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BOOK VII UNJUSTIFIED ENRICHMENT

CHAPTER 2: WHEN ENRICHMENT UNJUSTIFIED

VII.2:101: Circumstances in which an enrichment is unjustified


(1) An enrichment is unjustified unless:
(a) the enriched person is entitled as against the disadvantaged person to the enrichment
by virtue of a contract or other juridical act, a court order or a rule of law; or
(b) the disadvantaged person consented freely and without error to the disadvantage.
(2) If the contract or other juridical act, court order or rule of law referred to in
paragraph
(1)(a) is void or avoided or otherwise rendered ineffective retrospectively, the enriched
person is not entitled to the enrichment on that basis.
(3) However, the enriched person is to be regarded as entitled to an enrichment by virtue
of a rule of law only if the policy of that rule is that the enriched person is to retain the
value of he enrichment.
(4) An enrichment is also unjustified if:
(a) the disadvantaged person conferred it:
(i) for a purpose which is not achieved; or
(ii) with an expectation which is not realised;
(b) the enriched person knew of, or could reasonably be expected to know of, the purpose
or expectation; and
(c) the enriched person accepted or could reasonably be assumed to have accepted that
the enrichment must be reversed in such circumstances.

VII.2:102: Performance of obligation to third person


Where the enriched person obtains the enrichment as a result of the disadvantaged
person performing an obligation or a supposed obligation owed by the disadvantaged
person to a third person, the enrichment is justified if:
(a) the disadvantaged person performed freely; or
(b) the enrichment was merely the incidental result of performance of the obligation.

Illustration 1
X, a customer of bank D, instructs the bank to transfer funds to the credit of E, a football
club of which X is the chairperson and to whom X is indebted. The bank makes a
payment to the credit of E in accordance with Xs instruction. D was mistaken at the time
of transfer as to Xs creditworthiness and would not have made the transfer if it had
known the true situation as regards the state of Xs financial arrangements. Nonetheless D
has no enrichment claim against E. Ds right to repayment of the money transferred is
exclusively against X, to whom D was contractually obliged to effect the transfer. That
Ds contractual claim against X may be worthless if X is insolvent does not affect the
matter.

Illustration 2
D is engaged by X, the vendor of computer equipment, to correct a defective installation
of pre-installed software on a network of computers sold by X to E and operating in Es
premises. After D has completed the work, but before any payment by X to D, X
becomes subject to insolvency proceedings. D has no enrichment claim against E because
any enrichment of E is the result of Ds performance of a contractual obligation to X to
perform to E. D is confined to a contractual claim against X, even if Ds claim against X
is virtually worthless. D took on this risk of insolvency when contracting with X.

Illustration 3
D contracts with X, a tenant of a building owned by E, to install a new heating system
and carries out the work. E may have been enriched in so far as under the applicable
property law the heating system may have become part of Es property. Even if the
contract between D and X is void or avoided (so that D has no contractual claim against
X for remuneration of the service provided), D still has no claim under enrichment law
against E, assuming there is nothing like fraud, threats or unfair exploitation affecting the
matter. Since Es enrichment results from D discharging an obligation to X, the
enrichment is justified in relation to E, as a third party to the obligation, even though the
obligation was of no effect. The enrichment is only unjustified in relation to X. D has an
enrichment claim against X.

Illustration 4
T is a tenant of land let by L. The rent is relatively low, but T is obliged under the terms
of the lease to renovate and convert a building on the land. T procures for this purpose
from bank B a loan which T intends to finance by sub-letting the land to third parties. The
loan is secured by a charge over the land granted by L. After the conversion of the
building is finished, L resolves to sell the land. T is agreeable to the sale provided the
loan is repaid out of the proceeds of sale. B releases the charge when L procures an
alternative security, namely a guarantee from bank X. In breach of the agreement with T,
L fails to pay off the loan. After unsuccessfully seeking re-payment from T, who has
defaulted on the loan, B successfully sues X on the basis of the guarantee. Y (the assignee
of X) has no claim under this Book against T, even though T is undoubtedly enriched by
Xs discharge of his debt to B (decrease in liabilities). However, X benefited T in the
performance of an obligation which X owed to L, L having procured the guarantee of Ts
debt as a replacement security. Having paid B, X (and thus Y as successor to Xs right)
had a contractual claim against L on the terms of the agreement under which X undertook
to L to enter into the guarantee of Ts debt to B.

Illustration 5
X instructs bank, D, to make a payment to Y. As a result of carelessness for which D is
solely responsible, D makes a corresponding payment to E instead of Y (though meaning
to pay Y). D may reclaim under this Book the money paid to E by mistake. E has not
been enriched by Ds compliance with an obligation to a third party (X) because D was
not required to pay E under the terms of the mandate.

Illustration 6
A debtor D granted a debiting facility to company C, a contractual creditor. Via its bank
B1, C causes Ds account at the bank B2 to be debited with certain sums. Because Cs
performance is sub-standard, D objects to the debit and, since the debit functions only on
the basis of ratification, B2 is obliged to credit Ds account, as B2 is obliged to do under
the terms governing the debit facility. However, under the terms of the inter-bank
framework agreement regulating the debit facility, B2 can no longer reclaim the sums
from B1: although D objected to the debit within the time period allowed under its
contract with B2, the debit was reversed after the expiry of the period provided for by the
framework agreement. B2 has a direct claim under this Book against C. B2s transfer
which benefited C was not made in performance of a contractual obligation to D since
there was no authorisation for the transfer (D not ratifying the debit). The enrichment of
C is not justified as against B2.

Illustration 7
D solemnly undertakes to X to pay 500 to E and subsequently performs the undertaking.
The undertaking is void as a binding promise if D lacks contractual capacity. In that case
D has an enrichment claim against E in respect of the payment. In view of Ds lack of
capacity, the enrichment is unjustified, notwithstanding that E is a third party to the
juridical act.

Illustration 8
X, who has stolen Es car, brings it to Ds garage. Supposing X to be the owner, D agrees
to effect various necessary repairs at usual rates. After completing the repairs, but before
the car is collected, the true situation emerges. X has absconded. D demands payment for
the services from E. Although D was contractually bound to X to render the service, the
contract is voidable for fraud and D avoids the contract. D may have an enrichment claim
against E. Admittedly any enrichment of E results from Ds performance of a contractual
obligation to X, but as that obligation is (retrospectively) without effect and as the
enrichment is obtained as a result of Xs fraudulent misrepresentation, the exception
applies and Es enrichment is not justified in relation to D.

Illustration 9
S has agreed to act as surety for Ms debt with the bank B1. Under the contract of
suretyship S authorises B1 to debit the debt, should it fall due, directly from Ss account
with bank B2. B1 acts on this debit authority. B2 pays B1, although the account of S is
not sufficiently in credit to cover the sum debited; S is insolvent. B2 has no enrichment
claim against B1. B2 has performed freely and rendered a contractual performance to S.
While B2 may not have checked whether Ss account was sufficiently in credit and would
not have paid B1 had it known the state of Ss account, this is merely a matter of error
and does not affect the fact that B2 performed freely.

Illustration 10
D concludes with X a contract for the purchase of a quantity of paper which is to be
imported by X from a manufacturer, Y. According to Ys specifications, which X has
passed on to D, the paper is suitable for use in printing. After the contract is concluded,
Xs right to payment of the purchase price by D is assigned to E and D is given notice of
the assignment. D pays the purchase price to E. It is later discovered that contrary to the
mutual assumption of D and X the paper is of an inferior grade and cannot be used for
printing. D avoids the contract on grounds of mutual mistake. D has no claim against E
under the law of unjustified enrichment for repayment of the price. Es enrichment is
justified because it resulted from Ds performance under Ds contract with X. It is
immaterial in this case that the contract was without effect. Ds unjustified enrichment
claim is against X.

Illustration 11
E contracts to purchase a quantity of sugar from X, who covers that contract with an
option for X to buy sugar from D. X exercises the option and orders D to deliver directly
to E. D makes the delivery to E. Even if Ds contract with X is without effect D has no
unjustified enrichment claim against E. Es enrichment is justified under this Article
because it is obtained as a result of Ds performance of a contractual obligation with X,
and E is a third party to that contract. D has only a claim against X.

Illustration 12
D, a debtor, pays the creditor, E. Unknown to D, E had earlier assigned the right against
D to the assignee X. E (having assigned the right) was not entitled to the enrichment from
D. D was mistaken in assuming the existence of an obligation to pay E, when it was in
fact X who was entitled to payment. However, D cannot demand a repayment from E.
Although D has not paid the creditor (X), D is nonetheless discharged from the
obligation: see III.5:118 (Performance to person who is not the creditor) paragraph (1).
D has discharged the obligation to the new creditor (the assignee X) in performing to the
former creditor (assignor E). Es enrichment is justified under this Article in relation to D.
Es liability is to X.

Illustration 13
As a result of Es negligence, Xs car is damaged. While the car is being repaired, X hires
a car from D. It is agreed that payment of hire charges will not be due until X takes action
against E to recover compensation. However, under the applicable national consumer
credit legislation, the agreement to postpone payment of the hire charges constitutes a
provision of consumer credit and the hire contract is unenforceable for want of
compliance with prescribed formalities. Consequently X is able to make use of the car
without any contractual or enrichment liability to D to provide recompense. As a result of
X being able to use the car hired from D without having to pay for that use, Xs
consequential loss arising from the damage to the car under repair is mitigated. It is
assumed that this correspondingly reduces the sum of compensation due from E to X in
respect of the negligent causation of the damage. E is therefore enriched by a decrease in
liabilities. D has ultimately conferred a benefit on E. However, Es enrichment is justified
in relation to D: E obtained the enrichment as a result of Ds discharge of a valid (though
unenforceable) obligation to X.

Illustration 14
X, the owner of a disused workshop, commissions D to clear it out and prepare it for a
change of use. As a result of an error (for which X is responsible) contained in the fax
sent to D, X provides D with the wrong unit number and D clears out and prepares
disused premises owned by E. E was not entitled to this enrichment either against D or
against X. However, Ds contract with X is valid as a contract to refurbish the premises
referred to in the fax (see inter alia II.7:201 (Mistake)) and D was therefore obliged to X
to provide this benefit. Ds enrichment of E is justified; it results from Ds discharge of an
obligation owed to X. Consequently D has a contractual claim against X, but no
enrichment law claim against E. Any enrichment liability of E will be to X: X did not
consent to the disadvantage (incurring a contractual debt to D) without error, because X
was mistaken as to the details of the performance due under the agreement.