D. Restitution under Ineffective Transactions

Author:John D. McCamus
Profession:Professor of Law. Osgoode Hall Law School, York University

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1) Introduction

As we have seen, restitutionary remedies may be available in the context of a contractual breach either to the innocent party or, indeed, to the party in default. Restitutionary remedies may also be available to parties in the context of transactions that are ineffective in the sense of being unenforceable for one of the various reasons canvassed in this volume.100The nature of the remedial device employed to achieve restitutionary relief depends, as a general matter, on whether the reason for the ineffectiveness of the agreement was developed by the courts of common law or the courts of equity. Where, for example, a contract is unenforceable because of failure to comply with the Statute of Frauds,101 courts of common law considered such agreements to be void. If benefits had been conferred by one party upon the other, the conferring party would be entitled to bring a common law restitutionary claim. Under traditional doctrine, the characterization of the claim would depend on the type of benefit conferred and would be referred to by the shorthand reference to the medieval writ employed historically to achieve restitution of the particular type of benefit conferred. Thus, claims for money paid to a defendant would lie in a claim for money had and received. Claims for money paid to a third party that had the effect of conferring a benefit on the defendant would lie in a claim for money paid. Claims for goods and services would lie in claims for quantum valebat and quantum meruit, respectively.

In cases where the reason for the ineffectiveness of the transaction was developed by the courts of equity, however, the agreement would be enforceable at common law and merely voidable, as opposed to void, in equity. An agreement that is voidable in equity can be set aside or

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rescinded on equitable grounds. One of the prerequisites of the availability of rescissionary relief, however, is that there can be a giving back and taking back of the value of benefits conferred on either party. As part of the rescissionary decree, then, orders are typically made to achieve that objective. In equity, then, restitution will be accomplished as part and parcel of the exercise of setting aside the agreement. In the typical case of a transaction void at common law, by way of contrast, the obtaining of restitutionary relief is independent from the determination that the contract is unenforceable at common law. The transaction is unenforceable regardless of whether a giving back and taking back of assets transferred is either possible or desired by the parties.

Although the distinction between void at common law and voidable in equity holds for many different kinds of ineffective transactions, the distinction between common law and equitable relief has been blurred in two particular contexts, those of misrepresentation and duress. In these contexts, though doctrines of common law recognized agreements induced by fraudulent misrepresentation or duress to be un-enforceable, such agreements were considered by common law courts to be voidable in the equitable manner rather than void.102

2) At Common Law

Broadly speaking, benefits conferred under agreements that are void for some reason at common law are recoverable in claims for money had and received, money paid, quantum meruit and quantum valebat. Taking as illustrative, claims for restitutionary recovery of money conferred under agreements void for failure to comply with the Statute of Frauds,103services rendered under such an agreement may be the subject of restitutionary recovery in a quantum meruit claim. The leading decision of the Supreme Court of Canada in Deglman v. Guaranty Trust Co. of Canada104is a case of this kind. A nephew who had provided services to his aunt on the faith of the latter’s unenforceable oral undertaking to leave real property to him in her will in return for the services rendered was allowed to recover their value in a restitutionary claim. Similarly, a purchaser of land under an unenforceable oral agreement to purchase land is entitled to recover money paid as a deposit or part payment in a claim for money had and received. Although it is sometimes suggested that such claims will fail where the plaintiff has

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already received a partial consideration and therefore cannot establish the requisite total failure of consideration,105it is unlikely that a contemporary Canadian court would apply such a requirement. Certainly, in cases where the claim is for the value of services rendered under an informal agreement, the partial receipt of consideration does not preclude recovery.106There is simply no convincing reason for denying recovery in a money claim rather than simply deducting the value of the benefit received from the award in cases of this kind. Indeed, Canadian courts have simply ignored the requirement in the informality context107and in the context of other kinds of agreements considered to be unenforceable at common law.108Although, as a matter of general principle, similar relief is available in the context of benefits conferred under agreements rendered void at common law for other reasons, the application of the principle does vary to some extent from one context to another. Thus, the rather detailed rules that have developed in the context of agreements unenforceable on grounds of illegality or frustration have been separately examined elsewhere in this volume.109

3) In Equity

Agreements that are voidable in equity on grounds of misrepresentation,110undue influence,111unconscionability112or on the basis of fundamental mistake113are vulnerable to an equitable decree of rescission that has the effect of setting aside the agreement and...

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