Unjust Enrichment

Unjust enrichment is a term used to describe a situation wherein one party benefits at the other party’s expense, in a situation the law considers to be unjust. Unjust enrichment is usually used to describe benefits that are received either accidentally or in error, but which have not been earned, and ethically should not be kept. Unjust enrichment is typically considered to be unfair, and those who are declared unjustly enriched are required by law to pay the other party restitution. To explore this concept, consider the following unjust enrichment definition.

Definition of Unjust Enrichment

Noun

  1. The state of being enriched unjustly

Origin of Enrichment

1620-1630       Middle English

What is Unjust Enrichment

When someone is said to have been “unjustly enriched,” this means that he has benefitted at someone else’s expense, due to chance or mistake. In such situations, the law of equity demands that the enriched party make restitution to the person who was injured. Consider the following example of unjust enrichment provided below:

Annie drops her two dogs off at the groomer to have both dogs clipped and cleaned. The groomer is able to clean and clip the first dog, but becomes too busy to get to the other dog before the end of the workday. Here, the groomer would be unjustly enriched if it received payment for both dogs, but only cleaned and clipped the one. Similarly, Annie would be unjustly enriched if she only paid for the one dog but received services for both.

The groomer may have breached the agreement that was reached with Annie, but the groomer is still entitled to keep the payment it received for clipping and cleaning the first dog. If Annie was to take the groomer to small claims court for the payment she made toward the second dog, she would be entitled to restitution – that is, her money back – for paying for a service she never actually received.

Examples of unjust enrichment are typically found in breach of contract lawsuits. Like the situation presented above, unjust enrichment usually results in situations where one party receives service or goods that is considered to be unfair. Other cases that may involve unjust enrichment are those that involve personal injuries or criminal violations.

Unjust Enrichment Elements

There are two unjust enrichment elements that must exist in order for an unjust enrichment claim to succeed:

  • Consideration – There must have been some consideration – a payment, or transfer of property, between the claimant and the defendant.
  • Unjust Factor – There must exist an unjust factor that spoiled the claimant’s initial intention in doing business in good faith with the defendant.

It is important to take both unjust enrichment elements into consideration when deciding whether or not someone was unjustly enriched, not just enriched. In order to decide whether or not enrichment was unjust, the unjust enrichment elements must be in sync with at least one of the below categories:

  • Duress: The claimant makes a transfer after being threatened or pressured into doing so.
  • Mistake: This is perhaps the simplest category to consider. If the claimant has made a payment to the defendant by mistake and seeks recovery, then he is entitled to restitution, regardless of whether the mistake was his fault.
  • Failure of Consideration: The claimant had initially intended to enrich the defendant, but outside factors caused that intention to disappear and yet the defendant benefitted anyway.
  • Undue Influence: The defendant benefits from abusing the relationship he had with the claimant and taking advantage of the claimant’s trust.

Remedies for Unjust Enrichment

There are two types of remedies for unjust enrichment: personal remedies and proprietary remedies. When a personal remedy is awarded, this means that the defendant is being ordered to pay the monetary value of the benefit he received. This is called “restitution,” and it is the most common remedies for unjust enrichment.

Proprietary remedies for unjust enrichment are available to those who, for example, have suffered damages after entering into a contract with someone who does not fulfill his obligations as agreed. It may also be awarded when the court declares that the defendant has an interest in specific property or asset of the defendant’s, which is providing him with some sort of benefit. While restitution may sound similar to compensation, there is actually a significant difference between these remedies for unjust enrichment.

Restitution or Compensation

Restitution is the amount of money that the unjustly enriched party made, and is ordered to pay back to the other party. Restitution may also be accompanied with the requirement that the enriched party return a particular item that he may have mistakenly obtained. For instance, if an unjustly enriched party is still in the possession of a car that he was supposed to have fixed, then he can be ordered to pay back the other party for the service he did not perform, as well as return the car.

Examples of unjust enrichment cases wherein restitution can be ordered include:

  • One party paying the other party money by mistake
  • The parties withdrawing or resolving an agreement, but the other party is still wrongly in possession of money and/or assets
  • One party providing goods or services to the other despite the parties never entering into a contract
  • One party settling another person’s debt at the other party’s request

Compensation, on the other hand, is an amount that is based on how much the aggrieved party lost, as opposed to how much the enriched party gained. Insofar as giving back a particular piece of property, the rules for compensation are slightly different. Here, the enriched party may be ordered to pay the other party for the value of the property that the enriched party came into possession of, or an amount based on some other type of economic loss.

For example:

Marybeth’s parents were busy business owners who decided that their oldest daughter should be responsible for doing the majority of the housekeeping chores, meal preparation, and shopping, in addition to caring for her two younger siblings – all while going to school full time. Marybeth even worked part time in her parents’ business for free after she was in high school. Marybeth did these things from the time she was 10 years old, on a continuing promise by her parents that they would leave their entire estate, which was substantial, to her.

Some years later – when Marybeth was nearly 30 – she had a disagreement with her parents. Because they were angry, the parents transferred all of their assets, including any future assets, into a trust for the benefit of themselves, and for their two younger children. This left Marybeth out in the cold as far as the estate went.

Marybeth sued her parents, claiming unjust enrichment, as they had persuaded her to do all of that work – work they should have been responsible for – using a promise of giving her everything they have upon their deaths. While the trial court concluded that the parents had indeed been unjustly enriched by Marybeth’s labors, it awarded her only about 25% of their current net estate, which amounted to about $190,000. In addition, the court set aside, or cancelled the trust as a fraudulent tool.

It is important to understand the difference between compensation and restitution, as this can affect the total amount that the enriched party is ordered to pay back to the aggrieved party. As such, compensation is more often found in cases that are standard breaches of contract without the added element of unjust enrichment.

Unjust Enrichment Example Involving Cable Advertisements

Rainbow Media Holdings, Inc. was the owner and operator of cable television networks. Basic Research, L.L.C. was a company that sold nutritional products and advertised those products on Rainbow’s networks through Icebox Advertising, Inc., an advertising agency. Despite Basic paying Icebox to place its ads on Rainbow’s networks, Icebox neglected to transfer some of those payments on to Rainbow.

Basic believed that Icebox was supposed to pay Rainbow in advance for all advertisements that were placed on Rainbow’s networks and, as such, gave Icebox the cash to do just that. However, it was ultimately revealed that Icebox did not always pay Rainbow in advance. Rainbow regularly allowed Icebox to pay up to 60 days after Rainbow invoiced Icebox for ads that had already run.

Icebox ultimately filed for bankruptcy, and Rainbow was able to recoup some of what it was owed for Basic advertising from Icebox’s bankruptcy estate. Rainbow then sued Basic for the remainder of what was owed, claiming unjust enrichment. Their argument was supported by their belief that they provided Basic with advertising that Basic did not pay for. Basic, however, believed they were all paid up, as they had been funneling their payments to Icebox as the middleman expected to pay Rainbow.

Both parties filed motions for summary judgment. The district court granted Rainbow’s motion and denied Basic’s, finding Basic liable for the missing payments. On appeal, the United States Court of Appeals for the Tenth District held that the district court erred in its decision. The Court found that Rainbow did not provide sufficient evidence that Icebox was properly authorized to purchase advertisements from Rainbow.

Further, the Court of Appeals held that Rainbow did not provide sufficient evidence that Basic was unjustly enriched by its advertisements running in spite of Rainbow’s not being paid for the ads. The Court reversed the district court’s grant of summary judgment for Rainbow and ordered on remand that summary judgment instead be entered for Basic on the claim of unjust enrichment.

Related Legal Terms and Issues

  • Claimant – A person who makes a claim, especially in a lawsuit.
  • Defendant – A party against whom a lawsuit has been filed in civil court, or who has been accused of, or charged with, a crime or offense.

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