive t r u s t i s quite d i f f e r e n t . The question whether there i s a f i d u c i a r y r e l a t i o n s h i p or not i s i r r e l e v a n t i n t h i s context. d) Inadequacy of Legal Remedies 1 2 2 The unjust enrichment t e s t i n the Rathwell case or i n the case of Pettkus v. Becker seemed to indicate that a constructive t r u s t w i l l l i e i n the case of money mistakenly paid whether there are adequate l e g a l remedies or n o t 1 2 3 . However, i t i s recognized as a general ru l e that a proprietary remedy w i l l not be given where a personal remedy i s adequate 1 2 4. In Ruff v. S t r o b e l 1 2 5 the Alberta Supreme (1974), 47 D.L.R. (3d) 335 at p. 339 [emphasis added]. Cf. Waters, D.W.M., Law of Trusts i n Canada (2d ed. Toronto 1984), at p. 386 et seq., and Klip p e r t , Unjust Enrichment, p. 188 et seq. 1 2 2 See K l i p p e r t , Unjust Enrichment, p. 232 et seq. 1 2 3 Cf. McClean, 16 U.B.C.L.Rev. 155 at p. 171 et seq. 1 2 4 Hanbury and Maudsley, op. c i t . . at p. 306; Waters, op. c i t . , at p. 391 et seq. 1 2 5 [1978] 3 W.W.R. 588, (1978), 9 A.R. 378, 86 D.L.R. (3d) 284 (Alta.S.C.App.Div.). 81 Court, App. Div., held that although the three elements of an unjust enrichment were present a personal remedy would be adequate. The court, therefore, refused to impose a constructive t r u s t 1 2 6 . But i n Palachik v. K i s s 1 2 7 the Supreme Court of Canada held, i n t e r a l i a , that a payee under a contract which had been fr u s t r a t e d f o r t o t a l f a i l u r e of consideration was constructive trustee f o r the payments even though a quasi contract remedy was adequate. In t h i s case, a man and a woman l i v e d together i n a house which had been f u l l y paid f o r by the woman and the t i t l e to which was vested i n her. Both agreed that the man would pay $ 100 per month to the woman, up to h a l f the amount of the purchase p r i c e of the house. At t h i s point the t i t l e i n the property would be transferred into t h e i r j o i n t names. Before the man, the respondent i n the case, could complete the payments the woman died and l e f t the house to the appellant, her son. A dispute arose whether the p l a i n t i f f , i . e . the respondent, could recapture h i s payments. The court held that a constructive t r u s t would l i e but i t di d not give an in t e r e s t i n the property or compensation i n respect of such an in t e r e s t . Instead, the p l a i n t i f f received a monetary judgment 1 2 8. [1978] 3 W.W.R. at p. 598. 1 2 7 (1981), 34 O.R. (2d) 484, 24 R.F.L. (2d) 337, 10 E.T.R. 217, 47 N.R. 157n, 130 D.L.R. (3d) 246, a f f ' d . (1983), 33 R.F.L. (2d) 225, 47 N.R. 148, 146 D.L.R. (3d) 385 (S.C.C). Comment by McLeod i n 24 R.F.L. (2d) 337. 1 2 8 (1983), 146 D.L.R. (3d) 385 at p. 395. 82 The difference between the two judgments seemingly turns on the difference between the two theories which explain the r i s e of a constructive t r u s t 1 2 9 . Does a court enforce a constructive t r u s t which quasi automatically comes into being whenever somebody i s unjustly enriched but which w i l l be enforced only i f l e g a l remedies are inadequate, or does a court impose a constructive t r u s t ? 1 3 0 Rathwell v. Rathwell seems to have adopted the l a t t e r approach while Palachik v. Kiss took the other view. Otherwise there i s considerable d i f f i c u l t y a r i s i n g out of the statement of Wilson J . that: "I think i t matters not whether one characterizes the appellant as a constructive trustee of the money for the respondent ... or simply declares the respondent e n t i t l e d to i t s return i n quasi-contract. The essence of the r e l i e f i s the same. Equity fastens on the conscience of the appellant and requires him to d e l i v e r up that which i s manifestly inequitable that he r e t a i n . The constructive t r u s t ... a r i s e s from the duty to return the money."1 1 A f t e r Ruff v. Strobel and Palachik v. Kiss i t might be thought that a proprietary remedy would be available only i f l e g a l remedies were inadequate. The recent decision of the Supreme Court i n Sorochan v. Sorochan 1 3 2. however, makes i t c l e a r that courts r e t a i n a wide d i s c r e t i o n over proprietary remedies. The p a r t i e s to t h i s dispute l i v e d together f o r 42 years without being married. They j o i n t l y c a r r i e d out a mixed farming operation but, unlike the s i t u a t i o n i n many Above" 1 3 0 Cf. supra. 1 3 1 (1983), 146 D.L.R. (3d) 385 at p. 395. 1 3 2 (1986), 29 D.L.R. (4th) 1. 83 other matrimonial disputes, the defendant man owned the farmland already when the p a r t i e s started to l i v e together. The t r i a l judge found that the defendant was unjustly enriched of the work done by the p l a i n t i f f . To remedy the unjust enrichment the t r i a l judge awarded the p l a i n t i f f a portion of the farmland under a constructive t r u s t and i n addition thereto gave a sum of money 1 3 3. Dickson C.J.C. held that the t r i a l judge was best situated to assess what was f a i r and j u s t i n l i g h t of the p a r t i c u l a r facts of the case and approved the d e c i s i o n 1 3 4 . Professor McClean has suggested that a p l a i n t i f f should be e n t i t l e d to a choice between personal and proprietary remedies. He sustained h i s opinion with two arguments. F i r s t he argued: "that the r u l e denying equitable r e l i e f where r e l i e f i s a v a i l a b l e at common law i s outdated. I t arose out of the p o l i t i c a l r e lationships between the courts of common law and the courts of chancery, and i s not based on any substantive analysis. Given the fusion of law and equity and the a v a i l a b i l i t y of a range of remedies i n the same court, there i s much to be said f o r following the general common law approach of allowing a p l a i n t i f f h i s choice of remedy." 1 3 5 I t may be counterargued that the fusion of the two j u r i s d i c t i o n s does not necessarily mean fusion of the remedies. Moreover, caution should be exercised i n giving p l a i n t i f f s a choice to assert a remedy which works not only 1 , ;* J The judge gave the claiming spouse a portion of the farmland worth $ 40,000 and a lump sum i n cash of $ 20,000. The assessed market value of the whole farm was $ ...138,000. (1986), 29 D.L.R. (4th) at p. 13. 1 3 5 (1982), 16 U.B.C.L.Rev. 155 at p. 173. 84 i n t e r partes but against the whole world. Professor McClean's arguments are almost c e r t a i n l y r e s t r i c t e d to matrimonial cases where the inte r e s t s of t h i r d p a r t i e s are le s s often concerned. Professor McClean's second argument r e l i e d on the equitable i n t e r e s t with which the mistaken transferor never parted: " I f ... a chattel has been transferred to the defendant because of a mistake, duress or undue influence, equitable t i t l e always remains i n the p l a i n t i f f . The p l a i n t i f f , therefore, i s not simply enforcing an equitable remedy, but asserting an equitable proprietary r i g h t . That i s not subject to any r u l e that i t may be denied because of any possible concurrent common law c l a i m . " 1 3 6 One weak point of t h i s argument i s - as Professor McClean conceded fo r the sake of argument - that i t i s based on the hypothesis that the constructive t r u s t i s a substantive i n s t i t u t i o n . This runs counter to the current p o s i t i o n i n Canadian law. I t i s therefore submitted that i t should not be open to a p l a i n t i f f to choose f r e e l y among personal and proprietary remedies. Courts, however, should r e t a i n the f l e x i b i l i t y to do so to achieve j u s t i c e and fairness i n every case. I t i s l i k e l y that there w i l l be separate developments i n the areas of matrimonial and business law. e) Money paid under mistake of lav I t remains to be seen whether constructive t r u s t s w i l l be applied to money paid under mistake of law. Although i t cannot be contested that a payee i n such a case i s unjustly enriched, and therefore constructive t r u s t s are equally applicable as i n the case of money paid under mistake of fac t , the majority of the Supreme Court of Canada i s l i k e l y to see t h i s point d i f f e r e n t l y 1 3 7 . Because the constructive t r u s t i s established as a remedy i n Canada one may argue that the remedy at law i s inadequate i n the case of money paid under mistake of law and that therefore a constructive t r u s t should be avai l a b l e . Equity never followed the common law d i s t i n c t i o n of mistake of f a c t and mistake of l a w 1 3 8 . Therefore, i t i s submitted, t h i s d i s t i n c t i o n should not play a r o l e here eit h e r . f) Tracing of money mistakenly paid ? Must, the p l a i n t i f f under a constructive t r u s t be able to i d e n t i f y ( i . e . trace) the money claimed i n the hands of the defendant ? 1 3 9 i n Chase Manhattan Bank i t was held that a constructive t r u s t would l i e f o r money mistakenly paid upon the condition that the constructive b e n e f i c i a r y could 1 Hydro E l e c t r i c Commission of the Township of Nepean v. Ontario Hydro. [1982] 1 S.C.R. 347, (1982), 132 D.L.R. (3d) 193, 16 Business Law Reports 215. 8 Re Diplock. [1948] Ch. 465. 9 Tracing i t s e l f i s not a remedy i n Canada but a term for " i d e n t i f y i n g " somebody's money i n other hands. 86 trace the amount i n dispute into the hands of the def e n d a n t 1 4 0 . The question has not yet arisen i n Canada 1 4 1. I t i s true that Rathwell v. Rathwell and Pettkus v. Becker. for example, are concerned with the "causal connection between the contribution and the disputed a s s e t " 1 4 2 , but while explaining the three requirements f o r e s t a b l i s h i n g an unjust enrichment and consequently a constructive t r u s t , Dickson J . (as he then was) did not mention t r a c i n g . Neither d i d Wilson J . i n Palachik v. K i s s . 1 4 3 In Sorochan v. Sorochan Dickson C.J.C. addressed himself e x p l i c i t l y to t h i s question. He said: "While i t i s important to require that some nexus e x i s t between the claimant's deprivation and the [defendant's] property i n question, the l i n k need not always take the form of a contribution to the actual a c q u i s i t i o n of the property. A contribution r e l a t i n g to the preservation, maintenance or improvement of property may also s u f f i c e . " 1 4 4 As a matter of fact, i t i s submitted, the court did not adhere anymore i n t h i s case to the requirement of trac i n g . Rathwell. Pettkus v. Becker and Sorochan. however, are matrimonial cases. In these cases, i t obviously i s impossible f o r a p l a i n t i f f to trace h i s or her contributions to a matrimonial or l i k e r e l a t i o n s h i p which lasted f o r some 1 4 u Cf. In re Wavne Coal Co. Ltd. (In Liquidation) Schultz's Case. [1920] 3 W.W.R. 642. 1 4 1 Cf. however Re I n r i a Shoe Co. Ltd. (1924), 26 O.W.N. 119, 4 C.B.R. 516 (Ont.S.C). 1 4 2 Per Dickson J . (as he then was) i n Rathwell v. Rathwell (1978), 1 R.F.L. (2d) 1 at p. 14. Cf. Pettkus v. Becker (1980), 19 R.F.L. (2d) 165 at p. 183. But see McClean (1982), 16 U.B.C.L.Rev.. 155 at pp. 171-72. 1 4 3 (1983), 146 D.L.R. (3d) 385 at pp. 391-92 (S.C.C). 1 4 4 (1986), 29 D.L.R. (4th) 1 at p. 10. 87 decades. Cory J.A. emphasized the p a r t i c u l a r character of matrimonial cases: " I t may well be necessary and appropriate to s c r u t i n i z e c l o s e l y the contributions of business partners to the a c q u i s i t i o n of property. I t i s unnecessary and inappropriate to s c r u t i n i z e the contributions of married couples or couples i n a [similar] r e l a t i o n s h i p ... i n the same way. Instead, equity and fairness should guide the court." I t remains to be seen whether outside the matrimonial f i e l d courts w i l l impose upon a p l a i n t i f f the burden to trace money mistakenly paid. Would i t not be better to decide each case according to i t s merits and not to maintain the f i c t i o n s of Clayton's C a s e 1 4 5 and Re H a l l e t t ' s E s t a t e 1 4 6 ? What decides the question i s that constructive t r u s t s are based (in Canada) on unjust enrichment. Tracing has i t s roots i n the notion of equitable ownership. Anybody claiming such ownership has to prove that there s t i l l i s the object to which h i s or her equitable ownership attaches. Unjust enrichment i s fundamentally d i f f e r e n t . I t does not claim ownership and therefore, i t i s submitted, should not trace the enrichment at a l l . Yet what matters i s the l i n k between enrichment and deprivation. There i s only one person who can claim the enrichment of another and who can assert that i t 1 4 i : > Clayton's Case; Devavnes v. Noble (1816), 1 Mer. 572, 35 E.R. 767. 1 4 6 (1880), 13 Ch.D. 696, 705; 48 L.J.Ch. 734, 49 L.J.Ch. 415, 42 L.T. 421, 28 W.R. 732. Cf. Law Reform Commisssion of B r i t i s h Columbia, Report on Competing Rights to Mingled Property: Tracing and the Rule i n Clayton's Case. (1983). 88 would be unjust i f t h i s other were allowed to keep the enrichment. I t i s the person who i s deprived of what constitutes the enrichment i n the hands of another. I t i s t h i s nexus fo r which Dickson C.J.C. was looking. But i t should not be confused with t r a c i n g . To give one example: A pays mistakenly $ 100 into B's account and B adds l a t e r $ 900 and afterwards spends $ 100 out of i t on a dinner (with f r i e n d s ) . Under the r u l e i n Clayton's case the money i s not traceable any longer ( " f i r s t i n , f i r s t o u t " ) 1 4 7 . Applying unjust enrichment p r i n c i p l e s , however, B i s s t i l l enriched. B may be able to prove that the defence of change of p o s i t i o n applies; i n the example, B may have spent the money on the dinner - what B but for the mistaken payment would not have done - i n bona f i d e r e l iance on the mistaken payment. A court may then f i n d that i t would be unjust to compell B to pay to A $ 100. But that i s a d i f f e r e n t question. The burden i s now on B to show that the defence of change of p o s i t i o n i s applicable. I t i s submitted, that t r a c i n g and the l i n k between unjust enrichment and deprivation are d i f f e r e n t and may lead to d i f f e r e n t r e s u l t s . Therefore a constructive t r u s t , i t i s submitted, i s more l i k e a l i e n on the general assets of a defendant and does not only attach s p e c i f i c property mistakenly conferred on to the defendant. But i f the r u l e i n Re H a l l e t t ' s estate i s applicable the money i s s t i l l traceable. 89 I f one looks again at the American model one finds that t r a c i n g i s one of the essentials f o r es t a b l i s h i n g a constructive t r u s t . 1 4 8 (There are, however, some exceptional cases i n which courts loosened the t r a c i n g requirement somewhat 1 4 9.) In Re Bangor Trust Co. the claimant's f a i l u r e to trace money mistakenly paid l e d to a denial of a constructive t r u s t . 1 5 0 g) Constructive t r u s t s and bankruptcy The constructive t r u s t l i k e every express t r u s t gives a beneficiary p r i o r i t y over unsecured creditors i f the constructive trustee goes bankrupt. This i s one of the reasons why courts have s t r i v e n to e s t a b l i s h constructive t r u s t s . Without a constructive t r u s t the mistaken payer i n Re Berry or i n Chase Manhattan would have shared with other unsecured cr e d i t o r s i n the general assets ( i f any) of the bankrupt . The question whether i t i s f a i r towards other cr e d i t o r s to prefer a mistaken payer was - i t i s submitted -convincingly answered i n Re B e r r y 1 5 1 . Yet t h i s was c r i t i c i z e d . To quote Tettenborn: " [ I ] t i s argued ... that w[h]ere A pays B by mistake B has no moral claim to keep the money. B's c r e d i t o r s , who derive t h e i r r i g h t s through B, therefore equally 1 4|* Palmer, op. c i t . . sec. 2.14, pp. 175 and 180. 1 4 9 Jones v. Chesebrough. 105 Iowa 303, 75 N.W. 97 (Iowa Sup.Ct.1898); Meadows v. Bierschwale 516 SW.2d 125 (Texas Sup.Ct.1974); In re Newark Shoe Stores Inc.. 3 F.Supp. 293 (D.Md. 1933). 1 5 0 317 Pa. 495, 178 A. 290 (Pa.Sup.Ct.1935). 151 1 4 ? p > 2 0 8 (c.C.A.2d 1906). have no r i g h t to pay themselves out of i t . But t h i s proves too much: f o r i t applies not only to r e s t i t u t i o n a r y claims but to most contractual claims as well . True, a man has no r i g h t to keep money paid to him by mistake: but he has no r i g h t to keep money len t without repaying i t ... Yet lenders ... do not receive p r i o r i t y i n bankruptcy - even i f the bankrupt s t i l l has what he received ...." 1 5 2 I t i s submitted that t h i s i s the wrong view. Of course, a man has no r i g h t to keep money lent without repaying i t . But he has the r i g h t to keep the money during a defined period of time during which he may go bankrupt. The lender faced t h i s r i s k and accordingly gets an appropriate rate of in t e r e s t . The higher the r i s k the higher the rate of in t e r e s t . The p o s i t i o n of a mistaken payer i s d i f f e r e n t : "A person who pays money under mistake does not advance c r e d i t to another; he does not consciously take the r i s k that h i s r e c i p i e n t may become insolvent and that he may have to share the pickings of the estate with the general c r e d i t o r s . The r e c i p i e n t ' s general c r e d i t o r s do not expect to be, and should not be, reimbursed from what i s a f t e r a l l a wi n d f a l l which should never have formed part of the re c i p i e n t ' s trading assets. Only i f a person has been induced to grant or extend c r e d i t because of the existence of assets ma t e r i a l l y swollen by the mistaken payment, i t i s arguable that h i s claim should rank i n p a r i passu with that of the mistaken payer." 1 5 Much of the force of the constructive t r u s t i n t h i s context w i l l depend on whether the mistaken payer i s requested to trace h i s payment and can do so. Tettenborn, Andrew: Case note on Chase Manhattan, i n [1980] Camb.L.J. 272-75 at pp. 274-75. Cf. Klipp e r t , (1980) 30 U.of T.L.J. 356 at p. 412. Jones, Gareth: Case note on Chase Manhattan, i n [1980] Camb.L.J. 275 at p. 276. 91 5. THE RIGHTFUL PAYEE AS BENEFICIARY Courts may impose upon a mistaken payee a constructive t r u s t i n favour of the mistaken payer. But may the r i g h t f u l payee also a v a i l himself of the remedy of a constructive t r u s t ? Is i t possible to impose upon the actual payee a constructive t r u s t f o r the benefit of the r i g h t f u l payee ? This question has been tackled nearly e x c l u s i v e l y i n the U.S.A. Although t h i s paper takes a c r i t i c a l course to the action of the r i g h t f u l payee, i t s possible combination with a remedial constructive t r u s t has to be dealt with. Two s i t u a t i o n s have to be distinguished. The r i g h t f u l payee may have a b e n e f i c i a l i n t e r e s t i n the money mistakenly p a i d 1 5 4 or he may not. In the former case i t i s well s e t t l e d that a r i g h t f u l payee can follow the funds into whosesoever's hands he can trace the money (provided the payee against whom tr a c i n g i s sought i s not a bona f i d e purchaser f o r v a l u e ) 1 5 5 . Questions of r a t i f i c a t i o n and e l e c t i o n do not a r i s e . The p l a i n t i f f pursuing h i s equitable i n t e r e s t does not have to and w i l l not r a t i f y the mistaken l i ) 4 In the case that a f i d u c i a r y mistakenly d i s t r i b u t e d the estate of a deceased an unpaid c r e d i t o r may have a claim against the h e i r or legatee, c f . Palmer, o p . c i t . . sec. 14.21, p. 269. Professor Palmer explains the claim of an unpaid c r e d i t o r as possibly based on an equitable i n t e r e s t i n the assets of the deceased. But i t i s d i f f i c u l t to see why an unsecured c r e d i t o r should obtain -__an equitable i n t e r e s t . 1 5 5 Restatement. sec. 168; Palmer, op. c i t . . sec. 14.21, p. 266 et seq. Moreover, the r i g h t f u l payee can s t i l l sue the mistaken payer f o r conversion of the funds i n which the former has a b e n e f i c i a l i n t e r e s t . 92 payment. He does not have to e l e c t between the two remedies open to him because these remedies are consistent. But because of the requirements of tracin g , the action f o r money had and received (which i s open to a beneficiary, t o o 1 5 6 ) may be preferable f o r the beneficiary i f he cannot trace the money. The s i t u a t i o n i s d i f f e r e n t i n the case of a r i g h t f u l payee who does not have an equitable i n t e r e s t i n the money paid by mistake. May he e s t a b l i s h a constructive t r u s t ? I t has been sai d that the actual r e c i p i e n t of a mistaken payment i s unjustly enriched at the expense of the one e n t i t l e d to the payment 1 5 7. And i t i s further arguable that because courts w i l l grant constructive t r u s t s to remedy unjust enrichment, the r i g h t f u l payee should obtain a constructive t r u s t f o r h i s benefit. This i s exactly the po s i t i o n which the Restatement of R e s t i t u t i o n takes. In section 165 i t provides: "Where the owner of property by mistake transfers i t to one person under such circumstances that a t h i r d person i s e n t i t l e d to r e s t i t u t i o n from the transferee, the transferee holds the property upon a constructive t r u s t f o r the t h i r d person." Beam v. Copeland. 54 Ark. 70; 14 S.W. 1094 (Ark.Sup.Ct.1890). Palmer, o p . c i t . . sec. 21.4, pp. 300-301. I t should be noted that the Restatement i n i t s sec. 126 seemingly avoids saying that the mistaken payee i s unjustly enriched at the expense of the intended payee. The term "unjustly benefited" i s used at one point only, but i n a d i f f e r e n t context. 93 This gives the r i g h t f u l payee the p o s s i b i l i t y of following the mistaken payment into the hands of the actual payee and further t r a n s f e r e e s 1 5 8 . Before the remedial constructive t r u s t was entrenched i n the American law, courts could not impose a constructive t r u s t so e a s i l y . Because the constructive t r u s t was seen as c o r o l l a r y to express t r u s t s , courts had to look f o r a t r u s t res i n the hands of the mistaken payer i n which the r i g h t f u l payee had an equitable i n t e r e s t . The point was raised i n Shultz v. B o y d 1 5 9 . In t h i s case an intestate had procured l i f e insurance i n favour of h i s l e g a l h e i r s . Later, the int e s t a t e indorsed the insurance p o l i c y to the defendants as security f o r loans and informed the insurance company accordingly. The defendants received payment under the p o l i c y at the intestate's death. The p l a i n t i f f as sole h e i r demanded payment from defendants and claimed to be e n t i t l e d to a constructive t r u s t . In the judgment the court said: "Appellant claims that the rules of construction e s t a b l i s h that she i s the beneficiary named (by c l a s s ) ; that she acquired a vested r i g h t to receive the insurance money from the [insurance] company; that the attempted assignment was i n e f f e c t u a l to divest her of the r i g h t ; and that appellees [defendants], having received money that she alone r i g h t f u l l y could c o l l e c t , must account." l i > 6 Cf. the C a l i f o r n i a C i v i l Code, sec. 2224: "One who gains a thing by fraud, accident, mistake ... i s , unless he has some other and better r i g h t thereto, an involuntary trustee of the thing gained, for the benefit of the person who would otherwise have had i t . " Cases thereunder are, e.g., Ehret v. Ichioka. 247 C.A.2d 637, 55 Cal.Rptr. 869 (1967), and Manti v. Gunari. [1970] C.A.3d 442, 85 Cal.Rptr. 366 (1970). 1 5 9 152 Ind. 166, 52 N.E. 750 (Ind.Sup.Ct.1899). 94 But there was no s p e c i f i c t r u s t res to which an equitable i n t e r e s t could have been attached. The claimant had only a chose i n action against the company 1 6 0. To quote the court again: "Appellant asserts that she alone had the r i g h t to c o l l e c t the insurance money. From that r i g h t would flow the c o r r e l a t i v e duty of the company to pay her. To pay what ? Not to pay s p e c i f i c money that had been i d e n t i f i e d , set apart, and held by the company as custodian, but to pay from the assets generally the amount due rto the] appellant, as owner of the chose i n a c t i o n 1 6 1 . " Because a mere debtor - i n the case above the insurance company - cannot be trustee of the debt that he owes, a t r u s t could not be established. Nevertheless, i n two cases courts established a constructive t r u s t f o r the benefit of the r i g h t f u l payee. In Capuano v. Boahosian 1 6 2 the Superior Court of Rhode Island held that a mistaken payee was trustee f o r the benefit of the one t r u l y e n t i t l e d to the money. This decision, however, was overruled on appeal to the Supreme Court which found that there was no base fo r e s t a b l i s h i n g a constructive t r u s t . And i n Mace v. Rockland County Trust C o . 1 6 3 . i t was held that money mistakenly paid was impressed with a t r u s t i n favour of the r i g h t f u l payee and the holder of the money was ordered to account to the former. l o t l Unlike i n Great B r i t a i n the t h i r d party beneficiary under a contract has a chose i n action against the obligor, see Scott, op.cit.. sec. 14, p. 184. 1 6 1 52 N.E. 750 at p. 750. 1 6 2 54 R.I. 489, 175 A. 830 (R.I.Sup.Ct. 1934). 1 6 3 249 App.Div. 754, 291 N.Y.S. 835 (1936). 95 Now that the remedial constructive t r u s t i s fi r m l y established i n the American law, courts have followed the approach put forward by the Restatement 1 6 4. This may explain why there are nowadays so few cases dealing with the action of the r i g h t f u l payee. Because the l a t t e r can a v a i l himself e a s i l y of a remedial constructive t r u s t the personal action has l o s t importance 1 6 5. In Canada, there i s some authority f o r the a v a i l a b i l i t y of a constructive t r u s t f o r the r i g h t f u l payee, t o o 1 6 6 . Cherry Processing, however, d i d not deal with the questions adhering to the impositions of constructive t r u s t s . The judge simply quoted from Waters on T r u s t s 1 6 7 "Constructive t r u s t s express the obl i g a t i o n to restore or surrender property, an obl i g a t i o n which arises out of ... the determination of Equity to give r e l i e f where wrongdoing has been perpetrated, or would be perpetrated i f retention were p e r m i t t e d . 1 , 1 6 8 I t i s , therefore, not cl e a r whether t h i s case stands f o r the general a v a i l a b i l i t y of constructive t r u s t s f o r the r i g h t f u l payee, or w i l l be r e s t r i c t e d to i t s own fa c t s . See, f o r example: Dissenting opinion i n Honk v. Karlsson. 80 A r i z . 30, 292 P.2d 455 (Ariz.Sup.Ct.1956); In re Estate of Milliman. 101 A r i z . 54, 415 P.2d 877 (Ariz.Sup.Ct.1966); Wunsche v. Equitable L i f e Assurance Socy.. 551 S.W.2d 84 (Tex.Civ.App.1977); Cocke v. P a c i f i c Gulf Development Corp.. 594 S.W.2d 545 (Tex.Civ.App.1980). Cf. f o r Canada: Kimwood Enterprises Ltd. v. Roynat Inc. (1985), 18 E.T.R. 285 (Man.C.A.). 1 6 6 Roblin v. Jackson (1901), 13 Man.R. 328 (Man.C.A.); Cherry Processing & Packaging Equipment Ltd. v. Chrysler Canada Ltd. (1982), 18 B.L.R. 285 (Ont.S.C). 1 6 7 Waters, D., Law of Trusts i n Canada, at p. 363. 1 6 8 (1982), 18 B.L.R. 285 at p. 326. 96 6. CONCLUSION The remedial constructive t r u s t i s f i r m l y established i n Canadian law. I t l a r g e l y resembles the American model. Canadian courts developed the remedial constructive t r u s t l a r g e l y within the ambit of the law of divorce and separation, and caution must therefore be exercised i n drawing conclusions f o r cases outside t h i s s p e c i a l f i e l d of law. Although a number of questions have not yet come up for j u d i c i a l review, i t may be said that a payer of money under mistake (of f a c t or law) i s e n t i t l e d to a constructive t r u s t provided l e g a l remedies would be inadequate. A constructive t r u s t may be a v a i l a b l e to the r i g h t f u l payee, too. The constructive t r u s t arises as soon as the mistaken payment i s made and w i l l give the payer p r i o r i t y i f the payee becomes insolvent. Under the doctrine of unjust enrichment a mistaken payer has to show that the payee was unjustly enriched by the payment. But i t i s no longer necessary to trace a mistaken payment. The d i s t i n c t i o n between a conscious wrongdoer and an innocent r e c i p i e n t should be taken over into the Canadian law. Only the conscious wrongdoer should be obliged to restore p r o f i t s made 1 6 9. 9 Cf. 1 Palmer, op. c i t . . at p. 180. 97 V. CHANGE OF POSITION 1. INTRODUCTION In the decision of Rural Municipality of Storthoaks v. Mobil O i l Canada. L t d . 1 the Supreme Court of Canada held that "change of circumstances" i s a v a l i d defence at law 2 against a claim f o r recovery of money mistakenly paid. Martland J . said for the court: "In my opinion i t should be open to the Municipality to seek to avoid the oblig a t i o n to repay the moneys i t received i f i t can be established that i t had mater i a l l y changed i t s circumstances as a r e s u l t of the r e c e i p t of the money."3 With t h i s decision the Supreme Court of Canada put an end to the discussion whether a change of circumstances or, i n other words, a change of p o s i t i o n i s a defence to a r e s t i t u t i o n a r y c l a i m . 4 [1976] 2 S.C.R. 147; (1975), 55 D.L.R. (3d) 1; f o r a discussion see McCamus, John D.: "Restitutionary Recovery of Money Paid to a Public Authority Under a Mistake of Law: Icrnorantia J u r i s i n the Supreme Court of Canada", (1983), 17 U.B.C.L. Rev. 233, esp. at p. 260 et seq. [hereinafter c i t e d as Recovery of Money Paid]. Because of the 'equitable nature' of the defence i t can be l i k e l y r a i s ed against equitable claims too. (1975), 55 D.L.R. (3d) at p. 13. On the facts of the case he found that the municipality had not changed i t s p o s i t i o n to the worse. Therefore, the "detrimental element" of the defence was missing. To reach another r e s u l t , i t can be argued, that the municipality received the moneys as disclosed agent f o r i t s c i t i z e n s , Dawson, (1981) 61 B.U.L.Rev. 563 at p. 567. However, i t i s submitted, that the municipality acted as p r i n c i p a l . Cf. the dissenting judgment of Dickson J . (as he then was, Laskin C.J.C. concurring) i n Hydro E l e c t r i c Commission of the Township of Nepean v. Ontario Hydro (1982), 132 D.L.R. (3d) 193 (S.C.C.). 98 Some s i x t y f i v e years e a r l i e r the Supreme Court had dismissed the defence of change of p o s i t i o n i n The Dominion Bank v. The Union Bank of Canada 5. In t h i s case one Jones had forged a cheque drawn i n favour of h i s employer by r a i s i n g the amount of the cheque and a l t e r i n g the payee's name. When Jones t r i e d to cash the cheque at the drawee bank, the bank refused to do so because Jones was unknown and could not i d e n t i f y himself. Jones therefore sold the cheque to the Dominion Bank, took $25 i n cash and l e f t the r e s t to h i s c r e d i t with the bank. The Dominion Bank then indorsed the cheque and passed i t to the Union Bank which paid accordingly. A f t e r the l a t t e r bank had honoured the cheque, the Dominion Bank paid to the forger most of the amount standing to h i s c r e d i t . When the forgery was discovered, Union Bank t r i e d to recover from the Dominion Bank the money paid. Dominion Bank argued that i t had changed i t s p o s i t i o n by paying the money over to Jones i n re l i a n c e on the acceptance of the cheque by the Union Bank. But the court refused to admit t h i s defence. Duff J . , f o r example, asked: "But i s the mere fac t that the receiver [Dominion Bank], while ignorant of the mistake, has changed i t s p o s i t i o n by paying the money over to a t h i r d person to There i s s t i l l an issue as to whether the judgment of the court applies only to claims f o r money paid under mistake or i s of a more general nature. (1908), 40 S.C.R. 366. I t i s i n t e r e s t i n g to compare the decision with the one i n National Bank v. National Mechanics' Banking Association. 55 N.Y. 211, 14 Am.Rep. 232 (N.Y.C.A.1873). 99 whose orders i t was subject, a s u f f i c i e n t answer i n i t s e l f ... to the demand of the payer ?" 6 He held that on the authority of the precedent cases that circumstance alone was not an answer to the p l a i n t i f f ' s c l a i m 7 . A decision l i k e The Dominion Bank v. The Union Bank of Canada may be explained with p a r t i c u l a r i t i e s of the law of cheques and negotiable instruments 8 but the court seemingly d i d not r e s t r i c t i t s e l f to t h i s branch of the law. However, i n the Storthoaks case the Supreme Court took the opposite course and allowed the defence 9. Mobil O i l had continued royalty payments to Storthoaks under a petroleum and natural gas lease for more than three years a f t e r surrender of the lease. When the error was discovered Mobil O i l demanded repayment from Storthoaks. In the meantime the municipality had spent the money fo r municipal purposes. Martland J . reviewed the au t h o r i t i e s and, furthermore, quoted from the American Restatement of R e s t i t u t i o n which J* (1908) , 40 S.C.R. 366 at p. 382. 7 Cf. f o r Great B r i t a i n : Continental Caoutchouc and Gutta Percha Co. v. Kleinwort, Sons & Co. (1904) , 90 L.T. 474 at p. 476; and Kleinwort v. Dunlop Rubber Co. (1907), 97 L.T. 263. Cf. f o r Canada: Dominion Sec u r i t i e s Ltd. v. Toronto Dominion Bank (1983), 24 Man.R. (2d) 235 at p. 239 o (Q.B.). ° 3 Palmer, The Law of Restitution, p. 520. For Canada see now B i l l s of Exchange Act. R.S.C. 1970, c. B-5, sec. 50(1) and 133. Sec. 50 (1) provides: "Where a b i l l bearing a forged or unauthorized endorsement i s paid i n good f a i t h and i n the ordinary course of business ... the person by whom or on whose behalf such payment i s made has the r i g h t to recover the amount so paid from the person to whom i t was so paid or from any endorser ..." 9 Cf. Midland-Osier Se c u r i t i e s Ltd. v. Dudek (1966), 56 D.L.R. (2d) 378 (Man.Q.B.). 100 provides f o r the defence of change of p o s i t i o n 1 0 . But the judge found that there was "no evidence of any s p e c i a l projects being undertaken or s p e c i a l f i n a n c i a l commitments made because of the r e c e i p t of these payments, nor that the Municipality al t e r e d i t s p o s i t i o n i n any way because these moneys were received... In my opinion, therefore, the Municipality has f a i l e d to e s t a b l i s h that i t had so al t e r e d i t s p o s i t i o n as a r e s u l t of the r e c e i p t of the payments that i t would be inequitable to require i t to r e p a y . " 1 1 The debate on change of p o s i t i o n as a defence i n the law of r e s t i t u t i o n emanated from the recognition that the basis of r e s t i t u t i o n a r y claims i s the prevention of unjust enrichment and has centred around the a p p l i c a t i o n of the defence of estoppel (in p a i s ) . Change of p o s i t i o n as formulated by l e g a l writers looks very much l i k e estoppel i n p a i s 1 2 . In short, i t i s said to be " l i k e estoppel with the requirement of representation struck o u t . " 1 3 Restatement, sec. 142, p a r a . l . (1975), 55 D.L.R. (3d) at pp. 13-14. As to estoppel i n pais or, i n other words, estoppel by representation see i n general: Spencer Bower, George and Turner, S i r Alexander K.: The Law Relating to Estoppel by Representation (3d ed. London 1977). Birks, R e s t i t u t i o n , p. 410; c f . Needham, C.: Mistaken Payments: A New Look at an Old Theme" (1978), 12 U.B.C.L. Rev. 159, at pp. 199, 207/8; but c f . Denning L.J. (as he then was) i n Lamer v. London County Council. [1949] 2 K.B. 683 (C.A.) at p. 688: "This defence of estoppel, as i t i s c a l l e d - or more accurately, change of circumstance - must ... not be extended beyond i t s proper bounds." The f a c t that estoppel and change of circumstances are d i f f e r e n t defences i n Canada i s demonstrated by the S.C.C. i n the Storthoaks case, (1975), 55 D.L.R. (3d) at p. 14. 101 But even i f change of p o s i t i o n and estoppel look very s i m i l a r they are grounded on d i f f e r e n t p r i n c i p l e s 1 4 . I t w i l l be shown that change of p o s i t i o n i s not merely a s p e c i a l branch of the whole doctrine of estoppel but a defence of i t s own o r i g i n . Once i t was recognized that unjust enrichment underlies the r e s t i t u t i o n a r y remedies 1 5 the acceptance of the defence of p o s i t i o n was a l o g i c a l consequence. Change of p o s i t i o n as a general defence i s not accepted i n Great B r i t a i n y e t 1 6 but i s f i r m l y entrenched i n American l a w 1 7 . Save some exceptions one who wants to plead change of p o s i t i o n i n Great B r i t a i n can do so only i f he can r e s t h i s p o s i t i o n on estoppel. However, i t i s predicted by the leading textbook i n Great B r i t a i n on the law of r e s t i t u t i o n that "the development of the law of r e s t i t u t i o n must surely lead to the acceptance of a defence of change of p o s i t i o n . 1 1 1 8 1 4 Cf. Needham. o p . c i t . f at p. 207. " I t i s perhaps not p e r f e c t l y c l e a r [ i n Hydro Commission of the Township of Nepean v. Ontario Hydro. (1982), 132 D.L.R. (3d) 193 (S.C.C.)] whether Dickson J . [as he then was] views the unjust enrichment p r i n c i p l e as simply the t h e o r e t i c a l underpinning of an e x i s t i n g body of doctrine which provides a basis for reshaping and r e s t a t i n g anomalous rules, or rather as a c o l l a t e r a l or alternate theory of l i a b i l i t y which i s to be added on to the causes of action established i n the old quasi-contract cases. The former view would be the more orthodox in t e r p r e t a t i o n of the r o l e of the unjust enrichment p r i n c i p l e and appears to be the p o s i t i o n adopted by Dickson J . i n another case.", McCamus, op.cit., at p. 266. 1 6 Goff and Jones, op. c i t . . pp. 46 and 695-6. 1 7 Restatement of Restitution, sec. 142. 1 8 Goff and Jones, op.cit., p. 696. Cf. the o b i t e r dictum i n Barclays Bank Ltd. v. W.J. Simms Son & Cooke (Southern) Ltd.. [1980] Q.B. 677 at p. 695. 102 In the following pages, the conditions according to which the defence of estoppel can be raised i n Great B r i t a i n and Canada s h a l l be f i r s t summarized. Then, the rationale of change of p o s i t i o n i n Canada w i l l be examined. F i n a l l y , a b r i e f sketch of change of p o s i t i o n i n the U.S.A. w i l l close the chapter. 2. THE CONDITIONS OF ESTOPPEL IN PAIS OR BY REPRESENTATION IN THE LAW OF GREAT BRITAIN AND CANADA Where somebody has made a representation to another person and the other person has acted on t h i s representation and consequently altered h i s p o s i t i o n to h i s detriment, an estoppel arises against the one who has made the representation. That means that the estopped person i s not allowed to aver that the fa c t i s otherwise than he represented i t to be. So, the defence of estoppel can be pleaded i f three elements are present: a representation, r e l i a n c e thereon, and a change of p o s i t i o n to the detriment of the representee 1 9. Estoppel i s a defence to personal and proprietary c l a i m s 2 0 . Needham, op . c i t . . at pp. 180-1. Goff and Jones, op . c i t . . p. 699 et seq., p. 704 et seq. The English cases are c o l l e c t e d i n Halsbury's Laws of England. 4th ed., "Estoppel", sec. 1605. Commonwealth Trust Ltd. v. Akotey. [1926] A.C. 72; Eastern D i s t r i b u t e r s Ltd. v. Goldring. [1957] 2 Q.B. 600. 103 a) Representation Representation i s the dominant factor i n the defence of e s t o p p e l 2 1 . The representation may be expressly made by words or by conduct. I t might be thought that every course of conduct imports a representation. But the decisions of the courts do not sustain such a supposition. A mere payment does not i n i t s e l f constitute a representation that the payee i s i n any event e n t i t l e d to i t 2 2 . Otherwise an action for money mistakenly paid would l i e only i n the cases i n which the other conditions of estoppel are not p r e s e n t 2 3 . Even the f a c t that one pays money continuously during a longer period of time does not i n i t s e l f import a representation that the payee i s e n t i t l e d to the money. To give one example: "Continuance of payments over a period of three years may tend to maintain the b e l i e f of the respondent ... that i t was e n t i t l e d to the money, a b e l i e f unknown to the appellant. This, however, i s a factor common to a l l payments i n mistake of fact, and alone cannot create an equity [estoppel] i n the respondent's favour. In Anglo-Scottish Beet Sugar Corpn. Ltd. v. Spalding Urban D i s t r i c t C o u n c i l ^ 4 the payments extended over an eight-year period and t h i s d i d not * L Needham, op.c i t . . at pp. 207-8; Jones, G.H.: "Change of Circumstances i n Quasi-Contract", (1957), 73 L.O.Rev. 48 at p. 56. 2 2 Cf. Purity Dairy Ltd. v. Collinson (1966), 58 D.L.R. (2d) 67, 57 W.W.R. 737 (B.C.C.A.); Goff and Jones, o p . c i t . . p. 704. But see the proposal made by Birks, The Recovery of Carelessly Mistaken Payments, (1972), 25 Cur.Leg.Prob. 179 at p. 193 et seq. 2 These are rel i a n c e of the payee on the conduct or representation and corresponding action upon the representation to the prejudice of the representee. 2 4 [1937] 2 K.B. 607, [1937] 3 All.E.R. 335. 104 bar recovery." "[To hold otherwise] would be contrary to the accepted p r i n c i p l e [that money mistakenly paid i s recoverable, and] require a r u l i n g that other than sing l e payments ... would always f a l l to be contructed as payments which i n good conscience should not be r e c o v e r a b l e . " 2 5 There must be something more i n order that the conduct of a payer amounts to a representation. This "something more" i s described as the intention of the payer that the representation should be acted upon 2 6. In cases i n which t h i s i n t e n t i o n was a c t u a l l y missing, but i n which the conduct was such that a reasonable man would take i t as a representation, and believe that i t was meant that he should act upon i t , courts have applied estoppel, t o o 2 7 . I t can be asked whether the requirement of representation has been abandoned and the boundaries between Maguire J.A. i n Mobil O i l Canada Ltd. v. Rural Municipality of Storthoaks No. 31. [1973] 6 W.W.R. 644, at p. 651-652; c f . Dominion S e c u r i t i e s Ltd. v. Toronto Dominion Bank (1983), 24 Man.R. (2d) 235 at p. 239 (Man.Q.B.). However, i t i s doubtful whether i t r e a l l y can be sa i d the respondent's b e l i e f that i t was e n t i t l e d to the payment was unknown to the appellant. Rather, both p a r t i e s believed that the payee was e n t i t l e d to the payments and there was no reason for e i t h e r party to doubt that the other party had the same b e l i e f . Lowe v. Lombank. Ltd., [1960] 1 A l l E.R. 611 at p. 616 (C.A.); the English cases are c o l l e c t e d i n Halsbury's Laws of England (4th ed), "Estoppel", sec. 1505, 1599. For a Canadian example see Purity Dairy Ltd. v.Collinson (1966), 58 D.L.R. (2d) 67 at p. 73 (B.C.C.A.). There i s only a small difference between estoppel and the cases i n which somebody paid i n submitting himself to a claim regardless of whether he acknowledges the other's r i g h t to the claim. I f the payer l a t e r finds out that he has paid under a mistake he cannot recover the amount paid. See, e.g., Parke B. i n K e l l y v. S o l a r i (1841), 9 M.& W. 54, 152 E.R. 24 at p. 26. Lowe v. Lombank. [1960] 1 A l l E.R. 611 (C.A.); Spiro v. Lintern. Ltd.. [1973] 3 A l l E.R. 319, [1973] 1 W.L.R. 1002 (C.A.). 105 estoppel and change of p o s i t i o n blurred i n cases i n which the 'representation' was mere silence or inaction. So, i t has been held that: "Where a man i s under a duty - that i s , a l e g a l duty -to d i s c l o s e some fac t to another and he does not so, the other i s e n t i t l e d to assume the nonexistence of the f a c t . In such circumstances the conduct of the f i r s t man amounts to a representation by conduct to the second that the f a c t does not e x i s t . " 2 8 But these are rare cases which, i t can be argued, have only stretched estoppel so f a r because B r i t i s h law d i d not yet accept a general defence of change of p o s i t i o n 2 9 . In most cases, however, representation i s c l e a r l y present. I t may be repeated: whatever form representation takes i t i s an e s s e n t i a l element of estoppel and i t thereby l i m i t s the scope of application of estoppel. Moreover, the a v a i l a b i l i t y of estoppel i s r e s t r i c t e d by the f a c t that i t has to be the conduct of the representor himself which leads to an estoppel. I t i s only the representor's own conduct or statement which w i l l prevent him from l a t e r denying that he has acted s o 3 0 . Normally, the Buckley L.J. i n Spiro v. Lintern. Ltd., [1973] 3 A l l E.R. 319 at p. 326 (C.A.). Cf. the Canadian case of Scotsburn Co-Op. Services v. Goodwin (W.T.) Ltd.. [1985] 1 S.C.R. 54; (1985), 57 N.R. 81 at p. 88: "Silence or i n a c t i o n w i l l only constitute a representation where the representor owes a l e g a l duty to the representee to make the disclosure i n question." Cf., e.g., Holt v. Markham. [1923] 1 K.B. 504; and comment by Dawson, 61 B.U.L.Rev. 271 (1981), at p. 272 n. 3. "A representor includes i n law any person who personally made the representation r e l i e d upon as an estoppel, and also any person by whose express or implied authority, or with whose p r i v i t y , the representation was made.", Spencer Bower and Turner, op.cit.. at p. 121. 106 representee cannot r e l y on a statement of a t h i r d person. A good example f o r t h i s l i m i t e d a p p l i c a t i o n of estoppel i s given by the case of R.E. Jones f Ltd. v. Waring & G i l l o v . L t d . 3 1 . In t h i s case one Bodenham deceived both the p l a i n t i f f , Jones Ltd., and the defendant. Bodenham represented himself towards the p l a i n t i f f that he was the agent of a firm of motor manufacturers, International Motors, and entered into an agency agreement with the p l a i n t i f f f o r the sale of cars. The p l a i n t i f f thereby obliged i t s e l f to pay L5000 i n advance. But the p l a i n t i f f objected to paying t h i s money to B. or the manufacturers whom i t d i d not know. I t was t o l d by B., however, that the defendant, a well known London company, was financing International Motors and B. suggested the money to be paid to the defendant. The p l a i n t i f f accordingly drew two cheques amounting to L5000 to the order of the defendant and handed them to B. B., who was indebted to the defendant himself applied the cheques fraudulently to discharge h i s own ob l i g a t i o n . The fraud was not discovered even when the defendant objected to the cheques and phoned the p l a i n t i f f . The l a t t e r had overlooked that the cheques to be v a l i d had to be signed not only by one but by two of i t s d i r e c t o r s . But neither party mentioned the purpose of the payment. Instead, the For a Canadian example see: Patterson Motors (1962) Ltd. V . R i l e v (1962), 56 D.L.R. (2d) 278 (Sask.Q.B.). 3 1 [1926] A.C. 670 (H.L.). 107 p l a i n t i f f took both cheques back and duly issued a new cheque. The defendant cashed the cheque and re-delivered goods to B. which i t had seized from him e a r l i e r . When the p l a i n t i f f r e a l i z e d that i t had been defrauded by B. (from whom i t could not obtain the L5000) i t commenced an action. The defendant offered to pay the money back save the amount by which the goods had depreciated i n value. The question was whether Jones Ltd. which had paid the money under a mistake of fac t was estopped from recovering. This question was discussed at length by Viscount Cave L.C. who, i n h i s dissenting judgment, held that the defendant was e n t i t l e d to succeed on the grounds of e s t o p p e l 3 2 . "The [ p l a i n t i f f s ] without previous communication with the [defendants], drew cheques i n t h e i r names ..., a proceeding which ... 'imported l i a b i l i t y ' and would na t u r a l l y lead the [defendants] to believe that the [ p l a i n t i f f s ] were indebted to them i n that amount. The [ p l a i n t i f f s ] then unwisely, i f not rec k l e s s l y , put those cheques into the hands of Bodenham (whom they hardly knew and whom they had no reason to trust) f o r del i v e r y to the [defendants], thereby enabling him to make such representations as he might think f i t as to the purpose of the payment. Later, when the [defendants] communicated with the [ p l a i n t i f f s ] ... the [ p l a i n t i f f s ] s t i l l s aid nothing about the purpose for which the payment was made, but l e f t i t to the [defendants] to r e l y on such statements as might have been made to them by Bodenham. The natural r e s u l t of t h i s conduct on the part of the [ p l a i n t i f f s ] was that the [defendants] believed that the [ p l a i n t i f f s ] were indebted to them ... and were paying ... to them fo r the purpose which Bodenham f a l s e l y described; and i t was i n t h i s b e l i e f , so induced, that they accepted the payment and re-delivered to Bodenham the goods which they had seized ... No doubt they afterwards resumed possession of the goods; but there can be no doubt that the goods so resumed had suffered depreciation since the time when they were re-delivered ..., and * Ibid.. at p. 684. 108 the [defendants] have accordingly suffered some detriment." But the majority of the court held i n favour of the p l a i n t i f f . I t has been suggested that to reach a d i f f e r e n t r e s u l t the judges would have to hold that by putting the cheques into the hands of Bodenham the p l a i n t i f f had given him ostensible authority to make on i t s behalf whatever explanation he choose 3 4. Even i f one does not want to hold that the p l a i n t i f f had given Bodenham 'ostensible authority', one cannot deny that i t made i t possible through i t s behaviour f o r Bodenham to defraud the defendant. Accordingly, i t i s submitted, there ought to be some way of making the p l a i n t i f f l i a b l e for the defendant's l o s s . This would be possible with the defence of change of p o s i t i o n . Only i n exceptional cases could the courts help the representee who had acted upon the representation of a t h i r d p e r s o n 3 5 . b) Reliance of the representee The representation must have been r e l i e d upon i n good f a i t h . A representee cannot r e l y on a representation i f he knew that the representation i s not true or i f he induced Ib i d . . at p. 682. 3 4 Birks, R e s t i t u t i o n , at p. 407. 3 5 E.g., Spiro v. Lintern. Ltd.. [1973] 3 A l l E.R. 319 (C.A.): husband under a duty to correct the wrong statements of h i s wife, therefore the husband was estopped from denying the statements which h i s wife had made i n h i s a f f a i r s . 109 the other to make a f a l s e statement J°. I f the representee changed h i s p o s i t i o n without having r e l i e d on the representation he cannot plead estoppel ei t h e r . This shows that the detrimental element alone i s not decis i v e . c) Detriment or prejudice of the representee F i n a l l y , the person r e l y i n g on the statement must have changed h i s p o s i t i o n to h i s detriment. The law does not protect a payee who r e l i e d bona f i d e on a mistaken payment without having changed h i s p o s i t i o n to h i s detriment. More pr e c i s e l y , the payee must show that he would be prejudiced i f he were compelled to return the mistaken payment 3 7. Thus, as Professor Needham stated: "The t e s t i s whether i t would be unjust to require the defendant to repay the money, not whether h i s expenditure caused him detriment i n an objective sense." 3 8 In some cases courts have held that the mistaken payer was f u l l y estopped even i f the payee had only p a r t l y spent the money i n a way that would make i t unjust to order repayment. A more recent example i s Avon County Council v. j 6 Lowe v. Lombank, Ltd.. [1960] 1 A l l E.R. 611; Lamer v. London C i t v Council. [1949] 2 K.B. 683, [1949] 1 A l l E.R. 964 (C.A.). 3 7 Cf. Needham, op.c i t . . at p. 184. 3 8 Needham, op.c i t . . at p. 185; c f . H i c k l i n g , M.A.: "Labouring With Promissory Estoppel: A Well-Worked Doctrine Working Well ?" (1983), 17 U.B.C.L.Rev. 183 at p. 209: "The purpose i s to avoid or prevent a detriment to the party asserting an estoppel, the r e a l detriment or harm being that which would flow from the change of p o s i t i o n i f i t were allowed." [emphasis o r i g i n a l ] . 110 HjowTjett-5 . Here, the defendant who was a teacher at one of the p l a i n t i f f ' s schools received mistakenly overpayments of L1007 during a long period of i l l n e s s . When the defendant asked the p l a i n t i f f ' s o f f i c i a l s he was informed that the payments were correct. So the defendant spent L460.50 on a s u i t and a second hand car and, furthermore, he d i d not claim s o c i a l s ecurity benefits of L 8 6 . l l to which he would have been e n t i t l e d without the p l a i n t i f f ' s payments. The t r i a l judge held that the p l a i n t i f f had made the payments under a mistake of fact, that he was estopped as to the L546.61 but could recover L460.39. The Court of Appeal reversed the decision and found that the operation of estoppel was not r e s t r i c t e d to the precise amount of which the defendant had sustained a detriment but that the p l a i n t i f f was t o t a l l y estopped 4 0. I t i s doubtful how f a r courts w i l l carry t h i s reasoning because i t often has been held that to e s t a b l i s h estoppel a cl e a r detrimental element had to be present. For instance, expenditures which the defendant would have incurred i n the J y [1983] 1 W.L.R. 605; (1983), 127 S.J. 173; [1983] 1 A l l E.R. 1073; (1983) 81 L.G.R. 555; [1983] I.R.L.R. 171; (1983) 133 New L.J. 377 (C.A.). 4 0 But Cumming-Bruce L.J. said at the same time: "I do not consider that the decision of t h i s court i n the instant appeal i s authority f o r the proposition that where, on the f a c t s , i t would be c l e a r l y inequitable to allow a party to make a p r o f i t by pleading estoppel, the court w i l l necessarily be powerless to prevent i t . " Cf. Jones v. Waring & Gillow. [1926] A.C. 670 at p. 685 (H.L.) where i t was said too that the person r a i s i n g estoppel should not p r o f i t by the defence. Goff and Jones, op . c i t . . at pp. 692, 699, 705, argue that a pro tanto defence of estoppel should be recognised. I l l normal course of events did not s u f f i c e f o r e s t o p p e l 4 1 . However, i n the case of mistaken overpayments of salary, courts have been more reluctant to order r e s t i t u t i o n than n o r m a l l y 4 2 . What the Avon case shows i s that estoppel p r i m a r i l y rests on the representation of the payer. The requirement of the defendant's detriment i s necessary but not the dominant factor. 3. CHANGE OF POSITION IN CANADA a) The rationale of change of p o s i t i o n In contrast to estoppel, detriment i s the dominant factor of change of p o s i t i o n . Prima f a c i e , change of p o s i t i o n seems to be nothing more than the detrimental element of e s t o p p e l 4 3 . That i s why i t has been said that change of p o s i t i o n i s " l i k e estoppel with the requirement of representation struck o u t . " 4 4 4 1 Storthoaks v. Mobil O i l Canada. [1976] 2 S.C.R. 147, (1975), 55 D.L.R. (3d) 1 at p. 15. In t h i s case i t w i l l be d i f f i c u l t to prove that the payee r e l i e d on the v a l i d i t y of the payment. Koenig, Ungerechtfertigte Bereicherung (Heidelberg 1985) P- 61. * J But the burden of proof i s s h i f t e d to the defendant; i f the defence of estoppel i s raised, i t i s upon the representor to show that i t would be inequitable f o r the payee to r e t a i n the money: Avon County Council v. Howlett. [1983] 1 W.L.R. 605 at p. 609. This was c r i t i c i s e d by Goff and Jones, op. c i t . . p. 694. In contrast, the burden i s on the payee to e s t a b l i s h the defence of change of pos i t i o n , e.g., Storthoaks v. Mobil O i l Canada (1975), 55 D.L.R. (3d) 1 at p. 13. 4 4 Birks, R e s t i t u t i o n, at p. 410. 112 To understand f u l l y change of p o s i t i o n as a defence to r e s t i t u t i o n a r y claims one must bear i n mind the reason f o r r e s t i t u t i o n a r y remedies. The reason i s that otherwise the defendant would be unjustly enriched. I t has been set out e a r l i e r that unjust enrichment i s the underlying p r i n c i p l e of r e s t i t u t i o n . I t i s submitted that change of p o s i t i o n i s j u s t the other side of the coin of the unjust enrichment idea. I f a mistaken payee i s enriched at the payer's expense (without any j u r i s t i c reason) i t i s cl e a r that the former should not be allowed to r e t a i n the money. But what i f the payee handed the funds over to a t h i r d person as a g i f t or the money was stolen from the payee ? The payee i s then not enriched any longer (otherwise only i f one wants to accept that the mistaken payee s t i l l has the joy of having made a g i f t 4 5 ) . Who s h a l l bear the loss ? I t i s submitted that as long as the enriched person i s bona f i d e i t should be a defence that he simply i s not enriched any more. To quote Goff and Jones: "[T]here i s much to be said, i n p r i n c i p l e , f o r the view that a defendant should not be c a l l e d upon to make r e s t i t u t i o n i f , by reason of hi s change of pos i t i o n , he can no longer be said to be enriched by the benefit which the p l a i n t i f f conferred on him. To compel him to make r e s t i t u t i o n , i s to make him the insurer of the p l a i n t i f f . " 4 6 Needham, op.c i t . . at p. 212. Goff and Jones, op.cit.. p. 691. But c f . p. 694: "Each case w i l l have to be judged on i t s own facts i n order to determine whether i t i s j u s t and equitable to require the defendant to make r e s t i t u t i o n . " [emphasis added]. Cf. Palmer, op. c i t . . v o l . 3, p. 511. Of course, i f the payee i s s t i l l p a r t l y enriched, e.g. he invested the money and the investment i s now worth h a l f the former amount, change of p o s i t i o n w i l l work only as a p a r t i a l defence. Since the famous decision by Lord Mansfield i n Moses v. MacFerlan 4 7 the defence of change of po s i t i o n , i f accepted at a l l , has been j u s t i f i e d d i f f e r e n t l y . Lord Mansfield i n t h i s case held, r e f e r r i n g to the action f o r money had and received: "This kind of equitable a c t i o n 4 8 , to recover back money, which ought not i n j u s t i c e to be kept, i s very b e n e f i c i a l , and therefore much encouraged. I t l i e s only f o r money which, ex aequo et bono, the defendant ought to refund ..." 4 9 " I t i s the most favourable way i n which [the defendant] can be sued: he can be l i a b l e no further than the money he has received; and against that, may go into every equitable defence, upon the general issue; he may claim every equitable allowance; he may prove a release without pleading i t ; i n short, he may defend himself by everything which shews that the p l a i n t i f f , ex aequo et bono, i s not e n t i t l e d to the whole of h i s demand, or to any part of i t . " 5 0 By saying that the action f o r money had and received i s equitable i n nature although l e g a l i n form, courts could admit any 'counter-equities' which the payee was able to a s s e r t 5 1 . (1760), 2 Burr. 1005; 1 W.B1. 219; 97 E.R. 676. 4 8 The use of the words 'equitable' and 'equity' i n the judgment does not denote the j u r i s d i c t i o n of the Court of Chancery; the words are synonyms f o r jus naturale: Craig J . i n Hydro E l e c t r i c Commission of the Township of Nepean v. Ontario Hvdro (1979), 92 D.L.R. (3d) 481 at p. 504 (Ont.H.C). 4 9 (1760), 97 E.R. at p. 680. 5 0 I b i d . . at p. 679. 5 1 Cf. Dobbs, Remedies, at pp. 766-767. This disposes at the same time with one d i f f i c u l t y put 114 I t i s not disputed that change of p o s i t i o n as outlined here i s j u s t i f i a b l e 'ex aequo et bono' too. But i t i s submitted that aequitas and bonum are not s p e c i f i c enough as a yardstick. The defence that the payee i s not enriched anymore ( i . e . has changed h i s p o s i t i o n ) covers a l l or most of the cases which have been hitherto discussed under the l a b e l of 'ex aequo et bono 1. The advantage of change of p o s i t i o n i s that i t makes the law much more r a t i o n a l and p r e d i c t a b l e 5 2 . The question whether change of p o s i t i o n should be a defence has been tackled from d i f f e r e n t points of view. I t has been argued that the question of whether to accept the defence or to deny i t cannot be decided f o r any substantive reasons: "The proper disposal of the problem of change of po s i t i o n i n quasi-contract, l i k e the t r a f f i c problem, should follow simply as a matter of administrative d e t a i l . Not only i s the issue morally i n d i f f e r e n t ..." "[A] decision here has only one i d e a l to serve. I t does well, and t h i s i s a l l i t can do, i f i t makes f o r p r e d i c t a b i l i t y , symmetry, and order. J u s t i c e here l i e s i n adhering to an a r b i t r a r y p o s i t i o n , whatever i t i s . forward by Cohen, 45 Harv.L.Rev. 1333 (1932), at p. 1361 n. 68: " I f the r i g h t [to recover money paid under mistake] i s t r u l y 'equitable 1, i t i s confined to following s p e c i f i c property, and would end with the loss or destruction of that property. I f the r i g h t i s l e g a l , i t involves the general l i a b i l i t y of the defendant, and would not necessarily be affected by the v i c i s s i t u d e s of the res." [emphasis added] Lord Mansfield's natural j u s t i c e approach has been c r i t i c i z e d by many, e.g., Cohen, 45 Harv.L.Rev. 1333 (1932). 115 In short, the question may not be solved; at l e a s t i t can be s e t t l e d . " 5 3 From an economic approach the problem has been discussed by Professors Beatson and Bishop. But according to them i t d i d not make any difference i n economic e f f i c i e n c y whether or not to accept change of p o s i t i o n , at l e a s t i f both p a r t i e s were c a r e f u l . In t h i s case the writers r e l i e d on t h e i r "moral i n t u i t i o n " and contended that the mistaken payer as the i n i t i a t o r of the chain of events should bear the loss r e s u l t i n g from change of p o s i t i o n 5 4 . Others have argued that "[a]s between two innocent parties the loss should l i e where i t f a l l s , i n circumstances where the defendant has a l t e r e d h i s p o s i t i o n i n good f a i t h i n consequence of the payment to him." 5 5 This means that i f A paid money mistakenly to B or, i n other words, l o s t h i s money and B bona f i d e i n r e l i a n c e on the payment paid the funds over to charity A cannot compel B to make r e s t i t u t i o n . This paper, as was shown above, follows the approach adopted by the S.C.C. An unjust enrichment can be said to e x i s t i f an enrichment, a corresponding deprivation and the absence of any j u r i s t i c reason f o r the enrichment are present. Cohen, Henry, Change of Posi t i o n i n Quasi-contracts, 45 Harv.L.Rev. 1333-64 (1932), at p. 1352. Beatson, J . and Bishop, W., Mistaken Payments i n the Law Of Re s t i t u t i o n , (1986), 36 U.of T.L.J. 149-185 at p. 155. Goff and Jones, op. c i t . . p. 699. Cf. Scott, Gordon K.: "Restitution From An Innocent Transferee Who Is Not A Purchaser For Value", 62 Harv.L.R. 1002 at p. 1008 (1949) . 116 I t cannot be said r e a l l y that change of p o s i t i o n i s another j u r i s t i c reason for retainment of the enrichment, because the defendant i s not enriched anymore. But, to put i t d i f f e r e n t l y , i t i s believed, that change of p o s i t i o n i s another j u r i s t i c reason why an unjust enrichment claim should not succeed. However, there are decisions which di d not put t h i s simple f a c t so c l e a r l y . For instance, i t i s believed that the statement of the Ontario Court of Appeal i n such a case, Holland v. Alkemade 5 6 was rather confusing. Here the p l a i n t i f f had v o l u n t a r i l y improved another's property. Although i t had been made cl e a r to the p l a i n t i f f before that the property i n question would not be transferred to him, the p l a i n t i f f hoped that eventually a sale would take place. No doubt, the improvements of the p l a i n t i f f were an enrichment of the defendant. But because the p l a i n t i f f had acted v o l u n t a r i l y there was a j u r i s t i c reason to r e t a i n the enrichment. Arnup J.A. put i t i n the following terms: " [ I ] t i s quite c l e a r that the mere existence of payments made and received, or work done on the property of another, does not give r i s e to the app l i c a t i o n of the doctrine of unjust enrichment. There must i n addition be spe c i a l circumstances that make i t unjust that the owners of the land upon which the improvements have been made ... by the claimant should r e t a i n the benefit without compensating the person paying the money or rendering the service. As I put i t during the argument, the circumstances must "engage the conscience of the Court"." 5 7 JJJJ (1985) , 19 E.T.R. 10. 5 7 Ibid, at p. 13. 117 I t i s not easy to predict when a court w i l l engage i t s conscience and, i t i s submitted, such a statement detracts the attention from the decisive points of law. I t has to be emphasized that 'the absence of any j u r i s t i c reason f o r the enrichment 1 does not permit courts to exercise t h e i r unfettered conscience or to consider "the equitie s between the p a r t i e s " 5 8 i n g e n e r a l 5 9 . I t may be repeated, there i s no "palmtree j u s t i c e " h e r e 6 0 . What i s ju s t or "ex aequo et bono" between the pa r t i e s has been canalized i n the law of contracts, the law of property, the law of w i l l s etc. This point i s well i l l u s t r a t e d by the decision of the Supreme Court of Canada i n the Mobil O i l case. Relying on two decisions of the Saskatchewan Court of Ap p e a l 6 1 , Storthoaks t r i e d to introduce what can be c a l l e d an add i t i o n a l t e s t of the equities between the p a r t i e s . The defendant municipality contended that even though the p l a i n t i f f ' s payments were made under mistake of fac t (with the consequence that Mobil O i l could have recovered i t s funds), Mobil O i l would not be e n t i t l e d to r e s t i t u t i o n because under the spe c i a l circumstances of the case i t would 5 a Nepean v. Ontario Hydro (1979), 92 D.L.R. (3d) 481 at pp. 505-06 (Ont.H.C.). 5 9 See above. The expression i s borrowed from Martland J . i n Pettkus v. Becker (1981), 19 R.F.L. (2d) 165 at p. 193. Rural Municipality of Garden River v. Montreuil. [1929] 2 D.L.R. 396; [1929] 1 W.W.R. 486; 23 S.L.R. 439 (Sask.C.A.); Royal Bank of Canada v. Huber (1972), 23 D.L.R. (3d) 209; [1972] 2 W.W.R. 338 (Sask.C.A.). 118 be inequitable to require repayment. But t h i s was rejected by Martland J . who delivered the judgment of the Court: "[W]here money i s paid on the supposition that a s p e c i f i c f a c t i s true which would e n t i t l e the other to receive i t , which fa c t i s untrue and the money would not have been paid i f the fac t had been known to be untrue, i t can be recovered 'and i t i s against conscience to r e t a i n i t ' . " 6 2 In terms of unjust enrichment, Mobil O i l had enriched Storthoaks and thereby suffered a corresponding l o s s . There was no j u r i s t i c reason f o r Storthoaks to r e t a i n the money because there was not any obl i g a t i o n f o r Mobil O i l to pay. Therefore the question whether i t was 'against conscience' f o r Storthoaks to r e t a i n the money could be answered e a s i l y i n the affirmative. I f courts i n determining the j u r i s t i c reasons f o r the enrichment were free to r e l y on the equities between the par t i e s they would not need to bother themselves with questions of enrichment and deprivation but could immediately consider the 't i e s of natural j u s t i c e ' . I t i s obvious that t h i s would make the law unpredictable. Judges would be encouraged to render judgments according to t h e i r personal point of view on what i s j u s t between the p a r t i e s . Two decisions might i l l u s t r a t e t h i s . Storthoaks v. Mobil O i l (1975), 55 D.L.R. (3d) at p. 10. The judge was r e f e r r i n g to K e l l y v. S o l a r i (1841), 9 M.& W. 54, 152 E.R. 24 where Rolfe B. held: "With respect to the argument, that money cannot be recovered back except where i t i s unconscientious to r e t a i n i t , i t seems to me that wherever i t i s paid under a mistake of fa c t , and the party would not have paid i t i f the fac t had been known to him, i t cannot be otherwise than unconscientious to r e t a i n i t . " , at 152 E.R. p. 26. 119 b) Misinterpretation of the unjust enrichment doctrine I t i s submitted that the doctrine of unjust enrichment has been misinterpreted i n two decisions. The f i r s t i s the judgment of the B.C.S.C. i n Wilson and Wilsur Holdings Ltd. v. Corporation of D i s t r i c t of S u r r e y 6 3 . In t h i s case the municipality of Surrey imposed by reso l u t i o n the obl i g a t i o n that a developer had to contribute to costs incurred by the municipality i n s e r v i c i n g land comprised i n a new subdivision. The resolution had been passed before 1977, when the Municipal Amendment Act 1977 6 4 gave m u n i c i p a l i t i e s the power to require such payments. In November 1975, the part i e s had come to an agreement i n which Wilson (the p l a i n t i f f ) consented to pay f o r services, such as parks and playgrounds, drainage f a c i l i t i e s , a r t e r i a l highways, main trunks and supply f a c i l i t i e s f o r water, and 1 inspection-fees•. Hinds J . held that the resolution was u l t r a v i r e s and that Wilson had paid under a mistake of law. C i t i n g "the general r u l e that money paid under mistake of law i s not r e c o v e r a b l e " 6 5 he turned to the question whether r e s t i t u t i o n was nevertheless possible. One exception to the general r u l e could have been established i f the p l a i n t i f f had made h i s [1981] 3 W.W.R. 266. 6 4 R.S.B.C. 1977, Chap. 57 6 5 [1981] 3 W.W.R. at p. 278. 120 payments under compulsion. On the facts of the case the judge found that there was no compulsion to pay. But, r e l y i n g on K i r i r i Cotton Co. v. Dewani 6 6 another exception could be made out and the judge found that the p a r t i e s were not i n p a r i d e l i c t o because the defendant had to bear the primary r e s p o n s i b i l i t y f o r the occurrence of the mistake of l a w 6 7 . Therefore, Wilson could have recovered i t s payments. Hinds J . , however, observed "that the more modern view i s that such a claim [for money paid under mistake] embraces the concept of unjust enrichment and, i n considering unjust enrichment, a court i s e n t i t l e d to consider the equities between the p a r t i e s . " 6 8 The judge's opinion that the people who had the benefit of the services of Surrey should pay f o r i t l e d him to the conclusion that "the t i e s of natural j u s t i c e and equity favour the retention of those amounts by the defendant." 6 9 As to the " o f f - s i t e services" he found that Wilson could recover i t s payments. As a f i n a l r e s u l t , Wilson received nearly one h a l f of the claimed amount. Equity i s equality ? The r e s u l t might be appreciated f o r the reason that purchasers of l o t s i n a subdivision should pay f o r services " [1960] A.C. 192. 6 7 [1981] 3 W.W.R. at p. 281. 6 8 I b i d . ; A serious discussion of the unjust enrichment doctrine would have le d the judge to the i n s i g h t that the mistake of law doctrine i s incompatible with the doctrine of unjust enrichment, c f . Goff and Jones, op. c i t . . p. 117 et seq. Ibid, at p. 282. 121 which are provided f o r them. Nevertheless, i t i s d i f f i c u l t to understand why Surrey by using the concept of unjust enrichment could r e t a i n what i t could not receive under a by-law or resolution. Counsel f o r the defendant t r i e d to r a i s e the defence of equitable or promissory estoppel. But the learned judge quoted Lord Evershed M.R. i n Min. of Agriculture and Fis h e r i e s v. H i n k i n 7 0 and held: "The power given to an authority under a statute i s li m i t e d to the four corners of the power given. I t would e n t i r e l y destroy the whole doctrine of u l t r a v i r e s i f i t was possible f o r the donee of a statutory power to extend h i s power by e f f e c t i n g an e s t o p p e l . " 7 1 The same thought should apply - mutatis mutandis - to the concept of unjust enrichment, too. As long as the municipality had no statutory power to impose the said fees, i t would act u l t r a v i r e s imposing such fees. I f the concept of unjust enrichment would lead to a d i f f e r e n t r e s u l t the municipality could e a s i l y by-pass the u l t r a v i r e s doctrine. But Wilson v. Surrey was c i t e d with approval by Hutcheon J.A. i n A.J. Seversen Inc. v. Qualicum Beach 7 2. This case i s very s i m i l a r to the Wilson case. The respondent, Seversen, a developer of a subdivision, had contributed to the costs of water services to the 7 t ( Unreported. See too, e.g., Minister of Agriculture and Fis h e r i e s v. Matthews. [1950] 1 K.B. 148; [1949] 2 A l l E.R. 724; the English cases are c o l l e c t e d i n Halsbury's Laws of England (4th ed), "Estoppel", sec. 1596; fo r Canada see: Town of Rosthern v. Burling and D.V.L.A. (1962), 33 D.L.R. (2d) 435 (Sask.). 7 1 [1981] 3 W.W.R. at p. 285. 7 2 [1982] 4 W.W.R. 374. 122 subdivision. Qualicum had established the p l a i n t i f f ' s o b l i g a t i o n by a resolution which l a t e r was found to be u l t r a v i r e s . As i n the Wilson case, Seversen was prima f a c i e e n t i t l e d to recover i t s payment. But again, with regard to "the t i e s of natural j u s t i c e and e q u i t y " 7 3 Qualicum could r e t a i n the money. The judge found: " I f i t were returned, the p l a i n t i f f would have received the water f o r i t s l o t s plus the money." 7 4 I t i s submitted that Wilson and Qualicum Beach misapply the doctrine of unjust enrichment. To repeat, i t i s doubtful whether the sa i d m u n i c i p a l i t i e s should be able to r e t a i n money which they could not have obtained under any by-law or r e s o l u t i o n 7 5 . Moreover, these cases introduce considerable uncertainty into the law of unjust enrichment. How can one predict judgments to be rendered by courts i f these courts are at l i b e r t y to consider 'the t i e s of natural j u s t i c e and equity' between the p a r t i e s i n every s i n g l e case ? I t i s not overlooked that courts - following the Wilson and Qualicum approach - have a wide d i s c r e t i o n and therefore s u f f i c i e n t f l e x i b i l i t y to reach the r e s u l t they consider j u s t . But, i t i s submitted, what the law of unjust enrichment needs, too, i s s t a b i l i t y and f o r e s e e a b i l i t y of i t s r e s u l t s . '* Ibid, at p. 381. 7 4 Ibid. 7 5 But c f . Hansford, F.W., (1984), 18 U.B.C.L.Rev. 177. 123 c) The detrimental element of change of p o s i t i o n Change of p o s i t i o n can be asserted i f the defendant i s , at l e a s t p a r t l y , not enriched anymore. But what i f the defendant, r e l y i n g on the enrichment, spent the money f o r instance on an expensive car which the defendant otherwise would not have been able to buy ? In Patterson Motors (1962) Ltd. v. R i l e y 7 6 i t was held that t h i s would amount to a detriment s u f f i c i e n t to create an e s t o p p e l 7 7 . I t i s l i k e l y that the court would have decided the case i n the same way i f i t would have applied change of p o s i t i o n . But i t cannot be said that the defendant, having spent her money i n such a way, i s not enriched anymore. Patterson Motors may be r e s t r i c t e d to i t s own facts as Purity Dairy Ltd. v. C o l l i n s o n 7 8 shows. There the defendant had spent the money mistakenly paid on h i s business and l i v i n g expenditures. But that was not enough to e s t a b l i s h e s t o p p e l 7 9 . Although the mistaken payments had been spent i t could be assumed that the defendant had saved money which he otherwise would have used. Therefore, the defence w i l l not operate i f the defendant, although he spent the p a r t i c u l a r amount of money paid by mistake, d i d not s u f f e r any detriment i n the o v e r a l l balance. '° (1966), 56 D.L.R. (2d) 278. 7 7 The car was s t i l l i n the possession of the defendant. 7 8 (1966), 58 D.L.R. (2d) 67. 7 9 (1966), 58 D.L.R. (2d) at p. 80 et seq. 124 I t has been said that the enriched person has to change h i s circumstances as a r e s u l t of the receipt of the enrichment 8 0. There i s not a b i g difference between t h i s formulation and the proposed one. In most cases the payee w i l l spend the enrichment, i f at a l l , as a r e s u l t of the rec e i p t . But i f one bears i n mind that change of p o s i t i o n i s the other side of the coin of unjust enrichment, i t i s clea r that a formulation l i k e the one i n Storthoaks imposed an unnecessary l i m i t on the defence. I f A mistakenly paid $100 to B and the money was stolen from B i t should be a good defence f o r B that he i s no longer enriched although he l o s t the money not as a r e s u l t of the r e c e i p t 8 1 . d) Change of p o s i t i o n only i f the enriched person i s bona f i d e The defence of change of p o s i t i o n should be denied to the enriched person i f t h i s person knew that i t was unjustly enriched. In t h i s case, the enriched person knew that he was under a l e g a l o b l i g a t i o n to make r e s t i t u t i o n . He should not ^ u Storthoaks v. Mobil O i l (1975), 55 D.L.R. (3d) 1 at pp. 13-14 [see quotation above]; c f . the formulation given by McCamus, Recovery of Money Paid, at p. 258. This opinion seemingly regards the defence of change of p o s i t i o n as a "loss through r e l i a n c e " defence, c f . Dawson, (1981) 61 B.U.L.Rev. 563 at p. 568. 1 Pro: Goff and Jones, op.cit.. p. 693; Scott, Gordon K., "Restitution From An Innocent Transferee Who Is Not A Purchaser For Value", 62 Harv.L.Rev. 1002-1020 at p. 1013 (1949); Annotation, 40 A.L.R. (2d) 997, at sec. 2[b] (1951). Contra: Woodward, F.C: The Law of Quasi-contracts (1913), sec. 30. 125 be allowed to avoid t h i s o b l i g a t i o n by giving away the enrichment 8 2. U n t i l now change of p o s i t i o n has been often formulated i n a s l i g h t l y d i f f e r e n t way. I t has been said that "[a]s a matter of general p o l i c y , the defence of change of p o s i t i o n ... ought only to be allowed i f the conduct of the r e c i p i e n t was not to r t i o u s and i f he was no more at f a u l t f o r the receipt or dealing with the subject matter than the claimant ( p l a i n t i f f ) was." 8 3 I t i s doubtful whether the weighing of the p a r t i e s ' f a u l t s should be undertaken at a l l . Such a formulation introduces considerable d i s c r e t i o n into the law of r e s t i t u t i o n the purpose of which i s not r e a l l y c l e a r 8 4 . On the one hand i t i s s e t t l e d law that negligence on the part of the p l a i n t i f f does not preclude r e c o v e r y 8 5 . On the other hand i f the payee fraudulently induced the payer to make the payment, he cannot defend himself with change of p o s i t i o n . But that i s not a matter of balancing the f a u l t s of the ^ Glidurray Holdings Ltd. v. V i l l a g e of Qualicum Beach (1980) , 118 D.L.R. (3d) 33, 25 B.C.L.R. 78; reversed on other grounds [1982] 1 W.W.R. 718 (C.A.). Confederation L i f e Association v. Merchants' Bank of Canada at pp. 71, 73. Restatement, sec. 142(3)(b). 3 Fridman and McLeod, Resti t u t i o n, p. 608; The statement seemingly has been taken from the Restatement. sec. 142(2). * Sec. 142(2) of the Restatement was c r i t i c i z e d by Goff and Jones, o p . c i t . . p. 694 n. 18 as "rather obscure q u a l i f i c a t i o n " . For an American c r i t i c i s m see Dawson, (1981) , 61 B.U.L.Rev. 563 at p. 571. 5 K e l l v v. S o l a r i (1841), 9 M.& W 54; 11 L.J.Ex. 10; 6 Jur. 107; 152 E.R. 24; Barclays Bank v. W.J. Simms Ltd.. [1980] Q.B. 677 at p. 686. 126 pa r t i e s but simply because the r e c i p i e n t knew from the very beginning that he was not e n t i t l e d to the payments "The governing c r i t e r i o n i s the defendant's good f a i t h throughout, and i n the app l i c a t i o n of t h i s standard the courts should not be misled by t a l k of negligence where the defendant, having no knowledge of the p l a i n t i f f ' s r i g h t to the property, could have no duty of care to the p l a i n t i f f . " 8 6 e) Change of p o s i t i o n before i t s formal acceptance I t i s in t e r e s t i n g to observe that the idea of change of po s i t i o n was applied even before the formal acceptance of the defence by the Supreme Court of Canada. One instance i s the decision of the B.C.S.C. i n Hazlewood v. West Coast Se c u r i t i e s L t d . 8 7 . Hazlewood, the p l a i n t i f f , went into an agreement with Hunter, one of the sales representatives of the defendant (and l a t e r one of i t s d i r e c t o r s ) . According to the agreement, Hunter undertook to invest $86,000 f o r Hazlewood. Hunter thereby purported to act f o r the defendant but he was not authorized to make such transactions and the court found that the defendant was not bound by Hunter's acts. The p l a i n t i f f paid the money to be invested into the defendant's general account out of which Hunter took $30,000 to discharge h i s own l i a b i l i t i e s incurred towards another of the defendant's c l i e n t s , Benson 8 6 Scott, Gordon K., "Restitution From An Innocent Transferee Who Is Not A Purchaser For Value", 62 Harv.L.Rev. 1002-1020 (1949), at p. 1020. 8 7 (1975), 49 D.L.R. (3d) 46; see too Mattinson v. Piercev Supplies Ltd. (1968), 3 N.S.R. 1965-69, 569. 127 Mines, Ltd. The r e s t of the money was used to pay debts which Hunter had towards the defendant i t s e l f . The question was whether the defendant was under an ob l i g a t i o n to return these amounts to the p l a i n t i f f as money had and received. The learned judge found that "there i s no doubt that the money of the p l a i n t i f f s got into the hands of the defendant without any intent on the part of the p l a i n t i f f s to make a g i f t to the defendant;" 8 8 [And further:] "The p l a i n t i f f s here paid the money to Hunter ...; Hunter paid i t to the defendant who innocently applied i t -at l e a s t i n part-i n reduction of Hunter's debt to them: as between the p l a i n t i f f s and the defendant i t seems against conscience that the defendant should r e t a i n these amounts so applied." [ F i n a l l y the judge held:] " I t i s obvious ... with respect to t h i s doctrine [of r e s t i t u t i o n ] , that i n t h i s case i t i s only those portions of the advances which have been used to reduce Hunter's indebtedness to the defendant which can be the object of an order of repayment. With respect to the portion of the advances used to pay other cr e d i t o r s to Hunter ... c l e a r l y the defendant has had no benefit and, although these moneys may have passed through i t s general account i t has not retained them or been enriched by them." 9 0 The judgment was upheld by the B.C.C.A.91. But i t may be asked whether i t i s precise to say that the defendant i n t h i s case was (unjustly) enriched only by those amounts "which have been used to reduce Hunter's indebtedness to the defendant" and to hold at the same time that i t obviously was not enriched by the funds which l a t e r were transferred to Benson Mines, Ltd. This might be correct as a statement of the f i n a l r e s u l t . But, to speak of the (1975) , 49 D.L.R. (3d) at p. 67. Ibid. . at p. 69. Ibi d . . at p. 70. (1976) , 68 D.L.R. (3d) 172. 128 enrichment only and leave the question of change of p o s i t i o n aside, i t seems more correct to say that the defendant was enriched by $86,000 because the whole amount had been paid i n t o i t s general account. I t i s true, $30,000 were l a t e r paid to Benson Mines, Ltd. But why d i d t h i s matter ? The fa c t that somebody spent the money which he mistakenly obtained can be taken into consideration only i f there has been an estoppel - or i f one accepted the change of p o s i t i o n r u l e . In the case here, there was no estoppel. There was no representation by Hazlewoods towards the defendant that i t could r e t a i n the money. There was no communication between them at a l l . Therefore, i t can be said that the judge applied i n substance what the change of p o s i t i o n r u l e expressly states. Not knowing that i t was not e n t i t l e d to the money, Westcoast changed i t s p o s i t i o n to i t s p r e j u d i c e 9 2 . f) Change of p o s i t i o n as a defence to a proprietary claim 9'* I t i s d i f f i c u l t to imagine many si t u a t i o n s which would give r a i s e to the defence of change of p o s i t i o n where the p l a i n t i f f would be able to trace h i s payment at law or i n equity. Normally, i f the enrichment can be traced into the I t should, however, not be overlooked that i t i s quite doubtful that Westcoast was enriched by the $86,000 at a l l ; c f . the arguments of the counsel f o r the defendant, (1975), 49 D.L.R. (3d) at p. 70. But t h i s chapter i s only concerned with the question of change of p o s i t i o n . Fridman and McLeod, Resti t u t i o n , p. 610. 129 hands of the defendant the l a t t e r can hardly contend that he i s not enriched anymore. However, because t r a c i n g at law w i l l be impossible as soon as money mistakenly paid i s mixed with other money, a s i t u a t i o n i n which change of p o s i t i o n may be claimed may a r i s e here. Moreover, change of p o s i t i o n could be claimed with respect to additional expenditures which the defendant incurred i n rel i a n c e on h i s r i g h t to the payment. As a matter of p r i n c i p l e , change of p o s i t i o n should be avai l a b l e against a proprietary claim too, taking into account the newer developments i n the law of constructive t r u s t s whereby v i r t u a l l y every mistaken payer may a v a i l himself of t h i s proprietary remedy. There does not seem to be any reason why the p l a i n t i f f ' s choice between a personal and a proprietary remedy should have any impact on the defences of the defendant. There i s an example fo r the a p p l i c a b i l i t y of change of po s i t i o n as a defence to a proprietary claim. In Re Diplock i t was held that the re c i p i e n t s of money mistakenly paid could avoid repayment of the money because they had changed t h e i r p o s i t i o n 9 4 . The court, i t i s true, d i d not express i t s e l f i n these terms but, at l e a s t i n substance, applied the defence. Lord Greene M.R. said f o r the court: [1948] Ch. 465 at pp. 548-549, affirmed [1951] A.C. 251 (sub nom. Ministry of Health v. Simpson) (H.L.). 130 "[T]he money [mistakenly paid] may not be capable of being followed. In every true sense, the money may have disappeared. 1 , 9 5 The court considered the facts and held f i n a l l y : "In the absence of authority to the contrary our conclusion i s that as regards the Diplock money used i n these cases i t cannot be traced i n any true sense; and, further, that even i f t h i s were not so, the only remedy avail a b l e to equity, v i z . , that of a declaration of charge would not produce an equitable r e s u l t and i s inapplicable a c c o r d i n g l y . " 9 6 Although i t i s arguable that the court allowed the change of p o s i t i o n defence too r e a d i l y 9 7 the decision i s authority f o r the a p p l i c a b i l i t y of the defence. 4. CHANGE OF POSITION IN THE USA Change of p o s i t i o n has long been accepted i n the U.S.A. The Restatement of Re s t i t u t i o n provides i n section 142(1): "The r i g h t of a person to r e s t i t u t i o n from another because of a benefit received i s terminated or diminished i f , a f t e r the receipt of the benefit, circumstances have so changed that i t would be inequitable to require the other to make f u l l r e s t i t u t i o n . " 9 8 I f the defendant knew that he had no r i g h t to the money mistakenly paid, he cannot be heard to argue that he changed h i s p o s i t i o n i n rel i a n c e on a payment to which he knew he *~ [1948] Ch. 465 at p. 547. 9 6 I b i d . . at p. 548. 9 7 Fridman and McLeod, Resti t u t i o n, p. 611. 9 8 Cf. Annotation, 40 A.L.R. (2d) 997: "What constitutes change of p o s i t i o n by payee so as to preclude recovery of payment made under mistake." (1955) 131 had no r i g h t " . This i s the p o s i t i o n of the Restatement, sec. 142(3), too: "Change of circumstances i s not a defence i f ... (b) the change occured a f t e r the r e c i p i e n t had knowledge of the facts e n t i t l i n g the other to r e s t i t u t i o n and had an opportunity to make r e s t i t u t i o n . " 1 0 0 Change of p o s i t i o n has been applied i n numerous cases, e.g., where dealings with a t h i r d party i n r e l i a n c e on the re c e i p t of the mistaken payment constituted the d e f e n c e 1 0 1 or where the mistaken payee had l o s t i t s r i g h t to recover from a t h i r d party due to the f a c t that the l a t t e r had gone out of b u s i n e s s 1 0 2 . In some instances courts have gone very f a r i n allowing the defence. Jonklaas v. S i l v e r m a n 1 0 3 provides an example for that. In t h i s case the p l a i n t i f f stockbrokerage firm with which the defendant maintained an account, erroneously credited the defendant's account with some shares and l a t e r with the money for which the shares had been sold. The t r i a l judge found that even though the defendant knew of the p l a i n t i f f ' s e r r o r he d i d nothing to correct i t . Therefore, the t r i a l judge refused the defendant's attempt to introduce a 9 See f e.g.. Western Casualty & Surety Company v. Kohm, 638 S.W.2d 798 (Mo.C.A.1982), at p. 801. 1 0 0 Where the l a s t clause ("and had an opportunity ...") came from i s , according to Professor Dawson, known only to the r e s t a t e r s ; Dawson, (1981) 61 B.U.L.Rev. 563 at p. 575, n. 37. Alexander Hamilton L i f e Ins. Co. v. Lewis, 550 S.W.2d 558 (Ky.Sup.Ct.1977). 1 0 2 Bank Saderat Iran v. Armin Beydoun. Inc.. 555 F.Supp. 770 (S.D.N.Y.1983). Cf., i n general, Dawson, (1981), 61 U.B.L.Rev. 563 at p. 568 et seq. 1 0 3 370 A.2d 1277, 117 R.I. 691 (R.I.Sup.Ct.1977). 132 evidence that a change of circumstances had taken place. This i s hardly s u r p r i s i n g because i t cannot be said that the defendant could change h i s p o s i t i o n bona f i d e i n r e l i a n c e on the mistaken payment i f he knew about the m i s t a k e 1 0 4 . More su r p r i s i n g i s the decision of the Supreme Court i n Jonklaas which remanded the case f o r a new t r i a l because of t h i s r e f u s a l of the t r i a l judge. The majority of the court, J o s l i n and Kelleher J J . dissenting, was obviously prepared to accept a defence of change of p o s i t i o n although the defendant had knowledge of the p l a i n t i f f ' s m i s t a k e 1 0 5 . I t i s submitted that courts should s t i c k more c l o s e l y to the basic requirements f o r change of condition, i . e . loss of enrichment of a bona f i d e r e c i p i e n t . But i n general the American decisions seem to provide a vast resource of j u d i c i a l experience upon which Canadian courts can draw. : Cf. Restatement, sec. 142(3)(b): "Change of circumstances i s not a defence i f the change occurred a f t e r the r e c i p i e n t had knowledge of the facts e n t i t l i n g the other to r e s t i t u t i o n and had an opportunity to make r e s t i t u t i o n . " ' Cf. Lake Gogebic Lumber Co. v. Burns. 331 Mich. 315; 49 N.W. (2d) 310; 40 A.L.R. (2d) 993 (Mich.Sup.Ct.1951) where the expenditures which gave r a i s e to change of p o s i t i o n had been incurred before the p l a i n t i f f had made i t s payments. 133 VI. THE GERMAN POSITION I t i s undisputed i n German law that the obl i g a t i o n to make r e s t i t u t i o n rests on the idea of unjust enrichment. The German C i v i l Code [BGB], i n i t s chapter on unjust enrichment, provides that " A person who without l e g a l j u s t i f i c a t i o n obtains anything from a person, whether by transfer, or otherwise at h i s expense, i s bound to give i t up to him." 1 Section 812 s p e l l s out the duty of r e s t i t u t i o n and distinguishes between cases where the defendant obtained something "by tra n s f e r " or "otherwise at h i s expense". The case of money mistakenly paid i s one of the most common examples under the f i r s t heading (which i s c a l l e d Leistungskondiktion or condictio i n d e b i t i ) . The p l a i n t i f f t ransferred money to the defendant which he now wants back. There i s one requirement i n section 812 para. 1 BGB which has to be met before r e s t i t u t i o n w i l l be granted: the tra n s f e r has to be "without l e g a l j u s t i f i c a t i o n " . Canadian lawyers w i l l be reminded of the 'three step t e s t ' , as set out by Dickson C.J.C, e s p e c i a l l y that, to grant r e s t i t u t i o n , there must be absence of any j u r i s t i c reason f o r the enrichment. But i t w i l l be observed as well that the code does not require the p l a i n t i f f to show that he acted under a mistake. 1 Sec. 812, para.1,1. Cf. the t r a n s l a t i o n by Weir i n 2 Zweigert, Konrad and Koetz, Hein: An Introduction To Comparative Law (Amsterdam 1977), pp. 210-211. 134 1. MISTAKE AS A GROUND FOR RESTITUTION ? Before the enactment of the German C i v i l Code i n 1900, a p l a i n t i f f who wanted to a v a i l himself of the condictio i n d e b i t i had also to prove that he had acted mistakenly 2. And as i n Common Law countries there was an issue whether a p l a i n t i f f who had acted under a mistake of law was e n t i t l e d to the remedy 3. But the drafters of the German C i v i l Code went one step further. The recognition that a l l cases of money paid under mistake of fact, money paid under mistake of law, money paid under compulsion, etc. are cases where money i s paid sine causa le d to the abandonment of the mistake requirement. Under the Code, the p l a i n t i f f has only to show that he paid the defendant and that there i s no le g a l j u s t i f i c a t i o n for the payment 4. Provisions of the law of contract determine whether there was some l e g a l j u s t i f i c a t i o n f o r the transfer at a l l or whether t h i s j u s t i f i c a t i o n has become subsequently i n v a l i d . "The law of u n j u s t i f i e d enrichment only moves i n when the i n v a l i d i t y of the underlying transaction has been determined by reference to other provisions [of the Code]." 5 ^ Cf. Koenig, Unaerechtfertigte Bereicherunq (Heidelberg 1985) p. 39 et seq. 4 Cases are included where o r i g i n a l l y there was a l e g a l j u s t i f i c a t i o n (a contract) f o r payment but which (because of rescission) does not sustain the payment anymore. Cf. 2 Zweigert and Koetz, op . c i t . . p. 238. 5 2 Zweigert and Koetz, OP.cit.. p. 211. 135 However, i f the p l a i n t i f f knew that he was not obliged to pay but paid nevertheless, r e s t i t u t i o n w i l l be denied 6. 2. THE ACTION OF THE RIGHTFUL PAYEE German law does not know the action of the r i g h t f u l payee as described above. As f a r as i t can be ascertained, there i s no case where a ' r i g h t f u l payee' t r i e d to claim a mistaken payment from the mistaken payee. In Germany, the r i g h t f u l payee would not be able to claim under the f i r s t a l t e r n a t i v e of sec. 812, para. 1,1 because the defendant has to make r e s t i t u t i o n to the transferor. According to the code, he who obtains anything from a person i s bound to give i t up to him. The second a l t e r n a t i v e of sec. 812, para. 1,1 does not help the r i g h t f u l payee either. Under t h i s a l t e r n a t i v e , the r i g h t f u l payee would have to show that the mistaken payee received the money at h i s expense which, i t i s submitted, he cannot. 3. REMEDIES IN REM Advantages which a mistaken payer can obtain under a constructive t r u s t are unavailable to mistaken payers i n Germany. Normally, r e s t i t u t i o n a r y claims w i l l not l i e ° This i s provided f o r by section 814 BGB. According to Sec. 814, r e s t i t u t i o n w i l l be denied, too, i f the payer was obliged on the grounds of morality. The burden of proof i s on the defendant to show that at the time of payment the p l a i n t i f f knew he was not bound to make i t , RGZ 133, 277. 136 against t h i r d persons into whose hands a mistaken payment has come7. There i s no p r i o r i t y f o r a mistaken payer i n the case that the payee becomes bankrupt. Nor i s there t r a c i n g i n t o other property which the payee acquired with money paid under mistake. According to the German law of insolvency the equal treatment of a l l c r e d i t o r s i s a paramount r u l e . But i t can be argued, that a mistaken payer i s distinguishable from a normal c r e d i t o r . While the l a t t e r undertook the r i s k of givi n g c r e d i t to h i s debtor, a mistaken payer i s i n a d i f f e r e n t p o s i t i o n . I f , f o r instance, someone wants to lend money to h i s business partner A, but by mistake pays another person B, he may have analysed the r i s k which he faces i n lending money to A. But he cannot foresee the creditworthiness of B. Or, to take another example, i f A and B enter into a contract and B advances money upon the contract, i t can be said that B has only himself to blame i f A becomes bankrupt and B loses h i s money. But what i f A fraudulently induces B to enter into the contract and B, again, advances money on the contract but thereafter i s allowed to rescind the contract ? Should B not be i n a preferred s i t u a t i o n to any other c r e d i t o r who has not been defrauded ? Or can i t be said that c r e d i t o r s should be able to claim money which t h e i r debtor acquired by fraud ? I t i s submitted that mistaken payers should have p r i o r i t y over 7 But there i s one exception. I f the r e c i p i e n t transferred the benefit by way of g i f t to a t h i r d person, the donee i s obliged to make r e s t i t u t i o n to the extent the donor has been thereby discharged; sec. 822 BGB. 137 normal c r e d i t o r s i f the mistaken payee becomes bankrupt. The d i f f i c u l t i e s of t r a c i n g l e d one German academic to the conclusion that the common law model of constructive t r u s t s should not be followed 8. Such a statement, however, should not lead to a complete dismissal of proprietary remedies but rather to t h e i r improvement. I t should be added that under German law the p o s i t i o n of a mistaken transferor of ch a t t e l i s d i f f e r e n t from the one of a mistaken payer. Here, i f the tran s f e r i s held to be i n v a l i d , the transferor can recover i n specie notwithstanding bankruptcy of the transferee. 4. CHANGE OF POSITION Change of p o s i t i o n i s an accepted defence to a r e s t i t u t i o n a r y claim under the German code, sec. 818 para. 3. A transferee (e.g., a payee who received money without l e g a l cause) i s released from h i s o b l i g a t i o n to r e s t i t u t i o n i n as much as he i s no longer enriched ("Wegfall der Bereicherung" 9). "In b r i e f , the p l a i n t i f f must bear the r i s k of a l l the events which negative or neutralize the economic benefit accruing to the defendant. This i s the •weakness* of the enrichment claim which i s so often r e f e r r e d to [ c i t a t i o n omitted]. For German lawyers, Koenig, o p . c i t . . p. 72. Dawson, (1981), 61 U.B.L.Rev. 271 at p. 273 translates "Wegfall der Bereicherung" as disappearance, termination or fading away of the enrichment. 138 indeed, i t i s the c h a r a c t e r i s t i c feature of enrichment l i a b i l i t y . " 1 0 A bona f i d e payee i s not obliged to surrender more than h i s surviving net gain or, i n other words, he i s not required to "reach into h i s own pockets" 1 1. To understand sec. 818 para. 3 better, i t should be added that, generally, i f (physical) r e s t i t u t i o n i s impossible f o r any reason, a mistaken transferee has to make up f o r the value of the enrichment: sec. 818 para. 2. For instance, i f services have been rendered, retransfer of these services i s impossible and they may have to be paid f o r . According to Zweigert and Koetz, "the underlying l e g i s l a t i v e idea [of sec. 818 para. 3] i s that the enrichment claim, being based simply on equity, should not cause any loss to the defendant [reference o m i t t e d ] . " 1 2 As w i l l be seen, change of p o s i t i o n i s a rather generous defence. The width of i t s a p p l i c a b i l i t y corresponds to the f a c t that a p l a i n t i f f does not have to show that he acted mistakenly. Once t h i s requirement was given up, which before the introduction of the BGB l i m i t e d the a p p l i c a b i l i t y of the condictio i n d e b i t i . i t was f e l t that the defendant should be given a broader defence 1 3. I t may be added that |y Zweigert and Koetz, op . c i t . . p. 252. 1 1 Quoted a f t e r Dawson, (1981), 61 U.B.L.Rev. 271 at p. 272. 1 2 Zweigert and Koetz, op . c i t . . p. 251. 1 3 Koenig, o p . c i t . . p. 20. This l i n k has been overlooked by Dawson, (1981), 61 U.B.L.Rev. 271 at pp. 274-5. There i s an issue i n whether change of p o s i t i o n should be l i m i t e d to the condictio i n d e b i t i , c f . Dawson, (1981), 61 U.B.L.Rev. 563 at p. 568, n. 16. 139 other c o d i f i c a t i o n s on the continent adhere to a d i f f e r e n t view. Since money may be used i n so many d i f f e r e n t ways, a payee i s taken to have benefited from the mere f a c t that he once had the money to h i s u s e 1 4 . To measure the loss of the enrichment, the estate of the payee has to be appraised at two stages, f i r s t , when the gain was acquired and secondly, when the payee learned that h i s payment was sine causa. Zweigert and Koetz give a comprehensive l i s t of examples where sec. 818 para. 3 has been applied by courts: "Thus the r e c i p i e n t ' s duty [of r e s t i t u t i o n ] i s terminated or diminished i f what he received i s destroyed, embezzled or confiscated; i f he lends the money he receives to a t r i c k s t e r or invests i t i n an i n d u s t r i a l enterprise which i s dismantled a f t e r the war; i f he makes a g i f t of the goods he r e c e i v e d 1 5 or s e l l s them at a l o s s ; i f he spends money on what he received i n the b e l i e f that he was e n t i t l e d to keep i t ; i f he increases h i s standard of l i v i n g , allows claims to prescribe, surrenders claims or assumes obligations from which he cannot free himself without l o s s . He may also set o f f the costs of a c q u i s i t i o n and r e s t i t u t i o n , e.g., brokerage charges, costs of unsuccessful execution, and expense of r i s k and r e t u r n . " 1 6 For the drafters of the BGB i t went without saying that a defendant i s also "not enriched anymore" i f he has incurred expenditures which he would not have incurred but f o r the mistaken payment 1 7. With respect to t h i s , German law Zweigert and Koetz, op . c i t . . p. 253. In t h i s case, exceptionally, there l i e s a claim against the donee, sec. 822 BGB. Zweigert and Koetz, op . c i t . . p. 252 [ a l l c i t a t i o n s omitted]. Cf. Dawson, (1981), 61 U.B.L.Rev. 271 at p. 278 et seq. Koenig, o p . c i t . . p. 61. 140 goes further than common law l e g a l systems do. But, to quote Professor Dawson, where loss resulted from j u s t i f i e d r e l i a n c e on the same transaction that produced a recoverable gain, there i s much to be said f o r allowing deduction of the l o s s from any r e s t i t u t i o n that i s awarded 1 8. The burden of proof i s on the defendant to e s t a b l i s h that the requirements f o r change of p o s i t i o n are met. Only the defendant can t e l l whether, i n re l i a n c e on the mistaken payment, he diminished or l o s t the enrichment. However, the burden of proof i s sometimes d i f f i c u l t to d i s c h a r g e 1 9 . The defence of change of p o s i t i o n i s not a v a i l a b l e a f t e r a r e s t i t u t i o n a r y claim has been i n s t i t u t e d (sec. 818 para. 4) or where the transferee was aware or l a t e r becomes aware that there was no l e g a l cause for the enrichment, sec. 819 para. 1. In other words, the defence i s only open to a bona f i d e r e c i p i e n t 2 0 . The courts, however, do not regard mere knowledge of the fa c t s , which render the l e g a l cause i n v a l i d , as s u f f i c i e n t f o r denying the defence 2 1. Section 818 para. 3 BGB i s , according to the German Supreme Court [BGH], not applicable i t a benefit was conferred under a contractual agreement which l a t e r turned out to be void. Dawson, (1981), 61 U.B.L.Rev. 563 at pp. 568-69. Dawson, (1981), 61 U.B.L.Rev. 271 at p. 283. This has been misunderstood by Dawson, (1981), 61 U.B.L.Rev. 271 at pp. 276, 572 and passim. Zweigert and Koetz, op. c i t . . p. 252. Dawson, (1981), 61 U.B.L.Rev. 271 at pp. 277-78. 1 4 1 Zweigert and Koetz have c r i t i c i s e d the German law and argued i n favour of the common law approach. Their c r i t i c i s m seems to be twofold. F i r s t , they say, i f change of p o s i t i o n i s accepted at a l l , "conduct and posture" of the pa r t i e s should be taken into account and not be "obscured by the accepted German law that enrichment i s simply an economic imbalance." 2 2 But t h i s c r i t i c i s m goes too f a r . On the one hand, the German c i v i l code distinguishes c l e a r l y between bona f i d e and mala f i d e r e c i p i e n t s . And on the other hand, sec. 818 para. 3, as applied by the courts, i s more than a mere mathematical c a l c u l a t i o n . Professor Koenig, f o r instance, has shown that sec. 818 para. 3 i s applied d i f f e r e n t l y according to the merits of a case. To give one example, i n the case of overpayments of income to employees, change of p o s i t i o n can be more e a s i l y established than i n the case of overpayment of money due under a sales c o n t r a c t 2 3 . S o c i a l considerations seemingly come into play i n favour of employees f o r who r e s t i t u t i o n would mean considerable hardship. Moreover, i n the normal course of events, employees r e l y on the statement of income by t h e i r employers and adjust t h e i r standard of l i v i n g a c c o r d i n g l y 2 4 . Ibid, at p. 261. Cf. Dawson, (1981), 61 U.B.L.Rev. 271 at pp. 272, 277, 300, 306. However, i t i s submitted, that Professor Dawson's analysis does not sustain h i s proposition. Koenig, o p . c i t . . p. 61 et seq. Cf. the B r i t i s h case of Avon County Council v. Howlett. [1983] 1 W.L.R. 605 (C.A.). 142 But the main thrust of argument by Zweigert and Koetz against change of p o s i t i o n i s that a payee of money mistakenly paid should bear the r i s k i f he uses the money i n a way that he cannot make r e s t i t u t i o n . A f t e r a l l , the payee made the decision how to spend the (mistaken) payment: "When i t comes to deciding which of the part i e s should bear the loss a t t r i b u t a b l e to events which diminish the enrichment, i t i s useful to bear i n mind that the re c i p i e n t should be responsible for economic decisions within h i s own sphere." "There i s therefore a v a l i d point i n the doctrine which s t i l l obtains i n many countries that the re c i p i e n t of money must always pay back the same amount ...." 2 5 But t h i s argument, again, does not sustain t h e i r conclusion. I t i s true, everyone should bear the normal r i s k s of the conduct of his a f f a i r s . But, i t i s submitted, t h i s argument applies to the mistaken payer as well. He made the mistake, gave h i s money away, and should be the f i r s t to blame i f the money i s l o s t . To overlook t h i s fact, would make, as Lord Goff and Professor Jones put i t , the r e c i p i e n t the insurer of the mistaken payer. However, the p o s i t i o n which t h i s paper takes, makes the weighing of the p a r t i e s ' f a u l t s superfluous. The obl i g a t i o n to r e s t i t u t i o n r ests on the idea of unjust enrichment and should be terminated i f the r e c i p i e n t i s no longer enriched. Zweigert and Koetz, OP.cit.. p. 262. 143 VII. CONCLUSION The idea of unjust enrichment provides the r a t i o n a l e f o r recovery of money mistakenly paid and, more generally, the law of r e s t i t u t i o n . Unjust enrichment does not clothe judges with such a wide d i s c r e t i o n as to lead to "palmtree j u s t i c e " but can be given a c l e a r l y defined shape. To e s t a b l i s h an action f o r recovery of an unjust enrichment there must be an enrichment, a corresponding deprivation, and the absence of any j u r i s t i c reason f o r the enrichment. I t i s no longer necessary to show that the p l a i n t i f f acted mistakenly. However, the f a c t that the p l a i n t i f f o r i g i n a l l y intended the defendant to r e t a i n the enrichment i n any event w i l l constitute a defence to a claim of unjust enrichment. Also, to obtain r e s t i t u t i o n there must be a corresponding deprivation. This does not, however, mean that one must e s t a b l i s h p r i v i t y between the p a r t i e s . The action of the r i g h t f u l payee i s a v a i l a b l e i n Canada as well as i n the U.S.A. but, i n the writer's opinion, should be abolished. Although a r e c i p i e n t of money mistakenly paid w i l l be unjustly enriched he w i l l be enriched neither at the expense of the intended payee nor " f a i r l y " at h i s expense. Therefore, there i s no corresponding deprivation which would give r i s e to a cause of action. An intended payee should be r e s t r i c t e d to the 144 action against h i s debtor and only the mistaken payer should have a r e s t i t u t i o n a r y action against the payee. Besides the personal action, a p l a i n t i f f can a v a i l himself of a proprietary remedy - the remedial constructive t r u s t . In contrast to general t r u s t law, there does not have to be a f i d u c i a r y r e l a t i o n s h i p between the p l a i n t i f f and defendant. Neither w i l l t r a c i n g be necessary. Consequently, a constructive t r u s t w i l l be somewhat l i k e a l i e n on the general assets of the defendants rather than on s p e c i f i c property mistakenly conferred on the defendant (unless a defendant can prove that he changed h i s p o s i t i o n ) . Of course, the general r u l e i s s t i l l applicable that a p l a i n t i f f may only a v a i l himself of a constructive t r u s t i f l e g a l remedies are inadequate. A mistaken payee w i l l be e n t i t l e d to the defence of "change of p o s i t i o n " i f he i s no longer enriched, provided he received the money bona f i d e and d i d not learn of h i s ob l i g a t i o n to make r e s t i t u t i o n before the change of po s i t i o n . Change of p o s i t i o n i s the other side of the coin of the unjust enrichment idea and should not be confused with the defence of estoppel although there may be some overlap between these defences. Change of p o s i t i o n does not mean that Courts obtain a wide d i s c r e t i o n to consider the equities between the pa r t i e s ; change of postion i s rather a narrow defence. A b r i e f examination of the German law contrasted with the common law shows that the German c i v i l law system has come to s i m i l a r r e s u l t s . However, as a major difference, a proprietary remedy l i k e the constructive t r u s t i s not ava i l a b l e to a mistaken payer under German law. 146 VIII. BIBLIOGRAPHY American Law I n s t i t u t e , Restatement of the Law of Re s t i t u t i o n (St.Paul 1937). American Law I n s t i t u t e , Restatement of the Law, Second. Re s t i t u t i o n . Tentative Draft No. 1 (Philadelphia 1983). Annotation, What Constitutes Change of Po s i t i o n by Payee so as to Preclude Recovery of Payment Made Under Mistake, 40 A.L.R.(2d) 997 (1955). Anson, William R., The Law of Contract (26th ed, by Guest, Oxford 1984). Beatson, J . and Bishop, W., Mistaken Payments i n the Law of Restitution, (1986), 36 U.of T.L.J. 149-185. Birks, Peter, An Introduction to the Law of R e s t i t u t i o n (Oxford 1985). Cohen, Henry, Change of Posit i o n i n Quasi-contracts, 45 Harv.L.Rev. 1333-1364 (1932). Davies, J.D., Shamia v. Joory. A Forgotten Chapter i n Quasi-contract, (1959), 75 L.Q.Rev. 220-233. Dawson, John P., Unjust Enrichment (Boston 1951). Dawson, John P., Erasable Enrichment i n German Law, 61 U.B.L.Rev. 271-314 (1981). Dawson, John P., R e s t i t u t i o n without Enrichment, 61 U.B.L.Rev. 563-621 (1981). Dobbs, Dan B., Handbook on the Law of Remedies (St.Paul 1973). Fridman, G.H.L. and McLeod, James G., R e s t i t u t i o n (Toronto 1982). Goff, Robert and Jones, Gareth, The Law of R e s t i t u t i o n (3rd ed, London 1986). Halsbury's Laws of England (4th ed, by Lord Hailsham of St. Marylebone, London 1973-1987). 147 Hanbury, Harold G. and Maudsley, Ronald H., Modern Equity (12th ed, by Martin, London 1985). Hansford, Frederick W., Book review on Fridman and McLeod, Restitution, and Klippert, Unjust Enrichment. (1984) 18 U.B.C.L.Rev. 177-188. Harpum, Charles, The Stranger as Constructive Trustee, (1986), 102 L.O.Rev. 114-162, 267-291. Hick l i n g , M.A., Labouring With Promissory Estoppel: A Well-Worked Doctrine Working Well ?, (1983), 17 U.B.C.L.Rev. 183-232. Jones, Gareth H., Change of Circumstances i n Quasi-Contract, (1957), 73 L.O.Rev. 48-64. Jones, Gareth H., Case note on Chase Manhattan Bank N.A. v. I s r a e l - B r i t i s h Bank (London) Ltd.. (1980), 39 Camb.L.J. 275-276. Keener, William A., A Treatise on the Law of Quasi- Contracts (New York 1893). Klipp e r t , George B., Unjust Enrichment (Toronto 1983). Klipp e r t , George B., The J u r i d i c a l Nature of Unjust Enrichment, (1980), 30 U.of T.L.J. 365-414. Koenig, Detlef, Ungerechtfertigte Bereicherung (Heidelberg 1985). Law Reform Commission of B r i t i s h Columbia, Report on Benefits Conferred Under a Mistake of Law (1981). Law Reform Commission of B r i t i s h Columbia, Report on Competing Rights to Mingled Property: Tracing and the Rule i n Clayton's Case (1983). Matthews, Paul, Money Paid Under Mistake of Fact, [1980] New L.J. 587-589. Maudsley, Ronald H., Proprietary Remedies f o r the Recovery of Money, (1959), 75 L.O.Rev. 234-252. McCamus, John D., Restitutionary Recovery of Money Paid to a Public Authority Under a Mistake of Law: Ignorantia J u r i s i n the Supreme Court of Canada, (1983), 17 U.B.C.L.Rev. 233-274. 148 McClean, A.J., Constructive and Resulting Trusts -Unjust Enrichment i n a Common Law Relationship -Pettkus v. Becker. (1982), 16 U.B.C.L.Rev. 155-184. McLeod, James G., Annotation to Pettkus v. Becker. (1981), 19 R.F.L. (2d) 166-170. Mockler, Eugene J . , Case note on Gladys Evans v. Minister of National Revenue. (1962), 40 Can.Bar Rev. 270-284. Needham, Caroline A., Mistaken Payments: A New Look at an Old Theme, (1978), 12 U.B.C.L.Rev. 159-224. Note, Must the Remedy at Law Be Inadequate Before a Constructive Trust W i l l Be Impressed ?, 25 St.John 1s L.Rev. 283 (1951). Oakley, A.J., Constructive Trusts (London 1978). Palmer, George E., The Law of R e s t i t u t i o n (Boston and Toronto 1978). Parker, David B. and Mellows, Anthony R., The Modern Law of Trusts (5th ed, London 1983). Pearce, Robert A., A Tracing Paper, (1976), 40 Conv. 277-291. P e t t i t , P h i l i p H., Equity and the Law of Trusts (5th ed, London 1984). Reynolds, J . , Countermand of Cheques, (1981), 15 U.B.C.L.Rev. 341-369. Scott, Austin W., The Law of Trusts (4th ed, by Fratcher, Boston and Toronto 1987). Scott, Austin W., Constructive Trusts, (1955), 71 L.O.Rev. 39-50. Scott, Gordon K., R e s t i t u t i o n from an Innocent Transferee Who i s not a Purchaser f o r Value, 62 Harv.L.R. 1002-1020 (1949). Seavey, Warren A. and Scott, Austin W., Notes on Certain Important Sections of Restatement of R e s t i t u t i o n (St.Paul 1937). Spencer Bower, George and Turner, S i r Alexander K., The Law Relating to Estoppel by Representation (3d ed, London 1977). Spry, I.C.F., Equitable Remedies (3d ed, Melbourne 1984) . Tettenborn, Andrew M., Mistaken Payment of Countermanded Cheques, [1980] New L.J. 273-274. Tettenborn, Andrew M., Case note on Chase Manhattan Bank N.A. v. I s r a e l - B r i t i s h Bank (London) Ltd., [1980] Camb.L.J. 272-75. Waters, Donovan W.M., Law of Trusts i n Canada (2d ed Toronto 1984). Woodward, Frederic C , The Law of Quasi-Contracts (Boston 1913). Zweigert, Konrad and Koetz, Hein, An Introduction to Comparative Law ( t r a n s l . by Weir, Amsterdam 1977)
Thesis/Dissertation
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Law
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Unjust enrichment and the recovery of money mistakenly paid
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