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Cases and Materials

on Restitution

Peter D. Junger

Fall, 2000

September 11, 2000 Contents 1 An Overview of Restitution--Law 1

1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 On Getting a Cat . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

1.2.1 Livengood v. Markusson . . . . . . . . . . . . . . . . . . . 6 1.2.2 Notes to Livengood v. Markusson . . . . . . . . . . . . . . 7 1.3 Forms of Action and the System of Writs I . . . . . . . . . . . . 10

1.3.1 An Introduction to the Writ System . . . . . . . . . . . . 10 1.3.2 Praecipe Writs . . . . . . . . . . . . . . . . . . . . . . . . 13 1.4 A Case of Ejectment . . . . . . . . . . . . . . . . . . . . . . . . . 15

1.4.1 Roe v. Doe . . . . . . . . . . . . . . . . . . . . . . . . . . 15 1.4.2 Notes to Roe v. Doe . . . . . . . . . . . . . . . . . . . . . 20 1.5 Ejectment Again . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

1.5.1 Soffer v. Beech . . . . . . . . . . . . . . . . . . . . . . . . 21 1.6 Forms of Action and the System of Writs II . . . . . . . . . . . . 27

1.6.1 Law as an Evolutionary System . . . . . . . . . . . . . . . 27 1.6.2 Note on Debt/Detinue . . . . . . . . . . . . . . . . . . . . 32 1.7 A Case of Confusion . . . . . . . . . . . . . . . . . . . . . . . . . 33

1.7.1 Williams Management Enterprises, Inc. v. Buonauro . . 33 1.7.2 Notes on Williams Management Enterprises, Inc. v. Buo-

nauro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

1.8 An Action for Accounting . . . . . . . . . . . . . . . . . . . . . . 52

1.8.1 Johnson v. Covey . . . . . . . . . . . . . . . . . . . . . . 52 1.8.2 Notes to Johnson v. Covey . . . . . . . . . . . . . . . . . 53 1.9 An Action for Conversion . . . . . . . . . . . . . . . . . . . . . . 55

1.9.1 Welch v. Kosasky . . . . . . . . . . . . . . . . . . . . . . 55 1.9.2 Notes on Welch v. Kosasky . . . . . . . . . . . . . . . . . 58 1.10 An Action for Money Had and Received . . . . . . . . . . . . . . 60

iii

iv CONTENTS

1.10.1 Moses v. Macferlan . . . . . . . . . . . . . . . . . . . . . 60 1.10.2 Notes on Moses v. Macferlan . . . . . . . . . . . . . . . . 64 1.11 Forms of Action and the System of Writs III . . . . . . . . . . . 65

1.11.1 Stephen on Pleading . . . . . . . . . . . . . . . . . . . . . 65 1.11.2 A Note on Real Actions . . . . . . . . . . . . . . . . . . . 80 1.11.3 Law as an Evolutionary System . . . . . . . . . . . . . . . 80 1.12 Detinue, Conversion, and Assumpsit . . . . . . . . . . . . . . . . 100

1.12.1 Hambly v. Trott . . . . . . . . . . . . . . . . . . . . . . . 100 1.12.2 Notes to Hambly v. Trott . . . . . . . . . . . . . . . . . . 105 1.13 The Innocent Converter . . . . . . . . . . . . . . . . . . . . . . . 108

1.13.1 Railway Co. v. Hutchins . . . . . . . . . . . . . . . . . . . 108 1.13.2 Notes to Railway Co. v. Hutchins . . . . . . . . . . . . . 116 1.14 Conversion versus Goods Sold . . . . . . . . . . . . . . . . . . . . 118

1.14.1 Jones v. Hoar . . . . . . . . . . . . . . . . . . . . . . . . 118 1.14.2 Notes on Jones v. Hoar . . . . . . . . . . . . . . . . . . . 119 1.15 Limitation Period for Conversion . . . . . . . . . . . . . . . . . . 120 1.16 Genetic Material and Information . . . . . . . . . . . . . . . . . . 139

1.16.1 Moore v. Regents . . . . . . . . . . . . . . . . . . . . . . . 139 1.16.2 Notes on Moore v. Regents . . . . . . . . . . . . . . . . . 175 1.16.3 FMC Corp. v. Capital Cities/ABC, Inc. . . . . . . . . . . 180 1.17 Use and Occupation . . . . . . . . . . . . . . . . . . . . . . . . . 187

1.17.1 Edwards v. Lee's Administrator . . . . . . . . . . . . . . . 187 1.17.2 Raven Red Ash v. Ball . . . . . . . . . . . . . . . . . . . . 199 1.17.3 Notes on Raven Red Ash v. Ball . . . . . . . . . . . . . . 207 1.18 Forms of Action and the System of Writs IV . . . . . . . . . . . 211

1.18.1 More on Law as an Evolutionary System . . . . . . . . . . 211 1.18.2 Keener on Quasi-Contract . . . . . . . . . . . . . . . . . . 215 1.18.3 Ames on the Evolution of Assumpsit . . . . . . . . . . . . 230

1.18.3.1 Ames on Express Assumpsit . . . . . . . . . . . 230 1.18.3.2 Ames on Implied Assumpsit . . . . . . . . . . . 239 1.18.4 The Historical Evolution of the Forms of Action . . . . . 256

2 An Overview of Restitution--Equity 271

2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271 2.2 A Constructive Trust . . . . . . . . . . . . . . . . . . . . . . . . . 271

2.2.1 Nebraska National Bank v. Johnson . . . . . . . . . . . . 271 2.2.2 Notes on Nebraska National Bank v. Johnson . . . . . . . 275

September 11, 2000

CONTENTS v

2.3 Can a Murderer Profit from his Crime? . . . . . . . . . . . . . . 276

2.3.1 Riggs v. Palmer . . . . . . . . . . . . . . . . . . . . . . . 276 2.3.2 Notes on Riggs v. Palmer . . . . . . . . . . . . . . . . . . 283 2.4 Excerpts from F.W. Maitland, Equity . . . . . . . . . . . . . . . 286 2.5 A Constructive Trust with No Wrongdoing . . . . . . . . . . . . 301

2.5.1 Chinchurreta v. Evergreen Management, Inc. . . . . . . . 301 2.5.2 Notes on Chinchurreta v. Evergreen Management, Inc. . . 304 2.6 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304

2.6.1 American Ins. Co. v. City of Milwaukee . . . . . . . . . . 304 2.6.2 Notes on American Ins. Co. v. City of Milwaukee . . . . . 308 2.7 A Case of Getting One's Just Desserts . . . . . . . . . . . . . . . 312

2.7.1 Norton v. Haggett . . . . . . . . . . . . . . . . . . . . . . 312 2.8 Tracing in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 314

2.8.1 Mass. Bonding & Ins. Co. v. Josselyn . . . . . . . . . . . 315 2.8.2 Note to Mass. Bonding v. Josselyn . . . . . . . . . . . . . 319 2.8.3 Republic Supply Co. v. Richfield Oil Co. . . . . . . . . . . 319 2.8.4 Notes to Republic Supply Co. v. Richfield Oil Co. . . . . . 325

3 Restitution and Government 327

3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327 3.2 Indian Land Claims . . . . . . . . . . . . . . . . . . . . . . . . . 328

3.2.1 Oneida Indian Nation of New York v. County of Oneida 328 3.2.2 Notes on Oneida Indian Nation . . . . . . . . . . . . . . . 334 3.2.3 County of Oneida v. Oneida Indian Nation . . . . . . . . 336 3.2.4 Notes on County of Oneida . . . . . . . . . . . . . . . . . 348 3.3 Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . . . . . 350

3.3.1 A Note on Eminent Domain . . . . . . . . . . . . . . . . . 350 3.3.2 United States v. Miller . . . . . . . . . . . . . . . . . . . 352 3.3.3 Notes on United States v. Miller . . . . . . . . . . . . . . 358 3.3.4 United States v. Causby . . . . . . . . . . . . . . . . . . . 360 3.3.5 Notes on United States v. Causby . . . . . . . . . . . . . 364 3.3.6 Boomer v. Atlantic Cement Co. . . . . . . . . . . . . . . 366 3.3.7 Notes on Boomer v. Atlantic Cement Co. . . . . . . . . . 372 3.4 Mistaken Payments to Governments . . . . . . . . . . . . . . . . 373

3.4.1 A Note on Payments Made by Mistake to Governments . 373 3.4.2 Maricopa County v. Leppla . . . . . . . . . . . . . . . . . 374 3.5 When the Government Seeks Restitution . . . . . . . . . . . . . . 377

vi CONTENTS

3.5.1 Unfaithful Fiduciaries . . . . . . . . . . . . . . . . . . . . 377

3.5.1.1 City of Jersey City v. Hague . . . . . . . . . . . 377 3.5.1.2 Notes on City of Jersey City v. Hague . . . . . . 391 3.5.1.3 United States v. Carter . . . . . . . . . . . . . . 392 3.5.1.4 Notes on United States v. Carter . . . . . . . . . 406 3.5.1.5 Snepp v. United States . . . . . . . . . . . . . . 407 3.5.1.6 Notes on Snepp v. United States . . . . . . . . . 416 3.5.2 Regulatory Restitution . . . . . . . . . . . . . . . . . . . . 418

3.5.2.1 Porter v. Warner Holding Co. . . . . . . . . . . 418 3.5.2.2 Notes on Porter v. Warner Holding Co. . . . . . 423 3.5.2.3 S.E.C. v. Texas Gulf Silver Co. . . . . . . . . . . 425 3.5.2.4 Citronelle-Mobile Gathering, Inc. v. Herrington 428

4 Restitution as a Remedy for Wrongs 447

4.1 Restitution and the Limitation of Actions . . . . . . . . . . . . . 447

4.1.1 H. Russell Taylor's Fire Prevention Service, Inc., v. Coca

Cola Bottling Corp. . . . . . . . . . . . . . . . . . . . . . 447

4.1.2 Notes on Taylor's Fire Prevention Service . . . . . . . . . 459 4.1.3 Waters v. Hoadley . . . . . . . . . . . . . . . . . . . . . . 463 4.1.4 Note on Waters v. Hoadley . . . . . . . . . . . . . . . . . 466 4.2 When There Is No Tort to Waive . . . . . . . . . . . . . . . . . . 467

4.2.1 Artukovich v. Reliance . . . . . . . . . . . . . . . . . . . . 467 4.2.2 Note on Artukovich v. Reliance . . . . . . . . . . . . . . . 469 4.3 The Inocent Converter . . . . . . . . . . . . . . . . . . . . . . . . 470

4.3.1 Creach v. Ralph Nichols Co. . . . . . . . . . . . . . . . . . 470 4.3.2 Note on Creach v. Ralph Nichols Co. . . . . . . . . . . . . 475 4.4 Real Estate Brokers . . . . . . . . . . . . . . . . . . . . . . . . . 476

4.4.1 Allen v. Powell . . . . . . . . . . . . . . . . . . . . . . . . 476 4.4.2 Notes on Allen v. Powell . . . . . . . . . . . . . . . . . . 483 4.4.3 Ward v. Taggart . . . . . . . . . . . . . . . . . . . . . . . 483 4.4.4 Harper v. Adametz . . . . . . . . . . . . . . . . . . . . . . 488 4.4.5 Note on Harper v. Adametz . . . . . . . . . . . . . . . . . 493 4.5 The Case of the Egg-Washing Machine . . . . . . . . . . . . . . . 493

4.5.1 Olwell v. Nye & Nissen Co. . . . . . . . . . . . . . . . . . 493

September 11, 2000

CONTENTS vii 5 Contracts, Volunteers, and Mistakes 499

5.1 Cases Relating to Contracts . . . . . . . . . . . . . . . . . . . . . 500

5.1.1 Vickery v. Ritchie . . . . . . . . . . . . . . . . . . . . . . 500 5.1.2 Notes on Vickery v. Ritchie . . . . . . . . . . . . . . . . . 504 5.1.3 Murdock -Bryant Construction, Inc. v. Pearson . . . . . . 508

5.1.3.1 In the Arizona Court of Appeals . . . . . . . . . 508 5.1.3.2 In the Arizona Supreme Court . . . . . . . . . . 517 5.2 Of Volunteers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 524

5.2.1 Kershaw v. Tracy Collins Bank & Trust Co. . . . . . . . 524 5.2.2 Aldebot v. Story . . . . . . . . . . . . . . . . . . . . . . . 528 5.2.3 Biggerstaff v. Vanderburgh Humane Society, Inc. . . . . . 529 5.3 Services Supplied in an Emergency . . . . . . . . . . . . . . . . . 531

5.3.1 In re Crisan Estate . . . . . . . . . . . . . . . . . . . . . . 531 5.4 Cases Involving Mistakes . . . . . . . . . . . . . . . . . . . . . . . 535

5.4.1 Duncan v. Akers . . . . . . . . . . . . . . . . . . . . . . . 535 5.4.2 Monroe Financail Corp. v. Disilvestro . . . . . . . . . . . 542

viii CONTENTS

September 11, 2000 Chapter 1 An Overview of Restitution--Law

1.1 Introduction The question: "What is `restitution' ?" can most easily be answered by the unhelpful statement that restitution is what this book is about, the Restate- ment of Restitution is about, and the four volumes of G. Palmer, The Law of Restitution are about. You have, after all, studied Torts and Property; but can you answer the question: "What is `torts' ?" or "What is `property' ?" Some- times the only possible way of defining something is to show examples of it, and that is probably true of `restitution'. This introductory chapter will, therefore, consist primarily of exemplary cases--including some really horribly mistaken ones--involving restitution in order to give you a feel for the subject.

You will, however, probably need some background information if you are to make sense of the examples, background information that you are unlikely to have acquired in the law courses that you have studied up to now.

The American Association of Law Schools, the body responsible for catego- rizing how things fit into the law--or, at least, into the curricula of law schools-- considers a course in Restitution to be a course in Remedies, and Remedies are not classified as part of the substantive law. If you take this categorization seriously--and I am not sure that you should--you will probably conclude that Restitution is somehow related to Procedure, that frustrating subject without any defined subject matter. It is related to procedure, of course; but then so is every area of the law, even substantive areas like Contracts, Torts, and Property. Procedure is how the law works, and a knowledge of that is far more important to a lawyer than knowing what the law is. By that distinction Restitution is clearly procedural. Restitution is about how one gets something.

On the other hand, many of the cases in this book do involve Contracts or Torts. I have at times, in fact, claimed that many traditional Restitution courses

2 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW could equally well be called: "What You Always Wanted to Know about Con- tracts but Were Afraid to Ask." The beauty of Restitution is that it allows one to answer questions and solve problems--real problems afflicting real clients--in a way that is not possible if all that one knows is the substantive law relating to the traditonal categories of tort, and perhaps, contract.

Consider, for example, the problem that arose in Vickery v. Ritchie

: Be-

cause of a fraud by their architect--who was dead, or in Argentina or something like that, and could not be sued--Ritchie signed a "contract" in which he agreed to pay Vickery $ 23,200 in consideration for Vickery's agreeing to construct a Turkish bath house on Ritchie's land, while Vickery signed a nearly identical "contract": the only difference was that in Vickery's version Ritchie was to pay $ 33,721 for the work.

Now anyone one who has studied contracts is going to conclude that that "contract" was no contract, for there was no "meeting of the minds". That's not the problem.

The problem is: Can Vickery get paid for his work? And if so, how much? That is the kind of real problem that real clients care about. And that is one example of one of the many problems that we study in a course in Restitution.

But Restitution is not particularly about contracts. If you were to ask me, I would say that, if it is about any recognized substantive area of the law, it is about Property. And as you read these cases and materials, I think that you will come to agree with me.

The Restaters and Professor Palmer, on the other hand, strongly suggest that Restitution is about Unjust Enrichment, a not very well recognized sub- stantive area of the law. Consider, for example, this statement from the Preface to Professor Palmer's great treatise: "Restitution has no well-defined bound- aries because it is concerned with unjust enrichment, and that can appear in many places over almost the entire body of private law as well as in some parts of public law."

And the Restaters define the scope of the The Restatement of

Restitution as follows: "The Restatement of this Subject deals with situations in which one person is accountable to another on the ground that otherwise he would unjustly benefit or the other would unjustly suffer loss."

So who, you must be wondering, is right: Is Restitution about Remedies or about Unjust Enrichment or even, as I have suggested, about Property?

Unfortunately, the only answer I can give to your question is: "Yes". But even that straightforward answer has to be qualified. The word `remedy' means a cure, and a cure implies some injury that needs curing. But there are many so-called remedies that do not purport to cure

202 Mass. 247, 88 N.E. 835, 26 L.R.A. (n.s.) 810 (1909).

1 George E. Palmer, The Law of Restitution, Preface (1978) (hereinafter "Palmer").

Restatement of Restitution 1 (1937) (hereinafter "Restatement").

If, as that quotation from the Restatement seems to say, Restitution deals with liability on the ground that the plaintiff would otherwise unjustly suffer loss, then how does Restitution differ from Torts or Contracts?

September 11, 2000

1.1. INTRODUCTION 3 any injury whatsoever: "equitable remedies", for example, typically are used to prevent an injury, not to cure one. It is for this reason that, as Langdell-- that notorious inventor of the "Case Method", who wonderfully misconceived what equity is all about--points out, "In equity the term `relief' is commonly used instead of `remedy'; and, though relief is a much more technical term than remedy, it has the advantage of being equally applicable to all the different modes of protecting rights."

Restitution is not directly concerned with curing

wrongs;

it enforces rights.

Since restitutionary relief has nothing necessarily to do with curing an injury I get a little uncomfortable when people classify Restitution under the heading of Remedies. Of course, in many cases restitution does happen to `cure' an injury suffered by the plaintiff; but in many other cases where restitutionary relief is granted, the plaintiff has suffered no injury, so there is nothing to be cured, and even when the plaintiff has suffered an injury, the recovery in restitution may be more (or less) than the amount of the plaintiff's damages. For this reason I would prefer to limit the term `remedies' to damages (and to that rather rare form of relief that Langdell calls "Specific Reparations").

A more important qualification has to do with concept of "unjust enrich- ment". In the first place, not all restitution cases can be explained on this basis. For example, the Restatement contains the following confusing comment:

[A] person who has been unjustly deprived of his property or its value or the value of his labor may be entitled to maintain an action for restitution against another although the other has not in fact been enriched thereby. Thus, a person who refuses to return goods for which he innocently paid full value to a thief is liable to the owner for their full value, not only in an action of tort, but also in the quasi-contractual action of general assumpsit. Likewise, a physician who attends and skillfully but unsuccessfully treats an unconscious woman, the victim of an accident, is entitled to recover the value of his services from her husband or, under some circumstances, if she dies, from her estate, although she was spared no pain and the husband or the estate was spared no expense.

As we shall have occasion to see, this comment can be read in a seriously 4

C. Langdell, Brief Survey of Equity 19 (1908).

Nor is it normally concerned with preventing wrongs. A suit to prevent a wrong usually

seeks the form of equitable relief that is known as an injunction: an order by a court of equity commanding the defendant to do--or refrain from doing-something. Injunctions--especially aAErmative injuctions--are also often used as a means of obtaining specific restitution.

In particular, the right to get something.

The leading case involving specific reparations (not that there are many cases following

it) is Vane v. Lord Barnard, 2 Vern. 738 (1716), where a life tenant of a castle was required to repair it, after he deliberately wasted it to spite his son, the remainderman.

Restatement x 1, comment e.

4 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW misleading fashion. In all the examples given it should be noted that the defen- dant did actually get something, either the goods or the services, even though one could argue that the defendant was not actually enriched in an accounting sense. (By the way, did you notice a certain sexist attitude in the last sentence of the quoted comment?)

There are, furthermore, other restitution cases that involve impoverishment rather than enrichment. Consider, for example, the not unusual

problem that

arose in Bell v. Carver

where the plaintiff was awarded restitution of the fair

market value of his work, labor and services in nearly installing an air conditioner in the defendant's building. The problem was that the building burned down before the work was finished. Unless the owner of the building was over-insured (and there was no evidence of that), I think that you will agree that he was not, in any ordinary sense of the word, enriched by the plaintiff's work, which had come to nothing.

The important point is that there are some restitution cases that cannot be explained--at least not without a lot of perverse logic chopping--on any theory of unjust enrichment. Historically actions for restitution were not based on any theory of unjust enrichment: the plaintiff sought restitution of the plaintiff's property that had somehow gotten into the defendant's possession, and no claim was made that the defendant had been unjustly enriched. No such claim could be made under the old writ system. The writ with which the plaintiff started his action was a standardized form and there were no blanks in it where the plaintiff could stick in any surplusage about unjust enrichment.

Now you can begin to see why I think that Restitution has a lot to do with Property.

I must admit, however, that the concept of Property has no more power to explain all restitution cases than does the concept of Unjust Enrichment, for there are undoubtedly a few restitution cases that cannot profitably be explained on a theory either of Property or Unjust Enrichment. On the other hand, many Unjust Enrichment cases can also be interpreted as Property cases: one of the standard techniques that the courts have developed to deal with unjust enrichment is to decree that the benefit received unjustly by the defendant actually is the property of the plaintiff.

Restitution, as I have said, deals with the forms of relief that are based 9

For a discussion of other cases involving this same problem, see Annotation, Liabilities

or Risks of Loss Arising Out of Contract for Repairs or Additions to, or Installations in, Existing Building Which, Without Fault of Either Party, Is Destroyed Pending Performance, 28 A.L.R. 3d 788 (1969).

245 Ark. 30, 431 S.W.2d 452, 28 A.L.R. 3d 781 (1968).

This, by the way, is another example of the types of real problems, afflicting real clients,

that we study in this course in Restitution.

This technique, of course, raises a question that is fundamental to Property courses: How

are property rights acquired?

September 11, 2000

1.1. INTRODUCTION 5 on rights,

not on wrongs, forms of relief--remedies, if you like--that tend to

be overlooked by our modern insistence that all there is to private law can be classified under the headings of Tort and Contract. As Palmer has said:

It has been traditional to regard tort and contract as the two princi- pal sources of civil liability at common law, although liability arising out of a fiduciary relationship has developed largely outside these two categories. There is another category that must be separated from all of these; this is liability based in unjust enrichment. In particu- larized form this has been a part of our law from an early time, but it has been slow to emerge as a general theory. In present Ameri- can law, however, the idea of unjust enrichment has been generally accepted and widely applied.

So one can say that Restitution is some sort of amalgam of Remedies, Prop- erty, and Unjust Enrichment. But that really doesn't give you much help in understanding what Restitution is, now does it? But then I don't see that there is any serious need to know what Restitution is.

I happen to be a firm adherent to the position that general theories about, and simple definitions of, any interesting subject are worthless, or even dan- gerous, unless you already know a great deal about the subject. Take the Rule Against Perpetuities: "To be valid, an interest must vest, if it vests at all, within lives in being plus twenty-one years and any necessary period of gestation." If you know nothing about the Rule, then knowing the words of the Rule is not going to help you a bit. If you know a little bit about the Rule, then you are dangerous. And if you know a lot about the Rule, then you do not need to know the words of the Rule--though you probably, in fact, will know them.

This makes me a mite reluctant to tell you the Key to Restitution.

But here, for what its worth, is the Key to Restitution:

An action or suit for restitution is always an action or suit to recover something that the defendant has (or, at least, once had ), differing from damages and specific reparations in that the latter actions are used to make good something that the plaintiff has lost.

Now that raises a lot of questions, questions that we shall explore throughout this course. The first question to be considered, however, is ontological: "What sort of a thing can be recovered in a restitutionary action?"

Well, it could be almost anything. It could, for example, be a cat.

Rights can, of course, be further classified; for example, into civil rights, property rights,

contract rights, and rights based on unjust enrichment.

1 Palmer 1-2.

I am also reluctant because the Key is my own discovery and I really can't be sure that

it will work for you.

6 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW 1.2 On Getting a Cat 1.2.1 Livengood v. Markusson

Livengood v. Markusson 31 Ohio App. 183, 164 N.E. 61

(1928)

Error: Court of Appeals for Summit county. Mr. O.H. Corvington, for plaintiff in error. Mr. Robert I. Azar, for defendant in error. By the Court. This is a proceeding in error in which it is sought to reverse the judgment of the municipal court of Akron, rendered in a replevin suit brought by plaintiff, Emma Livengood, to recover the possession of a pet cat from the defendant, Mrs. Neal Markusson. The trial court determined that the owner of a pet cat does not have a property right therein so as to entitle him to recover the possession of the cat by replevin proceedings; and the only question submitted to us for consideration is whether or not the trial court was right in that conclusion.

The authorities generally support the proposition that at common law the owner of a domesticated cat or dog had such a property right therein as entitled him to maintain a civil action of the wrongful taking, killing, or injuring of the same.

In the case of State v. Lymus, 26 Ohio St., 400, 20 Am. Rep., 772, it was decided that a dog was not the subject of larceny, but it was therein recognized that the right of property in dogs was protected by civil remedies at common law. And in a recent case, to wit, Hill v. Micham, 116 Ohio St., 549, 157 N.E., 13, it was held that the statutes of Ohio in reference to the registration and listing of dogs for taxation do not create a right of property therein, but that, "apart from statutory provisions, it is generally held than an injury to or wrongful killing of a dog is such an invasion of property as amounts to a civil injury, which may be redressed by a civil action;" and that this "doctrine is the rule at common law, and is supported by a large number of decisions from other states."

The holding in the latter case disposes of the question presented in the case at bar; the trial court was wrong in determining that the owner of a domesticated cat does not have a property right therein which is protected in this state by civil remedies.

The judgment of the municipal court is therefore reversed, and the cause remanded for trial.

Judgment reversed and cause remanded. Washburn, P.J., Funk and Pardee, JJ., concur.

September 11, 2000

1.2. ON GETTING A CAT 7 1.2.2 Notes to Livengood v. Markusson

1. For further information on the subject of cats, see Annotation, Law as to

Cats, 73 A.L.R. 2d 1032 (1960), see also Annotation, Measure, Elements, and Amount of Damages for Killing or Injuring Cat, 8 A.L.R. 4th 1287 (1981). For more information about the common law doctrine that it is not larceny to steal a cat, see Annotation, Cat as Subject of Larceny, 55 A.L.R. 4th 1080 (1987).

The Supreme Judicial Court of Maine has given us the following rationale for the supposed rule of the common law that cats cannot be the subject of Larceny:

[I]t is urged that the cat is not the subject of larceny and, there- fore, its owner can have but a qualified property therein. Among the ancient Britains it was held to have intrinsic value and the theft of a cat was punishable by fine. When, however, larceny became punishable capitally, the courts, to mitigate the sever- ity of the law, held that certain animals were not the subject of larceny as not fit for food, or as base, or as kept only for pleasure, curiosity, or whim. They are instanced by Blackstone, as dogs, bears, cats, apes, parrots, and singing birds, because their value is not intrinsic, but depending upon the caprice of the owner.

Thurston v. Carter, 112 Maine 361 (1914). The explanation given in Thurston is overly simple, however. While it is probably true that the courts were reluctant to hang a man for stealing a dog or a cat, they were certainly willing to hang him for stealing a sheep- or even a lamb. Thus the question becomes: why did the judges, and the world within which they lived, so devalue cats and dogs? For an answer to this question-or for at least a description to how our attitudes towards animals have changed over the centuries-see K. Thomas, Man and the Natural World (1983).

I think it is safe to say that changing attitudes towards animals must have made the outcome in Livengood more likely. On the other hand, the opinions of the judges may have had some influence upon the popular evaluation of animals.

In practice, only those animals domesticated for draught or for food were deemed private property; there could, by contrast, be no property in a dog because, as a judge put it in 1521, a dog was `vermin and savage by nature'. This view, however, was not taken by his colleagues at the time; and the case of Ireland v. Higgins (1588) confirmed that there could be property in greyhounds and other dogs. Sir Edward Coke, who seems to have been more reluctant to concede property in animals than

8 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

some of his contemporaries, reasserted the traditional doctrine, to the extent of denying that there could be larceny of mastiffs, bloodhounds or other dogs; they were, he held, so `base' that no man should lose his life or limb for stealing them. He confined full property in animals to those creatures which could be tamed for food or were intrinsically `noble and generous', like falcons. The more general view, however, was that beasts, even monkeys or muskrats, could, when tamed, become the property of men, but that they ceased to be property if they reverted to their original wild state. Even today, English lawyers impose human criteria upon animals by dividing species into `dangerous' and `non-dangerous', though admitting that `such a division is not to be found in nature.'

Id. at 56-57. [Endnotes omitted] 2. Is Livengood v. Markusson a case granting restitution on an unjust en-

richment theory? Or on a property theory?

The answer to this question should be obvious, since the court couches the question in terms of property rights. But note that the result could also be explained on the basis of unjust enrichment. If Mrs. Markusson was allowed to a keep the cat that lawfully was Miss Livengood's, then Mrs. Markusson would be unjustly enriched. It is this type of verbal maneuver that allows the claim to be made that all of Restitution is based on Unjust Enrichment. But this maneuver breaks down in cases where, as the Restatement puts it: "[A] person who has been unjustly deprived of his property . . . may be entitled to maintain an action for restitution against another although the other has not in fact been enriched thereby."

3. Notice the reason why the trial court thought that one cannot replevy a

cat: since one can only replevy property, one can only replevy a cat if a cat is property; if a cat is property, then it would be larceny to steal a cat; but the Ohio Supreme Court had held in State v. Lymus that it is not larceny to steal a dog and, in the eyes of the law, there is no difference between a cat and a dog; therefore it is not larceny to steal a cat; therefore a cat is not property. Quid est demonstrandum.

I am using the word `property' here in one of the ways that that word is ordinarily used; the court in Livengood tried to be more precise and used phrases like: "the owner of a domesticated cat . . . [has] a property right therein"; but do such circumlocutions really make matters easier? Does the owner own the cat or merely own a property right in the cat? Notice that, if one opts for the latter formulation, someone else might then reasonably argue that the owner owns a property right in a property right in the cat. And that finally one could then argue that the owner owns a

Restatement x 1, comment e.

September 11, 2000

1.2. ON GETTING A CAT 9

property right in a property right . . . in a property right in a cat, forever, time without end.

There is nothing wrong with the logic that, since it is not larceny to steal a cat, the cat is not property--except for the fact that it comes to the wrong conclusion.

"The life of the law has not been logic, but experience."

we have seen, the reason that it was not larceny to steal a cat was not that a cat was not generally treated as property, but rather that the courts did not want to hang a man for stealing a cat; you could be hanged for stealing a goat, or a sheep, but enough is enough and a cat is too much.

This raises a very important point about the various forms of judicial relief--which most people rather sloppily call remedies: a statement that is true when one is dealing with one type of relief may not be true when dealing with another. This means that you cannot trust any proposition of substantive law to be true, or even meaningful, in all circumstances. And that means that you cannot safely study any body of law, and certainly not Restitution, without studying the forms of relief that relate to that body of law.

4. Although Livengood v. Markusson probably strikes you as being beneath

your dignity, the relief that Miss Livengood sought--replevin--is remark- able for several reasons. It is one of the two--or three, if you count detinue . . . It is one of the very few actions at law (as opposed to suits in eq- uity) in which the successful plaintiff is awarded something other than a judgment for a sum of money. It is one of the very few actions at law (as opposed to suits in equity) in which the successful plaintiff is awarded spe- cific restitution. And it is the only action at law (not counting prerogative actions like Mandamus and Certiorari) which is still usually commenced by a writ, a writ very much like the old common law writs that historically formed the basis of our legal system.

If you are going to understand what Restitution is all about, you are going to have to understand each of these remarkable features of replevin.

At least there is nothing formally wrong with that logic: the error lies in not recognizing

that the word `property' changes its meaning from one proposition to another. Since it wasn't larceny to steal a cat in Ohio way back in 1928, a cat was not `property' for the purposes of larceny, but that did not mean that it was not `property' for the purposes of a civil action, including an action in replevin. Perhaps the court in Livengood had good reason to speak of property rights, rather than property, for one can avoid the confusion by saving that Miss Livengood had the property right to replevy her cat, but did not have a property right (in the cat) that was protected by criminal prosecutions for larceny.

O.W. Holmes, Common Law 1 (1881).

10 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW 1.3 Forms of Action and the System of Writs I 1.3.1 An Introduction to the Writ System I'd better warn you at the outset that this note is a "Just So Story"; it does--if I say so myself--a pretty good job of explaining how the writ system developed, but the historical facts are grossly oversimplified and in some cases--though I am not sure which--wrong. This is not something I feel ashamed of. I am operating in the greatest tradition of legal scholarship, that of Lord Coke,

who

invented the major part of our legal history out of a fertile, if rather grotesque, imagination.

In the earliest days of the common law, the administration of royal justice was probably quite informal. The King sat around with his counselors and heard petitions from those of his subjects who thought that they had been wronged or who claimed some land--or perhaps in rare cases some cattle (or chattels, the words are the same)--that somebody else held in his possession.

The petitioner probably had to pay a fee to get his case heard; in the Middle Ages it was a profitable business to have a court. But even with the fees, it is unlikely that the King himself actually paid much attention to the petitions. The King had a lot of other things to do than administer justice: he had wars to fight, children to marry off, and taxes to raise (or rents to collect--there wasn't much difference in those days between being a government and being a landlord). Besides, reaching a fair decision in many of cases that came before the King required specialized skills that the King often lacked: the ability to read and write, for example.

It was also true that many of the petitions were routine and did not really need the King's attention.

So the King got in the habit of having the Chancellor, one of the King's chief ministers, screen the petitions that requested a hearing by the King and his court and of delegating the job of hearing the more routine petitions to a few members of the court who were good at that sort of thing.

Thus, by the death of Henry II (b. 1133), who reigned from 1154 until 1189, the informal hearings before the King in his court were transformed into formal judicial proceedings before a court presided over by professional judges.

Lord Coke's name is pronounced "Cook". We know that because Coke's great rival was Sir

Francis Bacon, an okay philosopher and mediocre chancellor (who got in trouble for accepting `gratuities' from the parties before his court). Both Bacon and Coke courted Lady Hatton, a wealthy widow; when Coke married her the joke that went round London was: "When Me Lord Coke got there, he found that Me Lord Bacon was already in the pot." And that joke wouldn't make any sense if Coke was pronounced like the nickname for CocaCola.

The fact that Henry I (1069-1135), who was crowned in 1100, could really read and write

quite well struck his contemporaries as being so unusual that they called him Henri Beauclerc.

Actually at this time the King's court had already begun to split into three separate

courts of law: Common Pleas, which sat permanently in Westminster, Kings Bench, which followed the King around wherever he went, and the Justices in Eyre who road circuit hearing

September 11, 2000

1.3. FORMS OF ACTION AND THE SYSTEM OF WRITS I 11

To bring an action before this royal court

one had to buy a writ (that is, a

piece of paper with some writing on it) from the Chancellor--or rather, since he quickly delegated the job that the King had delegated to him, from one of the Clerks in Chancery. The writ was issued in the name of the King; it sometimes took the form of an order to the appropriate sheriff

to summons the defendant

to appear before the royal judges for trial, but originally it usually took the form of an order ordering the sheriff to order the defendant to surrender possession of some land (or some chattels) to the plaintiff (and to stand trial only if the defendant refused to obey the order).

The writ that the plaintiff purchased was basically a form with a few blanks in it, for things like the name of the plaintiff and the name of the defendant, that the chancery clerk had to fill in. There wasn't really any substantive law in those days; the writ that you purchased specified in effect both what you had to prove to get the relief you wanted--you had to prove that the statements in the form were true

--and the relief that you were entitled to.

cases out in the boonies, while being shot at by Robin Hood and his Merry Men and various dissident Angles and Saxons and thanes. The itinerant justices in Eyre need not concern us, but much of the early history of Restitution was the product of jurisdictional infighting between the Justices of Common Pleas and those of Kings Bench.

Later the Exchequer, which was originally the King's accounting oAEce, became the third of the three royal courts of common law. The judges of the Exchequer were called Barons, rather than Justices.

Besides the royal common law court (or courts) there were many other courts in England.

Other royal courts included the Court of Chancery (which did not develop until the fourteenth century or so and with which we will be much concerned), which administered equity, the Admiralty Court, and certain inferior courts with limited jurisdiction, of which the most important were the county courts administered by the sheriffs. There was also a large collection of other courts, such as the courts of the shire (or county) and of the hundred, which preexisted the conquest of England by the Norman Duke William the Bastard in 1066, and the courts of the various lords (a major characteristic of the feudal system that was introduced into England by William I was that every lord had the right (and duty) to hold his own court).

The local courts for the most part lacked effective remedies with which to enforce their judgments. In many cases the most severe remedy that they had was distraint, a procedure by which a judgment creditor was allowed to seize chattels (or cattle) belonging to the judgment debtor and hold them--but not sell them or eat them or otherwise dispose of them--until the judgment debtor satisfied the judgment. Distraint was also the usual medieval remedy used by a landlord to compel his tenant to pay the rent (or perform his feudal services). The royal courts had more effective ways to enforce their judgments.

One important cause of action and its associated remedy--that of replevin, which was involved in Livengood v. Markusson, supra Section 1.2.1--was first developed in the local-- rather than the major common law--courts. Replevin was originally--and originally was per- haps only--available in cases where the defendant had improperly distrained goods belonging to the plaintiff rather than the defendant's judgment debtor. Although replevin actions orig- inated in the county courts, if they were contested they could be transferred to the royal courts.

The sheriff was the principle royal administrative oAEcer for a county.

This second type of writ was a praecipe writ, the subject of the next section, Section 1.3.2.

Of course, as time went by, you no longer had to prove everything that was set out in the

writ; some of its averments were simply assumed to be true, even when everyone knew that they were fictions, like the plaintiff's claim in the next case, Roe v. Doe, infraSection 1.4.1,

12 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

To understand how the system worked, let us imagine that the Lady Emma Livengood wanted to get her cat back from Mistress Neal Markusson.

The scene is an oAEce in the Chancery. Large books are scattered about and a clerk--dressed as a clergyman

--sits, with his feet on his desk, reading tthe

Medieval equivalent of the Police Gazette. Enter the Lady Emma.

Lady Emma: I want to get my cat back. Clerk: The animal warden's down the hall, but they're closed for the day. Lady Emma: But I don't want the animal warden. I want to get my poor Bitsy Mittens back from Mistress Markusson who lured her away with Devonshire cream, which is really the worst thing possible for Bitsy's digestion. Clerk: Is this Mistress Markusson your landlady? Lady Emma: Of course not. Clerk: Too bad. Were she your landlady you could get a replevin writ from the county court. Don't cost so much. Lady Emma: My good man, I am not concerned with the cost. I want justice. Clerk: I suppose you could try a writ of detinue, but that's supposed to be only for valuable chattels. Lady Emma: Bitsy Mittens is extremely valuable, she used to belong to Sir Dick Whittington, the late Lord Mayor. Clerk: Sure lady, sure. The big trouble is that there's never been a writ of detinue for a cat. I don't make up these writs. I just work here. Lady Emma: I can pay extra. Clerk: I remember once there was a writ of detinue for a hawk. Suppose I could copy it and just put in "cat" where it says "hawk", but I ain't saying that the court will buy it. Lady Emma: That will be fine. Clerk: Well, maybe. You know how to spell "cat" in Latin?

Now, of course, the ancient writ system has long been abolished, so one no longer starts an action at law by buying a writ.

that the nonexistent John Doe had leased the penthouse apartment from Motel Associates of Atlanta.

Even in those days clerks had to be able to read and write, and almost the only people

who could do that were the clergy. `Cleric' and `clerk' are the same word, after all (and `clergyman' is almost the same).

In the case of replevin, however, one can still start the action by having a court clerk

issue a writ directing the sheriff to deliver possession of the chattel to be replevied--the cat or whatever--to the plaintiff before trial. Normally one most post a bond payable to the defendant for the value of the chattel in order to get this type of preliminary relief; if one loses at trial the defendant will collect the amount of the bond.

September 11, 2000

1.3. FORMS OF ACTION AND THE SYSTEM OF WRITS I 13

So writs themselves are no longer of more than historical interest. But the writs were forms and in the middle ages the only way you could start, to say nothing of win, an action at law was to allege and prove a set of facts that would fit into one of those forms.

When the writs were abolished the forms remained: afterwards one had to make exactly the same allegations in the complaint that one used to have to make in the writ.

Today those forms of action are still with us. One's complaint under modern procedures, like those of the Federal Rules of Civil Procedure, may not look very much like the allegations in an old writ, but, when the defendant moves to dismiss the complaint for failure to state a claim for which relief can be granted, the plaintiff is going to have to persuade the judge that his complaint would have fit into one of those old forms. Miss Livengood won because her complaint met the requirements of the old writ of replevin. If she had tried to replevy a penthouse apartment, she would have lost, not necessarily because the apartment was not hers, but because one cannot bring replevin for an apartment or any other interest in real property. To recover an apartment one has to meet the formal requirements of an action in ejectment, not the least of which is the requirement that the object of the action be an interest in land.

1.3.2 Praecipe Writs

The earliest proceedings in common law courts were restitutionary in nature. The actions by which land was recovered, the action of debt which was considered as being brought for the recovery of something which had been granted or detained, and the action of account which, if successful, resulted in the recovery of a sum of money which had been received by a fiduciary and not accounted for, were conceived as restoring to the plaintiff, that to which he was entitled.

The common law was slow in giving damages as a remedy . . . .The private suits before the royal Courts in the earliest days, other than demands for vengeance,

were proprietary in their nature, brought to

If my little scenario does not give you a good idea of how the old writ system worked, just look up the forms for a replevin action in a form book for the jurisdiction (within the United States) of your choice.

Even under the writ system, the plaintiff had to reallege her cause of action in a pleading

known as a declaration, which was very much like a modern complaint. The writ, like a summons today, served to start an action, but it was not part of the pleadings.

Restatement 5.

These early actions where the successful plaintiff (who was called an `appellor') got only

the satisfaction of vengeance-typically the defendant was executed and all of his property was forfeited to the crown-were known as "appeals of felony" and corresponded, roughly, to criminal proceedings, even though they were initiated by a private plaintiff.

14 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

regain for the plaintiff something of which he had been deprived. In the action of debt-detinue, which by the reign of Henry II was being on rare occasions brought in the king's rather than in a local Court, compensation for detention was given in addition to the principal thing or sum claimed. . . .

[M]any of the first suits after the Norman Conquest were propri- etary in nature, designed to regain something of which the plaintiff had been deprived. Even the action of debt was of this character, since it was based on the notion of an unjust detention of something belonging to the plaintiff.

Historically our common law had no place for the modern concept that all civil actions must be categorized either as actions in tort or as actions in contract. Thus, as Maitland pointed out:

The truth seems to be that the most natural classification of the writs was quite different. It would give us as its two main headings--(a) Praecipe; (b) Si te fecerit securum.

(a) In one class we have writs beginning with Praecipe quod reddat--faciat--permittat. The sheriff is to bid the defendant render (do, permit) something, and only if this command be ineffectual will the action proceed. To this class belong the writ of right and other proprietary real actions, also debt, detinue, account and covenant.

(b) In the other class the writ supposes that there is al- ready a completed wrong and a perfect cause of action in the king's court. If the plaintiff finds pledges to prosecute,

Appeals were purely for vengeance, except in the case of appeal for larceny or robbery, when the stolen chattel might be recovered by the plaintiff. This re- mained true of the graver wrongs, homicide, murder, rape arson, and robbery and larceny when the chattel itself could not be got; these were all felonies punishable by death and forfeiture to the crown of the felon's chattels, so that there was necessarily nothing for the appellor who succeeded except for the gratification of his vengeance.

In the appeals for smaller injuries, battery, imprisonment, and mayhem the convicted appellee, although technically a felon, was not punished with death, but the lex talonis was applied. He must suffer the same injury that he had inflicted upon the appellor: an eye for an eye, a tooth for a tooth.

J. Ames, Lectures on Legal History 47 (1913).

Washington, Damages in Contract at Common Law, 47 Law Q. Rev. 345 (1931). [Foot-

note omitted]

Farnsworth, Legal Remedies for Breach of Contract, 70 Colum. L. Rev., 1145, 1151

(1970). [Footnotes omitted] See also, Farnsworth, The Past of Promise: An Historical Intro- duction to Contract, 69 Colum. L. Rev. 576, 586-87 (1969).

September 11, 2000

1.4. A CASE OF EJECTMENT 15

then the defendant must appear and answer. To this class belong the possessory assizes, trespass and all the forms developed out of trespass, viz. case, assumpsit, trover.

Thus the ancient division was between praecipe actions, which were propri- etary in nature and in which the plaintiff did not allege that the defendant did anything wrong, on the one hand, and the relatively newfangled actions in which the plaintiff did have to allege that the defendant did something wrong, on the other. In the praecipe actions the successful plaintiff recovered his prop- erty; in the newfangled actions the loss that the plaintiff suffered was remedied by an award of damages in the amount of his loss, except in the case of the possessory assizes, where the remedy was a judgment, like a modern judgment in ejectment, awarding the plaintiff possession of land from which he had been wrongfully expelled.

Some of you, by now, will undoubtedly be objecting to all of this ancient history, which hardly seems relevant to the problems of today. The fact is, however, that the old praecipe actions are still with us, and a modern lawyer is likely to be in a lot trouble if he does not understand how they work.

1.4 A Case of Ejectment 1.4.1 Roe v. Doe

Roe v. Doe Supreme Court of Georgia 246 Ga. 138, 268 S.E.2d 901

(1980)

Hill, Justice. This ejectment action was brought by "John Doe", the "fictitious lessee" of Motel Associates of Atlanta, to eject Mr. and Mrs. Paul Jones from a penthouse apartment on the seventh floor of the Best Western White House Hotel in At- lanta. The White House Hotel stands partially on property which Paul Jones owned in 1962. In November, 1962, Jones entered into a long term lease to developers who were to remove the then existing structure (the Jones Building) and construct a multi-story hotel-motel building.

Paragraph 5 of the lease provides:

Maitland, Historical Note on the Classification of the Forms of Personal Action in F.

Pollock, The Law of Torts *469 (7th ed. 1904).

The possessory assizes were in a sense restitutionary, but all that the plaintiff recovered

was possession of the land. The defendant in a possessory assize-the best known is the Assize of Novel Disseisin-might actually be the lawful "owner" of the land, but he could not defend on that basis, because the wrong was the deprivation of the plaintiff's peaceful possession. Thus a plaintiff might recover possession of land in a possessory assize and then be successfully sued by the former defendant in a proprietary real action.

16 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

Optionor-Owner-Lessor [Jones] agrees to join with the said Option- ees-Lessees or their assigns and grant an in rem mortgage or other type security device on said hereinabove described property, for both the interim and permanent financing needed for the construction of the said multistory structure, and further to agree therein that any right he may have as Lessor of said property be subordinate to the holders of the mortgage or other type security device given for the interim and permanent financing of said structure. It is further agreed and understood that the said Optionor is not in any way to be personally obligated on any such in rem mortgage or other type security device given in accordance with the terms outlined hereinabove, the Optionor's obligation thereon only being to the extent of his interest in said hereinabove described property.

(Emphasis supplied.) Paragraph 6 provided:

As further consideration of this Option and for the Lease, the said Optionees herein agree to furnish to the said Optionor herein and his wife, personally, a penthouse apartment . . . at no charge to said Optionor or his wife for the remainder of his and/or her life. . . .

An amendment to the lease, executed on the day the option was exercised, provided that the lease created an estate for years, specifically 99 years. In Paragraph 8 the amendment provided: "Lessor may rent or sublet the penthouse and oAEce to any person, natural or artificial, for any term of years. Lessee must approve the tenant. Approval must not be unreasonably withheld. (This does not prohibit conveyance by the lessee, see Code x 61-101; it merely gives the lessor a right to disapprove an unacceptable tenant.)

In April 1963, the original lessee, Alpha Investment Company, Inc., executed a deed to secure debt and note in the amount of $2,600,000 to Fulton National Bank; the deed recites that Paul Jones "joins in the execution of this mortgage in order that title may be conveyed to the mortgagee", and is followed by a recital that he was not personally liable for payment of the debt. By August 31, 1967, this deed to secure debt was held by Republic National Life Insurance Company and the leasehold estate, formerly held by Alpha Investment Com- pany, was held by Parliament House of Atlanta Associates, Ltd., which had assumed the indebtedness on the original deed to secure debt. On that date, Republic National and Parliament House executed an additional deed to secure debt and note in the amount of $900,000. Paul Jones again signed the deed to secure debt as follows:

The undersigned, Paul Jones, to fulfill his obligation under lease [to Alpha Investment Co.], and in consideration thereof, joins in the execution of this Deed to Secure Debt in order that his fee simple title in a portion of the within described property may be conveyed to the Lender, but with the understanding that he is in no way

September 11, 2000

1.4. A CASE OF EJECTMENT 17

personally liable for the payment of the debt which is secured by this Deed to Secure Debt.

On May 30, 1973, Paul Jones conveyed his interest in the property to Rec Macon Corporation; this deed was expressly made subject to the two prior security deeds. The deed to Rec Macon also recited: "This conveyance is made subject to the reservation to Grantor, Paul Jones, and to the present wife of Grantor, Mrs. Frances Jones, for the remainder of his life, and/or the life of his said wife, Mrs. Frances Jones, of the penthouse apartment. . . ." In 1976, Republic National foreclosed on its two deeds to secure debt, bought in the property, and in 1977 deeded it to Motel Associates of Atlanta. Motel Associates then filed this ejectment action in fictitious form, John Doe v. Richard Roe, against the Joneses. The trial court granted the plaintiff's motion for summary judgment.

1. Relying on Martin v. Heard, 239 Ga. 816 (238 SE2d 899) (1977), Jones argues that he reserved a life estate for himself and his wife in the 1962 lease agreement. We disagree. Martin v. Heard, supra, is inapposite on this point because the grantor there used the term "reserves"; here, the lessee agrees "to furnish" an apartment to the Joneses. It is clear that the Joneses' interest in the apartment is by way of grant from the lessee (the holder of the estate for years) since the lease provides that the furnishing of the apartment is part of the consideration provided by the lessee and that the apartment could not be sublet without the lessee's approval of the sublessee.

This leaves the question of whether the lessee granted the Joneses an estate in the property or a usufruct. On this point, Jones' reliance on Martin v. Heard, supra, is justified. There this court held, in determining that the Martins had a life estate and not a usufruct, "It is not reasonable to conclude that these parties who owned the land in fee, intended to reduce their rights thereon to rights comparable to those that may be granted to a tenant." Martin v. Heard, supra, 239 Ga. at 818. There the instrument described either a life estate subject to divestiture or a usufruct, because the conveyance spoke of the "right to reside" in a residence for life (so long as Mr. and Mrs. Martin continue using the house). "Usufructs are rights or privileges usually arising out of landlord and tenant relationships, and with privileges granted to tenants holding less interest in real estate than estate for years." Id., 818-819. Here there is no mention of "rights" or "privileges" but rather a promise to furnish the Joneses an apartment for their lifetimes. Although we disagree with Jones' position that he reserved a life estate, we do agree that it would be unreasonable to infer from the language before us that he bargained for a mere usufruct as opposed to an estate for life. This conclusion is buttressed by Code Ann. x 61-101, which presumes that a tenancy for less than five years is a usufruct. That this sublease would most probably last substantially longer than five years was no doubt contemplated by all concerned. The lease was drafted by the developers and if they intended to convey only a usufruct, they could have made their intent clear.

Motel Associates argues that the lessee had only an estate for years and

18 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW hence could not grant the Joneses a greater estate (a life estate). That the Joneses' life estates would terminate at the expiration of 99 years, and hence were subject to divestiture if they lived more than 99 years, does not prevent the lessee from granting them a life estate subject to divestiture, Martin v. Heard, supra; Code x 85-901, particularly where, as here, Jones was the owner of the fee at the time the lease was executed. The facts that the Joneses may have looked to the lessee for repairs and that taxes may not have been paid on these life estates are not controlling.

2. Motel Associates argues, however, that Paul Jones subordinated his in- terest in the apartment to the interest of the holders of the security deeds. We agree. When Jones agreed to join the lessees in granting an in rem mortgage to finance construction of the hotel, he agreed to subordinate all of his interest in the property. See the first provision of paragraph 5 of the lease, supra. It is unnecessary to decide whether his further agreement to subordinate his interest "as Lessor" would suAEce to subordinate his interest as sub-lessee since that clause is not a limitation on the prior promise to grant an in rem mortgage. Furthermore, Jones actually did "join" the two security deeds at issue. Thus his interest in the apartment was subject to foreclosure and was in fact fore- closed upon. We find no ambiguities in the documents as to the intent of the parties which would warrant trial by jury and hence the trial court did not err in granting summary judgment for Motel Associates against Paul Jones.

3. The parties agree, however, that Mrs. Jones is not a signatory on any of the documents quoted, supra. Motel Associates' argument that Mrs. Jones' interest is somehow subordinate to or a derivative of, the interest of her husband cannot be sustained. The "intent of the parties" cannot affect her interest, and she is not estopped by construction of the motel from asserting her rights. If this argument were valid against Mrs. Jones, it would have been unnecessary for Mr. Jones to join in the security deeds. Thus Mrs. Jones is the holder of a life estate (subject to divestiture at the end of 99 years) in the apartment and her estate was recorded prior to the execution of any of the security deeds involved here. For this reason Williams v. Federal Land Bank, 44 Ga. App. 606 (162 SE 408) (1931), and Filsoof v. Chatham, 144 Ga. App. 464 (241 SE2d 582) (1978), relied on by Motel Associates, are inapposite, and the holders of the security deeds took subject to her interest in the property.

4. Motel Associates also argues that the description of the apartment was vague, uncertain, and legally insuAEcient to convey any interest. The 1962 lease agreement, as amended, contained the following description: "a penthouse apartment which is to include one (1) master bedroom, which shall not be less than 15 x 15, one (1) additional bedroom, one (1) kitchen, living room, and two (2) full baths. Said penthouse apartment shall be located in the southwest corner of the building, facing Houston Street." Motel Associates argues that this description is legally insuAEcient because "it does not contain a starting point, nor any metes or bounds, or any other appropriate description to iden- tify the property. . . ." We do not agree that it is insuAEcient in this case. The apartment is in a building located on land which is described and there is no

September 11, 2000

1.4. A CASE OF EJECTMENT 19 dispute about which apartment was leased to the Joneses. A description will not be declared void for uncertainty if it furnishes the key to identification of the property conveyed. Price v. Gross, 148 Ga. 137 (2) (96 SE 4) (1918). Mo- tel Associates argues that the description fails because it was too vague to be enforced during the interim between execution of the lease and construction of the apartment. But whether the Joneses would have had any remedy had the apartment not been constructed is not before us. What is before us is whether a plaintiff can rely on vagueness of the legal description to eject a tenant when at the time the plaintiff in ejectment acquired the property, the tenant was in possession under a recorded lease and the vagueness had been cured so that the description was adequate to give the plaintiff notice. We find that he cannot. Wall v. Louisville & Nashville R. Co., 143 Ga. 417 (85 SE 325) (1915).

5. In their answer to the complaint, the Joneses stated as a defense that the action should be dismissed because it was not brought by the real party in interest against a real person with capacity to be sued.

In their brief on appeal, they argue "the trial court should have . . . dismissed the case or entered an order granting the real party in interest leave to ratify, substitute or join the action, and granting Appellant appropriate time for dis- covery against the new party plaintiff."

We find persuasive the Joneses's argument that the common law practice of using fictitious forms in ejectment, as codified at Code Ann. x 33-111, was vitiated by the enactment of the Civil Practice Act, Ga. Laws 1966, p. 609, as amended. Code Ann. x 81A-101 provides that the Civil Practice Act shall govern the procedure in all courts of record in all suits of a civil nature, except as provided in x 81A-181 (infra). Code Ann. x 81A-102 provides that there shall be one form of action to be known as "civil action." Code Ann. x 81A- 117 (a) provides that every action shall be prosecuted in the name of the real party in interest. (That section also provides for substitution of the real party in interest where an action is not prosecuted in the name of the real party in interest.) Code Ann. x 81A-110 (a) provides that the title of the complaint shall include the names of all the parties (where the names of the parties are known). Although Code Ann. x 81A-181, supra, originally excepted Ga. Code Title 33, Ejectment (Ga. L. 1966, pp. 609, 668), that section now provides that the CPA "shall apply to all special statutory proceedings except to the extent that specific rules of practice and procedure in conflict herewith are expressly prescribed by law, but, in any event, the provisions of this Title governing the suAEciency of pleadings . . . making parties . . . shall apply to all such proceedings." (See Ga. L. 1966, pp. 609, 668, as amended by Ga. L. 1967, pp. 226, 241, as amended by Ga. L. 1968, pp. 1104, 1109).

We hold that Code Ann. x 33-111 was repealed by the adoption of the Civil Practice Act and the 1968 amendment to Code Ann. x 81A-181 [see Pindar, Ga. Real Est. Law x 23-1, p. 896 (2nd ed. 1979)], and an ejectment action brought

This issue was not raised in Doe v. Roe, 234 Ga. 127 (214 SE2d 880) (1975), or Roe v.

Doe, 233 Ga. 691 (212 SE2d 854) (1975). [footnote by Court, renumbered]

20 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW in the fictitious form is subject to substitution of the real party in interest or dismissal as provided in x 81A-117 (a), supra.

Although we agree with the Joneses that the fictitious form of ejectment is no longer available in Georgia, we do not agree that this finding mandates reversal in this case. Here the Joneses' answer shows that they knew the true identity of "John Doe" from the inception of the litigation; likewise, they knew the basis on which Motel Associates asserted a claim of title. They have not shown that they suffered any disability in defending that can be caused to a defendant by use of the fictitious form of ejectment. See Pindar, Ga. Real Est. Law x 23-7, p. 900 (2nd ed. 1979). Since this is a case at law in which the issue of title turns on the construction of documents in the record and there has been no suggestion that there are any other documents pertinent to our inquiry, we decline to remand for further discovery as to the real party in interest.

Judgment aAErmed in part and reversed in part. All the Justices concur.

1.4.2 Notes to Roe v. Doe

1. Is the plaintiff's claim in Roe--and, by the way, exactly who is the plain-

tiff?--based on a theory of tort or contract?

If one takes the plaintiff as being John Doe, as he was undoubtedly named in the caption, then his claim was clearly in tort, for he alleged that he had been ejected from the penthouse apartment (that he leased from Motel Associates of Atlanta) by Richard Roe, the nominal defendant; this claim sounds in tort, specifically in a sort of aggravated trespass to land, and what could be more tortious than that?

But neither John Doe nor Richard Roe exist, nor have they ever existed. We shall discuss the reasons for this fact--or, rather, this fiction--in a moment. For now let us consider the claim of the actual plaintiff: Motel Associates of Atlanta. Did Motel Associates claim that Mr. and Mrs. Paul Jones, the actual defendants, had committed a tort? If so, what tort? Did they claim that the Joneses had broken a contract? If so, what contract?

Consider once again Livengood v. Markusson, supra. Was Miss Liven- good's claim based on tort? Was it based on contract?

2. The substantive issues in Roe v. Doe are not directly related to Restitu-

tion; you should, however, be able to understand the facts in that case, if only because you have already taken a course in Property. For our pur- poses, since Restitution is closely connected with Property, it helps if you are able to understand how property is transferred: What is the distinc- tion that the court draws (in part 1 of its opinion) between a reservation and a grant?

It also helps if one understands the different types of property interests that can be created in the same object (in the present case, of course,

September 11, 2000

1.5. EJECTMENT AGAIN 21

the object is the penthouse apartment): What is the difference between a life estate and a term of years? Was the court correct in saying that the Joneses had a life estate subject to divestiture at the end of 99 years? Didn't they `really' have a life estate in an estate for a term of 99 years? Does this distinction make any difference? [Clue: a life estate in land (including part of a building) is real property.]

Since some of the most interesting problems that we will be studying involve mortgages and other security interests, you should know--at least, you should know by the time you finish this course--what a mortgage is and what a lien is, what it means to subordinate an interest to a mortgage, and what it means to foreclose a mortgage.

3. Before explaining why those two non-existent characters, Doe and Roe, got

into the act, it would probably be helpful to examine another ejectment case, one in which the ancient fictions presented the court with a more diAEcult problem.

1.5 Ejectment Again 1.5.1 Soffer v. Beech

Soffer v. Beech Supreme Court of Pennsylvania

487 Pa. 255, 409 A.2d 337

1979

Before Eagen, C. J., and O'Brien, Roberts, Nix, Manderino, Larsen, and Flaherty, JJ.

Roberts, Justice At common law a lessee who had never entered into possession of his lease- hold was prohibited from bringing an action in ejectment to gain possession. The issue before us is the continued validity of this rule. We are satisfied by considerations of reason and fairness and by the weight of modern case law that the ancient rule now serves no useful purpose, and, accordingly, we refuse to permit its continued use.

I On August 15, 1951, George and Mary Beech leased property they owned in Allegheny County to appellee Sun Oil Company for a term of fifteen years with two additional five-year options. The lease was recorded. In 1956 George and Mary Beech conveyed the property to appellee James Beech. The lease to Sun Oil was not affected.

22 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

On September 17, 1962, appellee James Beech and his wife leased the same property to appellants Joseph and Violet Soffer for a fifty-year term.

This lease

specifically recited that it was "subject to" the prior lease to Sun Oil.

This

lease was also recorded.

In July of 1974, as Sun Oil's term was approaching an end, James Beech and Sun Oil executed what they styled an "amendment and ratification" to the original 1951 lease. This "amendment and ratification" would allow Sun Oil, at its option, to remain in possession until at least 1997.

In March of 1976, the Soffers sent written notice to Sun Oil of their intention to take possession on October 1, 1976, the expiration date of Sun Oil's original fifteen year lease plus the original options. Sun Oil replied that it would remain in possession under the provisions of the 1974 "amendment and ratification."

The Soffers then filed this ejectment action against Sun Oil and James Beech in the Court of Common Pleas of Allegheny County. The complaint asserted that the "amendment and ratification" constituted a cancellation of the existing 1951 lease and that the Soffers were entitled to possession of the property and damages of $ 240 a month from January 1, 1975, the effective date of cancella- tion.

Sun Oil responded by raising a single preliminary objection, which is the subject of this appeal.

Sun Oil asserted that the Soffers' complaint failed to

state a cause of action in ejectment because it did not allege that the Soffers had ever entered into possession of the property and were thereafter ousted. Sun Oil claimed that the complaint could not be amended to include such an allegation and, therefore, that the complaint should be dismissed without leave to amend. The trial court sustained Sun Oil's objection and dismissed the complaint. On appeal, the Superior Court aAErmed without opinion. This Court then granted allowance of appeal.

The 1962 agreement leased the property to the Soffers and another couple. The other

couple has since assigned their interest to appellants.

The relevant paragraph of this lease provided:

"This lease is subject to a prior lease given on the said premises by George V. Beech and Mary J. Beech, his wife, to the Sun Oil Company, dated August 15, 1951, for a period of fifteen (15) years, plus right in the lessee, to two five-year extensions, which said lease has been assigned by George V. Beech to James L. Beech. It is understood and agreed that the lease herein made is subject to all the terms and provisions of the said lease of August 15, 1951, and that during the term of the said lease of August 15, 1951, and any extensions thereof, rentals shall be payable by the Sun Oil Company directly to the said James L. Beech. In such case the second parties shall be relieved of any obligation under the within lease until the expiration of the said Sun Oil Company lease."

This instrument declared that the 1951 lease was "in full force and effect," and then

provided for six automatic five-year renewal periods, any of which Sun Oil could cancel on 180 days written notice. At the conclusion of these renewals the lease was to continue from year to year, with 120 days written notice required of either party in order to terminate.

Appellee James Beech filed an answer denying that his 1962 agreement with the Soffers,

styled "LEASE," was in fact a lease, and denying that the Soffers were entitled to either possession or damages. These issues are not before us on this appeal, and we express no view on them.

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1.5. EJECTMENT AGAIN 23

II It has never been doubted that a tenant who has been in possession of his leasehold but who is subsequently ousted may bring an action in ejectment to regain possession for the duration of his term. He may do so whether the wrongful possessor is his landlord or a third party. 13 Stnd.Pa.Prac. Ch. 67, x 35 (1957). Indeed, ejectment was originally developed as a remedy for tenants wrongfully dispossessed of their estates. Dice v. Reese, 342 Pa. 379, 385, 21 A.2d 89, 92 (1941); 3 W. Blackstone, Commentaries ? 199. We are faced today only with the question of whether a lessee who has never been in possession but who is entitled to immediate possession, should be permitted the same remedy.

The common law originally denied ejectment to the lessee who had never been in possession. And a handful of cases in this Commonwealth, most of them now musty with age, have acknowledged this restriction. The trial court, in dismissing the Soffers' complaint, relied on the two most recent of these cases, Barnsdall v. Bradford Gas Co., 225 Pa. 338, 74 A. 207 (1909) and Dime Bank and Trust Company of Pittston v. Walsh, 143 Pa.Super. 189, 17 A.2d 728 (1940). In Barnsdall this Court noted the existence of the rule that a lessee could not maintain ejectment prior to entry. Barnsdall, however, distinguished the rule and upheld an ejectment action by a lessee of mineral rights who had never entered into possession.

In Dime Bank the Superior Court followed the rule and elaborated on its history:

"The court below . . . held, and in our opinion correctly, that as plaintiff had only a leasehold interest in the lot of land, and had never entered into possession, it could not bring ejectment to obtain possession. The history of the action of ejectment given in Black- stone's Commentaries (Book III, pp. 199-206) shows that a tenant for years must have been in possession under his lease and been ousted before he can bring ejectment. In fact, a lessee did not be- come a tenant for years, until after he entered `by force of the lease': Littleton's Tenures (Edited by Wambaugh), Book I, chap. VII, p. 26."

143 Pa.Super. at 195, 17 A.2d at 731 (emphasis in original). We do not question the Superior Court's recitation of the early history of the rule. But the mere recitation of the rule's history does not explain its present use nor does it justify its continued application. Indeed, a review of the historical development of the action of ejectment indicates that the common law rule requiring prior entry by

As recited above, appellants' complaint alleges that the "amendment and ratification"

agreement between James Beech and Sun Oil worked a cancellation of the prior lease, and, therefore, that appellants became entitled to immediate possession on January 1, 1975. Sun Oil has not challenged this claim and the issue is not before us. For purposes of this appeal we assume, without deciding, that appellants were entitled to immediate possession at the time they filed their complaint.

24 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW a lessee is inconsistent with the modern scope of the writ and with our modern conception of landlord and tenant relations.

III The legal action of ejectment began not as a real property action, but as an action in trespass. Seitzinger v. Ridgway, 9 Watts 496 (1840). Ejectment originally rested on a claim of actual or constructive ouster of the plaintiff. 13 Stnd.Pa.Prac. Ch. 67, x 1 (1957). Entry by the lessee and subsequent ouster by the defendant were essential to the claim of trespass.

The writ of ejectment, however, has changed dramatically in the centuries since its narrow origin. Today, the right to possession is the central element of the action--not the claim of ouster. The writ of ejectment has long been the general method for obtaining possession of real property. Dice v. Reese, 342 Pa. 379, 384-86, 21 A.2d 89, 92-93 (1941); Irwin v. Hoffman, 319 Pa. 8, 16-17, 179 A. 41, 45 (1935). The writ has expanded from a tenant's remedy and has long since been available to fee claimants and all others who assert the right to possession of estates in real property. See Gilberton Coal Co. v. Schuster, 403 Pa. 226, 228, 169 A.2d 44, 45 (1961).

Yet it has never been suggested that

a fee claimant need allege entry and ouster in order to succeed in ejectment. Rather, our cases involving fee claimants speak only of the right to possession by one not presently in possession. See e. g., Brennan v. Shore Bros., Inc., 380 Pa. 283, 285, 110 A.2d 401, 402 (1955); Bruker v. Carlisle Borough, 376 Pa. 330, 334-35, 102 A.2d 418, 420 (1954).

Nevertheless, the growth of ejectment to provide a general remedy for the recovery of estates in realty did not extend to lessees who had never been in

The statutory basis for ejectment in force at the time this case arose declared in sweeping

language that the writ "shall issue in all cases where lands, tenements or hereditaments are claimed . . ." Act of April 13, 1807, P.L. 296, x 1, 12 P.S. x 1514. This section has subsequently been repealed by Act of April 28, 1978, P.L. 202, x 2(a), effective June 27, 1978 and was replaced by 42 Pa.C.S.A. x 1722(a)(1) which gives this Court authority to prescribe and modify general rules governing practice and procedure.

Because the writ of ejectment was not a real property action, but originally was an action in trespass, it was not subject to the hypertechnical pleading rules which surrounded the common law real actions. This in part was responsible for the growth and popularity of ejectment. See generally Holdsworth, 7 History of English Law 4-10 (1926). Fee claimants seeking to take advantage of this simple means of determining title to realty, soon developed methods for using the writ. By a series of paper leases and fictitious claims they were able to frame their dispute to fit within the original pattern of the ousted tenant's cause of action. As Blackstone characterized it, the method "entirely depends upon a string of legal fictions; no actual lease is made, no actual entry by the plaintiff, no actual ouster by the defendant; but all are merely ideal, for the sole purpose of trying the title." 3 Blackstone, Commentaries ? 203. By the seventeenth century this procedure had become so common that the English courts instituted reforms calculated to allow these claims without such contrivances. This was the beginning of the writ of ejectment as it exists today. It is ironic indeed that courts, in their willingness to determine title to property, have knowingly accepted wholly fictitious claims of lease, entry and ouster, but have been unwilling to provide a remedy to actual lessees, such as the Soffers, who do not make these fictitious claims.

We note that our rules of civil procedure have abandoned the historic system of pleading in ejectment in favor of the more straight-forward assumpsit rules, Pa.R.C.P. 1051-1058.

September 11, 2000

1.5. EJECTMENT AGAIN 25 possession. In all likelihood this was because at common law a lessee who had not entered into possession was not thought to have an estate in land. Rather, such a lessee was said to have an "interesse termini," or an interest in a term. Coke. Litt. 46b; 2 Blackstone, Commentaries ? 144. Whatever the original usefulness of this distinction may have been, we see no reason why it should continue to prevent a lessee from maintaining an action in ejectment.

Even fifty years ago the rule requiring prior entry was correctly viewed as a remnant of an earlier age. Speaking of precisely the rule we review today, one federal court of appeals then observed:

"These things relate to a far-distant past. They are strangers to the jurisprudence of the United States. The modern tendency of jurisprudence is to look through shadows to substance--to eliminate technicalities in the interest of substantial justice. It is no longer necessary to go upon land as in the days of old and receive a twig or a clod of dirt as a token of changed possession. . . . In the more modern doctrine of ejectment, entry is not a prerequisite to the action, and if the lessee has such interest in the property as gives a present right of possession, it is immaterial whether he has entered into possession before bringing the action. The right of entry, not the entry itself--the right of possession, not actual possession--are the essentials of an action in ejectment."

Ewert v. Robinson, 289 F. 740, 750-51 (8th Cir. 1923). The notion that prior possession by a lessee is necessary to trigger the right of possession is a legal fiction unrelated to our more modern view of a lessee's contractual rights. See Pugh v. Holmes, 486 Pa. 272, 405 A.2d 897 (1979) (opinion by Larsen, J.); id., 486 Pa. at 298-299, 405 A.2d at 910 (Roberts, J., joined by Nix and Manderino, JJ., concurring) (holding landlord and tenant's obligations mutually dependent); see also Albert M. Greenfield & Co., Inc. v. Kolea, 475 Pa. 351, 380 A.2d 758 (1977) (relieving tenant of obligation to pay rent when premises destroyed by fire). We refuse to afford a lessee entitled to possession by virtue of his lease lesser protection than that given a fee claimant seeking possession.

In St. Vincent's Roman Catholic Cong. of Plymouth v. Kingston Coal Co., 221 Pa.

349, 70 A. 838 (1908) this Court held that a lease for twenty-one years or more, if properly recorded, vests an estate for years in the lessee and not simply an interesse termini. This result was based on the Court's construction of certain provisions of our recording act, still in effect today, Act of May 28, 1715, 1 Sm.L. 94, x 5, 21 P.S. x 471 (1955 and Supp.1979). We note that the Soffers' complaint alleges a lease for more than twenty-one years and proper recording. This would vest the Soffers with an estate for years and not an interesse termini. But whatever this distinction may mean in other contexts, we expressly refuse to make the availability of ejectment turn on such niceties. There is little to explain even the original usefulness of the common law distinction between an estate for years and an interesse termini; it has been rejected by text-writers who have called it "diAEcult to comprehend," Tiffany, 1 The Law of Real Property 132 (3d ed. 1939), and it has been abolished by statute in England, Law of Property Act of 1925 x 149(1). We refuse to use the concept now to create an artificial barrier to the remedy of ejectment.

26 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

IV By making ejectment available to lessees before entry, we adopt the view of modern authority. As stated in 49 Am. Jur.2d Landlord and Tenant x 220 (1970):

"It seems now generally agreed that ejectment will lie in favor of the lessee against the third person, even before entry on the demised premises by the lessee."

Accord, Tiffany, 1 The Law of Real Property x 86 (3d ed. 1939) (and cases cited); 51C C.J.S. Landlord and Tenant x 314 (1968) (and cases cited). This is also the result reached by modern decision, see, e. g., Leader v. Joyce, 271 Minn. 9, 135 N.W.2d 34 (1965); Wright v. Irving Trust Co., 70 F.2d 245, 246 (2d Cir. 1934) (L. Hand, J.).

We should not hesitate, in any event, to abolish a rule of law when its basis has disappeared. Holmes, The Path of the Law, 10 Harv. L. Rev. 457 (1897); Cardozo, The Nature of the Judicial Process 150-51 (1921).

In recent times this

Court has been alert to reject other out-dated rules which were no longer in ac- cord with contemporary experience and policy. Ayala v. Phila. Board of Public Education, 453 Pa. 584, 603-606, 305 A.2d 877, 886-88 (1973) (abrogating gov- ernmental immunity) (and cases cited); see, e. g., Commonwealth v. McCusker, 448 Pa. 382, 292 A.2d 286 (1972) (rejecting rule that psychiatric evidence is inadmissible in murder prosecution for purposes of determining whether defen- dant had acted in heat of passion); Falco v. Pados, 444 Pa. 372, 282 A.2d 351 (1971) (abrogating parental immunity); Reitmeyer v. Sprecher, 431 Pa. 284, 243 A.2d 395 (1968) (rejecting prior limitation on landlord's liability for defec-

The Restatement (Second) of Property, Landlord and Tenant x 6.1 (1976) is intended

to apply to situations where a tenant is deprived of possession or use of his leasehold by the landlord or by action attributable to him. This section allows the tenant to terminate his lease or continue the lease and recover damages, abate rent, use rent to eliminate the interference or withhold rent and place it in escrow. Comment b to this section makes it clear, however, that other relief may also be available:

"b. Unauthorized possession or conduct. An unauthorized possession of all or any part of the leased property by the landlord, or someone whose conduct is attributable to him, is an eviction of the tenant that could be cured by the tenant himself. The rule of this section does not require him to take legal steps available to him to eliminate the eviction, although that option is open to him."

Companion section 6.2, applicable when the tenant is deprived of possession by a third party, expressly adopts the view that a "tenant may recover the possession of the leased property from the third party improperly in possession."

The Illustrations to both of these sections make clear that the rules of the Restatement are not limited to situations where the tenant previously has been ousted. See, e. g., x 6.1, Comment c, Illustration 7; x 6.2, Comment b, Illustration 2.

In The Path of the Law, 10 Harv. L. Rev. 457, 469 (1897), Justice Holmes remarked: "It

is revolting to have no better reason for a rule of law than that so it was laid down in the time of Henry IV. It is still more revolting if the grounds upon which it was laid down have vanished long since, and the rule simply persists from blind imitation of the past."

September 11, 2000

1.6. FORMS OF ACTION AND THE SYSTEM OF WRITS II 27 tive conditions); Flagiello v. Pennsylvania Hospital, 417 Pa. 486, 208 A.2d 193 (1965) (abrogating charitable immunity).

Indeed, as this Court observed long ago in the specific context of enlarging the scope of the writ of ejectment:

"Many other alterations have taken place; and the same authority which brought it thus far, may certainly carry it to a higher degree of perfection, as experience happen to show inconveniences, or defects."

Boyd v. Cowan, 4 Dall. 138, 140 (1794). We are convinced that the rule we review today does not meet current societal and jurisprudential needs. The common law rule now stands as an unfair barrier to justice and we therefore abolish it. We hold that a lessee entitled to present possession of his lease- hold may bring ejectment regardless of whether he has previously entered into possession.

The order of the Superior Court is reversed, the order of the Court of Com- mon Pleas of Allegheny County is vacated and this case is remanded to the court of common pleas for proceedings consistent with this opinion.

Manderino, J., did not participate in the decision of this case.

1.6 Forms of Action and the System of Writs II 1.6.1 Law as an Evolutionary System One of the silliest and most common mistakes that one is likely to make when one thinks about, rather than practices, law is to assume that, since law is the product of the activities of human beings, it must have been designed and that each of its bits and pieces must be there to serve some purpose of the designer.

But the law is not like that. Rather it is an evolutionary system, a system that has grown over the centuries as a consequence of innumerable small deci- sions made by lawyers, clerks, judges, and individual litigants. Once in a while, of course, a king or legislature or some other sort of lawgiver decides to make a large change in the law; but such changes tend to be more like earthquakes than social engineering: they have consequences, but those consequences were not what was intended by the would-be lawgiver.

The law, certainly private law, is not the command of a sovereign, or even to any great extent the product of such commands. It just grew.

The fact that the system of law administered by common law courts in England was based for centuries on `causes of action' that were embodied in `writs' allows us to study the evolution of the law in a way that would not

Consider the reasons why Henry VIII forced parliament to pass the Statute of Uses and

then compare them with the long term consequences of that amazingly fertile piece of legis- lation.

28 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW be possible if instead the law courts had adopted the flexible procedure that was characteristic of the courts of equity or the totally formless muddle of the Federal Rules.

So let me tell you some more Just So Stories about remedies, particularly restitutionary remedies.

The old praecipe actions had numerous disadvantages from the point of view of the plaintiff. The major diAEculty with many of them was the fact that trial was by wager of law: all the defendant had to do to win was to hire the requisite number of professional witnesses, called "compurgators," to swear that he was not liable.

In the newfangled actions of trespass and case (as well as

the possessory assizes), on the other hand, trial was by jury.

Thus, in the action of detinue--the praecipe action for the recovery of goods and chattels--trial was by wager of law. Once trespass became available, how- ever, a person who stole (or deliberately destroyed) one's goods could be sued in trespass de bonis asportatis (trespass d.b.a.): trial would be by jury and the plaintiff could recover his damages--the value of the goods--in that action. Even if the goods still existed and were still in the possession of the defendant, most plaintiffs would prefer trespass, with damages and a jury, to detinue with specific--or, at the defendant's option, value--restitution and wager of law.

That helped some plaintiffs, but not all, for in many cases the thief would sell the goods to a third party and skedaddle, and then the only action that the plaintiff would have to recover the goods (or the value of the goods) was detinue against the purchaser. Trespass d.b.a. was only available in those cases in which the defendant himself had taken the plaintiff's goods vi et armis (with force and arms) from the plaintiff's immediate possession.

And then, once upon a time, someone lost something--let us assume that it was a pig--and someone else found it, and ate it. Trespass d.b.a. was not available because the pig had not been in the plaintiff's possession at the time of the finding; it is not a trespass to find something and pick it up. But it does seem wrong for a finder to eat--or otherwise convert to his own use--the owner's pig (or whatever). So the owner of the pig sued the finder, not in trespass, but in case, spelling out the entire sad story: "I lost my pig and the defendant found it and ate it."

And the owner won, and got damages equal to the value of the

pig.

Of course, procedure under the Federal Rules is not, in fact, completely formless; but

about all that saves it--besides the inherent human need for some sort of order--is the ghostly memory of the forms of action that it was intended to abolish.

The procedure in the old appeals of felony was even less appealing to a decently cowardly

plaintiff, for there trial was by battle.

Like any other early cause of action, one could not bring case unless one could fit one's

cause of action into the form of the writ. But the writ for case allowed the plaintiff more flexibility than the other writs: the plaintiff could spell out his entire sad story, i.e., his case, in the writ and hope that the court would feel so sorry for him that it would award him damages. It helped, of course, if the plaintiff's case seemed pretty close to another cause of action for which there was a recognized writ.

Since there was an older action called `detinue sur trover' which lay whenever the defendant

September 11, 2000

1.6. FORMS OF ACTION AND THE SYSTEM OF WRITS II 29

And then, a little later someone had something stolen from him--let's as- sume that it was a goose--and the thief sold it to a third person and the owner sued the third person in case, but he did not exactly tell the truth in the writ. He alleged rather that "I lost my goose and the defendant found it and con- verted it to his own use." In other words he copied the writ that was used in the pig case, even though it did not fit the facts of his case. When the defendant at trial tried to defend on the ground that he had not found the goose, the court quite sensibly said that that didn't make any difference, that the wrong was eating the plaintiff's goose--converting the goose to the defendant's own use--not finding the goose. And so the plaintiff won.

And so for many years thereafter whenever someone converted someone else's goods to his own use, the owner of the goods alleged that the converter had found the goods and then converted them. And to this day some people--mainly Property teachers--call the action for conversion "trover and conversion," for the word "trover" is the old French word for "find." (In modern French the word is "trouver.")

That is a rather simple example of how the necessity of fitting one's claim into the narrow confines of a writ led to the development of a legal fiction: in this case the fictional finding of the converted chattel. Such legal fictions would never have been used if our legal system had actually been the product of design, rather than evolution.

Since conversion has almost entirely replaced detinue, one would think that conversion should be classified as a form of restitutionary relief. And it is, in fact, an example of value restitution: the plaintiff recovers not the specific thing--the pig or the goose--that was converted, but rather its value. But conversion is also, and more commonly, considered to be a tort, and the defendant is treated as a tortfeasor who has to pay damages to make good the plaintiff's loss. For the most part it makes no difference whether one conceives of conversion as being an action for the value of the pig or goose that the defendant received--a restitutionary action--or an action for damages in the amount of the plaintiff's loss--a remedial action. The courts, however, tend to consider that conversion is a tort and that the recovery is damages in more than name. We will have occasion to consider this point at more length in the future.

It was a different problem that led to the development of the action in ejectment. The old proprietary real

actions had all the problems that afflicted

detinue, and more: for example, the defendant could avoid trial for a year and a day simply by staying in his bed for that length of time. But the possessory assizes were relatively prompt proceedings and the trial in those actions was by

wrongfully acquired possession of the detained goods--`detinue sur bailment' was available to recover goods that were rightfully acquired but wrongfully obtained--it is probable that the fiction of `finding' is older than the action of trover and conversion.

These actions were called `real,' not because the other actions were considered to be

imaginary, but because the action was brought against the thing (Latin res)--i.e., the land, rather than against the person of its owner. Real property is called `real property' because it was, in the middle ages, the sort of thing that could be recovered in a `thingy' action.

30 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW jury. The big problem was that there was no action available to a tenant for a term of years; both the real actions and the possessory assizes were available only to someone who was seised of a freehold estate, i.e., someone who possessed an estate in fee simple, fee tail, or for life.

Whether you were a tenant of land for a term of six months or for a term of one hundred years made no matter, if someone ejected you from the land there was no cause of action to recover it. The termor--the tenant for years--could get damages in trespass quare clausum fregit against the ejector, but he could not recover the land.

At least that was the rule in the beginning. Over the years, however, the action of trespass evolved so that a termor could recover the land in a special sort of trespass action, which became known as ejectment, rather than just recover his damages.

At that point a new problem arose. This new action in ejectment had, from the plaintiff's viewpoint, even nicer procedures than those available in a possessory assize, but it was available only to termors. Naturally those who had freehold estates also wanted to be able to take advantage of this new procedure.

The obvious solution was to come up with a legal fiction. If Sir John was the owner in fee simple of Blackacre but Blackacre was in Black Bart's possession, Sir John's lawyer would simply file an action in ejectment in the name of John Doe, who supposedly was Sir John's tenant for a term of years, and name Black Bart as the defendant. The only problem with this "solution" was that it did not quite work; all Black Bart had to do was to allege and prove that there was no lease to John Doe. That was easy to prove since John Doe did not exist.

The solution to this was another fiction. Sir John's lawyer would file an action in ejectment in the name of the non-existent John Doe and name as the defendant--the person who supposedly had ejected Doe from the land--the equally nonexistent Richard Roe. And then Richard Roe (or actually Sir John's lawyer in Richard Roe's name) would send a note to Black Bart explaining that he--Roe--was being sued in ejectment by Doe--on the demise of Sir John-- and that he--Roe--didn't care, since he didn't claim any interest in Blackacre, so he was going to default, but thought that he should give Black Bart the opportunity to defend, because otherwise Doe would get a judgment that he was entitled to Blackacre as Sir John's tenant.

This doubly fictitious version did work. When Black Bart went to court and asked to be substituted for the defendant in the action as the real party in interest, the judge would grant his motion, but only on the condition that he not raise certain defenses: the defenses that John Doe did not exist, that the demise (lease) to John Doe did not exist, and that Richard Roe did not exist.

However silly it may strike you, this doubly fictitious action of ejectment worked so well that it completely replaced both the old real actions and the possessory assizes.

Unlike conversion, ejectment is a purely restitutionary action. It is not based upon any tort committed by the defendant, it is simply an action to recover

September 11, 2000

1.6. FORMS OF ACTION AND THE SYSTEM OF WRITS II 31 both the title and possession of land from the defendant. (Of course the word "ejectment" refers to a tort, but that tort was a trespass "committed" by the non-existent Richard Roe, not by the real defendant, Black Bart--or Mr. and Mrs. Paul Jones.)

Debt--the praecipe action to recover money--presented the problem of trial by wager of law

and also suffered from the limitation that it could only be

brought for a sum certain. If someone owed you a "reasonable"--but indefinite-- sum of money, debt was not an available cause of action.

The solution to this problem was--as you should by now have guessed-- another fiction. An action called assumpsit had been developed--as I hope you learned in your Contracts course--out of case by which the plaintiff could get damages for breach of contract. It did not take long for someone to figure out that the way to avoid having to bring an action in debt against his debtor was to bring an action in assumpsit against him, alleging that he had undertaken (Latin: assumpsit) to pay the debt and then had failed to perform this under- taking. If this worked the plaintiff would recover, as `damages' for breach of the undertaking, a judgment for the amount of the debt, the same recovery that the plaintiff was entitled to in an action in debt.

This fiction also worked. The courts refused to listen to a defendant who argued: "I admit that I owe the debt, but I never undertook to pay it." The answer was: "Well, if you owed it, you should have undertaken to pay it, so we won't listen to your denial."

This sort of assumpsit action, where there was no real assumpsit (or under- taking), came to be known as `indebitatus assumpsit' (or `general assumpsit'), as opposed to `special assumpsit,' the action for breach of contract.

Indebitatus assumpsit in time came to replace debt almost completely and it also became available in cases where debt would not lie. Thus actions at law based on the theory that the defendant has been unjustly enriched are typically actions in indebitatus assumpsit.

There was also a praecipe action, known as account, which was capable of taking care of many cases where the plaintiff alleged unjust enrichment. Account is still available, but actions in account are very rare these days, for in the evolutionary struggle for survival, indebitatus assumpsit, though formally an action based on tort, has evolved to fill the remedial niches formerly occupied by both account and the greater part of debt.

But enough of these Just So Stories. Later on there will be a rather old fashioned section giving actual examples of the writs as they developed over the centuries--it was not until recently, after all, that those in training to become common lawyers studied abstractions like tort, or contract, or even property, rather than the substantive law associated with the individual writs. So, after

In a few cases, including an action of debt for rent, wager of law was not available.

The courts were not so kind to the plaintiff in those actions of debt where the defendant

could not insist on waging his law.

32 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW looking a little more closely at the evolution of the actions of debt and detinue, we shall turn our attention to three cases, one involving account, one involving conversion, and one involving the use of indebitatus assumpsit to avoid unjust enrichment.

1.6.2 Note on Debt/Detinue Since it is generally--although perhaps inaccurately--believed that the action of indebitatus assumpsit (which is descended from case) can be brought wherever debt (which is one of the old praecepi actions with all their procedural disad- vantages) could be brought, it is hard to find modern cases expressly sounding in debt. And since detinue has, in the United States, pretty well been replaced by statutory actions of replevin, it is also hard to find modern cases expressly sounding in detinue.

It is, however, clear that the action is restitutionary in nature, since the action is in form one to recover goods that have been detained by the defendant, and since in practice the successful plaintiff does recover either the goods or their value.

Debt is also restitutionary and has always been recognized as being so. Thus in the entry entitled "Debt, Action of" in the 1904 edition of the Cyclopedia of Law and Practice it is written that: "Debt is among the oldest actions known to the common law, and its origin was of a droitural or proprietary nature."

This is somewhat obscured by the modern tendency to divide all civil actions into actions on tort and actions on contract. Since it is clear that "droitural or proprietary" actions like debt and detinue are based on rights (i.e., droits) rather than on wrongs (i.e., torts), the only possibility given the modern division is to classify them as contractual actions.

Since, however, an action of debt

lies on an obligation to pay a fixed sum created by a judgment or a statute it is apparent that the action is not necessarily based on contract.

The distinguishing feature of the action of debt that it can only be brought to recover a sum certain. Unliquidated sums could not traditionally be recovered in debt. Debt would lie to recover the sale price of goods, a money judgment, a statutory penalty, the amount due under an obligation under seal, rent,

or the

13 Cyclopedia of Law & Practice 402 (1904).

The word `droitural' is an adjective formed from the French word `droit' meaning `right'; it is the opposite of `tortious'. In English the word `droit' is sometimes used to denote a legal right just as `tort' is used to denote a legal wrong.

It would make far more sense to divide actions into those that are based on droit and

those that are based on tort. Under this division an action on contract would be classified as droitural, which makes sense since contracts create rights, not wrongs. From this point of view an action for "breach" of contract would be seen as an action of value restitution, an action for the value of the withheld right.

Rents were originally considered to be an interest in real property that was reserved by

the grantor at the time the lease was made. The obligation to pay the rent was not created by any contract. The rent was a property interest like an easement or a profit `a prendre.

September 11, 2000

1.7. A CASE OF CONFUSION 33 sales price of goods sold; it did not lie to recover an unliquidated amount due under a contract and thus it was not available in most cases of what today we would call breach of contract.

Historically debt and detinue were the same action commenced by the same writ. In time, however, lawyers came to distinguish between detinue, which lies to recover specific goods or chattels, and debt, which lies to recover a sum certain of money or, originally, of other fungible goods, though it has been some time since anyone has brought an action of debt for something other than money. One might, however, note the 1789 case Thompson v. Musser,

involving two

actions of "Debt in the Detinet" for "200,000 weight of tobacco" that had been removed to the Supreme Court of Pennsylvania by a writ of error.

1.7 A Case of Confusion 1.7.1 Williams Mgmnt Enterprises, Inc. v. Buonauro

Williams Management Enterprises, Inc. v. Buonauro

District Court of Appeal of Florida, Fifth District

489 So. 2d 160 (1986)

Cowart, Judge. This case involves the question of whether the action of replevin is available to recover funds held by a defendant in a bank checking account.

The complaint alleges that appellant, a corporation, had a corporate bank checking account subject to the signature of its oAEcer, R. Bruce Williams; that R. Bruce Williams drew a check on appellant's bank account and delivered the check to appellee, an attorney, for deposit into attorney's bank trust account for the account of R. Bruce Williams. The corporation filed a law action in re- plevin against the attorney alleging that the corporate check drawn on corporate funds was unauthorized and describing the property for which the corporation demanded possession as being "the sum of . . . $125,000" and as "monies." The trial court dismissed the replevin complaint and the corporation appeals. The trial court was correct. Replevin is not a proper remedy. The dismissal is aAErmed.

Conversion is the name of an act of dominion wrongfully asserted over, and inconsistent with, another's possessory rights in personal property. Depending mainly on whether the object of the action is to recover the immediate posses- sion of the personalty and incidental damages for its detention, or to recover

1 Dall. (1 U.S.) 458 (Pa. Sup. Ct., 1789). The opinions of the Justices of the Pennsylvania

Supreme Court in this case were published in the first volume of what was to become known as the United States Reports. In fact, there are no decisions of the United States Supreme Court, or of any other federal court, in 1 U.S., which is the first volume of Dallas's reports and which contains "Reports of Cases Ruled and Adjudged in the Courts of Pennsylvania before and since the Revolution".

34 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW money damages for the value of the converted personalty, four principle law remedies or causes of action are available: (1) replevin, (2) detinue, (3) trover and conversion, and (4) debt. The first three are ex delicto actions; the fourth is ex contractu.

These four actions are described and compared below.

The court is wrong in this categorization: replevin, detinue and debt are neither ex delicto

(founded on a wrong) or ex contractu (founded on a breach of contract); debt and detinue are classic examples of praecipe actions (founded on the plaintiff's proprietary rights) and replevin, though perhaps sui generis, is as proprietary an action as one can get (it is the classic legal action for specific restitution). Trover and conversion (which is just one action with a double-barreled name) is in form delictual, but it, too, can be considered a proprietary action-the successful plaintiff in an action of trover and conversion recovers the value of the goods converted, rather than the goods themselves; this can be seen as an example of `value restitution'.

Though the court is wrong, its mistake is a common one. Few lawyers today have had the opportunity to learn that there are other types of civil actions besides those that are delictual or contractual; lawyers work with proprietary actions everyday, but are not able to categorize those actions adequately.

The court's treating debt as contractual may in part result from its mistakenly conflating debt with indebitatus assumpsit. It reflects, however, a common tendency to categorize resti- tutionary actions as being somehow contractual; a result that makes some sense considering that restitutionary actions certainly are not delictual. The trouble is that contractual actions themselves are best analyzed as restitutionary proceedings in which the plaintiff recovers the value of the performance that had been promised him. (To the extent, however, that the plaintiff recovers special damages for his loses in excess of the value of the performance, a contract action can be seen as delictual; but to the extent that it is delictual, it cannot be differentiated from any other tort.)

[footnote by pdj]

Replevin was originally recognized by Glanvil, the earliest English law writer, as being a

remedy to enable a tenant whose goods were wrongfully distrained to litigate the right of the landlord to make the distress. Later, it was extended to any wrongful taking of personalty and, now in Florida by statute, it lies for any wrongful taking or wrongful detention of any specific personal property. x 78.01, Fla. Stat. It is a possessory action (x 78.02(4), Fla. Stat.) and the object is to enable the plaintiff to secure the immediate possession of chattels wrongfully detained and, incidentally, damages for the detention. See Foresight Enterprises v. Leisure Time Prop., 466 So.2d 283 (Fla. 5th DCA 1985). Replevin can be an in rem action in that the action can proceed to judgment for possession of the property based on the sheriff's seizure of the property itself, under a writ of replevin, and process by publication without personal service of process on the defendant. See xx 49.011(7), 78.065(2)(c), Fla. Stat.; Neil v. South Florida Auto Painters, Inc., 397 So.2d 1160, 1163 n.3 (Fla. 3d DCA 1981); Delacruz v. Peninsula State Bank, 221 So.2d 772 (Fla. 2d DCA 1969).

Originally detinue was purely an action to recover goods in specie, if obtainable, and if not, their value at the time of the verdict, in cases where there was no wrongful taking. However, even before the Declaration of Independence by the American colonies on July 4, 1776 (the date as of which Florida has adopted the common law of England, see x 2.01, Fla. Stat.) English law had extended the action of detinue to cover all cases of wrongful detention, which is the gist of the case. Like replevin, detinue was for the recovery of specific property, but unlike replevin, the action proceeded without a prejudgment seizure of the property and the plaintiff was not required to post bond. As Henry P. Trawick, Jr., points out (Trawick, Fla. Prac. and Pro., Replevin, x 34-1 (1973)), Florida has provided for replevin without bond and without writ of replevin since 1953. Also unlike replevin, in detinue, judgment for the plaintiff was for the goods or their value at the time of the verdict and the defendant had the choice of delivering the goods, or retaining them and paying their value as fixed by the jury. In detinue, the determination of value at the time of the verdict differed from the action of trover (conversion) where the value was determined as of the date of the conversion. Notwithstanding the distinction as to the date of determining value and the fact that the action of detinue has

September 11, 2000

1.7. A CASE OF CONFUSION 35

Because replevin and detinue involve recovery of the personalty itself, in specie, the personal property which is the proper subject matter of those actions has, by necessity, always been restricted to the recovery of tangible personalty capable of specific identification and manual seizure. On the other hand, because the cause of action of trover and conversion is only for the recovery of money damages it has never been necessary to the remedy or cause of action of trover and conversion that the wrongfully taken or detained (converted) personalty be capable of specific identification and seizure. In fact, the law actions for money damages on the theories of trover and conversion and for debt are often used for the very reason that the property converted has been lost, hidden, destroyed, or is otherwise not capable of being discovered and recovered under a writ of replevin.

Blackstone, in his Commentaries published in 1765, stated:

in this action of detinue it is necessary to ascertain the thing de- tained, in such manner as that it may be specifically known and recovered. Therefore it cannot be brought for money, corn, or the like, for that cannot be known from other money or corn, unless it be in a bag or a sack, for then it may be distinguishably marked.

3 W. Blackstone, Commentaries *152. Blackstone then noted that in the action of trover and conversion, "the less degree of certainty requisite in describing the goods" gave that action so considerable an advantage over the action of detinue that actions of trover, originally only to recover damages for property found

never been formally abolished, it is usually said that the action of detinue is obsolete because in Florida, now by statute, replevin relates to property both wrongfully taken and wrongfully detained.

The action of trover and conversion developed as a special kind of trespass on the case. Originally used against a finder who wrongfully refused on demand to surrender the goods to the owner from which finding and converting, it was called trover and conversion. This action became the established remedy in all cases of conversion to try the right to possession of chattels where the plaintiff prefers to recover money damages rather than the chattels themselves. The gist of the action is the conversion of the goods. The action is now commonly called simply conversion.

The action of debt is an alternative cause of action for a wrongful taking or wrongful detention of personalty, because the rightful possessor has the option to waive the tortious taking or detention and sue ex contractu in assumpsit on the promise implied by the law from the facts that the wrongdoer had agreed to pay for the property wrongfully taken or, if the owner has regained possession, the value of its use while wrongfully detained. See Annotation: Waiver of tort and recovery in assumpsit for conversion as dependent on or affected by sale of the goods by the converter, 97 ALR 251 (1935). [This is not a proper description of the action of debt, which was originally exactly like detinue, except that it was brought for the recovery of money or fungible goods that could not be specifically described. What the court is describing here is the action known as indebitatus assumpsit (or general assumpsit), a cause of action which grew out of case and which was available whenever debt was available, but which also could be used in many cases where the action of debt would not lie. Today indebitatus assumpsit is a very important restitutionary remedy, especially in those cases where the plaintiff's claim is based on the defendant's unjust enrichment, rather than the plaintiff's right of property. -pdj]

[Footnote by court, renumbered]

36 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW but then wrongfully detained, were at length permitted to be brought for every wrongful detention. Id. at *153. In Florida, the action of replevin was formerly commenced by the filing of an aAEdavit; Crandall, after noting that there had been considerable litigation on the certainty required in describing the property in the aAEdavit, stated:

The general rule is that the description should be such as will enable the oAEcer who makes the seizure to identify it. The plaintiff can not use too much care in preparing this portion of his aAEdavit.

C. Crandall, Florida Common Law Practice 522 (1928). As to the declaration in the action of detinue, Crandall stated:

The property must be described with suAEcient certainty to enable one to identify it, for the judgment and execution are for the recovery of specific property.

Id. at 555.

The general law treatises have always noted this inherent limitation on the type of property that is subject to recovery in an action of replevin:

The general rule is undisputed that replevin lies only for specific property, capable of identification or separation so as to be seized in kind. . . .

34 Cyclopedia of Law and Procedure 1359 (1910).

Ordinarily, specific personal property, unlawfully taken or detained from the owner thereof, is the subject of an action of replevin . . . provided the property sought to be replevied is capable of iden- tification and delivery; but where property cannot be identified or separated so as to be seized in kind, replevin usually will not lie . . . Replevin will not lie for incorporeal personal property, such as shares in a corporation, as distinguished from certificates of stock . . .

77 C.J.S. Replevin x 9 (1952).

The diAEculty which arises in an endeavor to replevy money is to de- scribe it with that degree of accuracy which is required in replevin. Thus, a complaint which contains no allegation showing that the defendant had in his possession any specific money capable of iden- tification, but which shows only that he had collected for the plaintiff a draft deposited by the plaintiff in the usual course of business, is not suAEcient.

66 Am. Jur. 2d Replevin x 13 (1973).

September 11, 2000

1.7. A CASE OF CONFUSION 37

This is the reason section 78.055(1), Florida Statutes, requires every com- plaint in replevin to contain "a description of the claimed property that is suf- ficient to make possible its identification . . . " (emphasis added) Accordingly, the action of replevin is inappropriate and unavailable when the personalty con- verted is, as a practical matter, incapable of being specifically described in a writ of replevin and located, identified, and seized by the sheriff executing the writ.

Personalty can be incapable of identification and seizure either (1) because it is fungible property commingled with property of like kind, or (2) because it is intangible personal property.

In both instances specific property is not capable

of manucaption. "Funds" deposited in a bank account with other funds suffer from both such identification infirmities. However, intangible personal property must be clearly distinguished from tangible evidence

of intangible property,

which tangible evidence can usually be identified and, when it can be, such tan- gible evidence may be the subject of an action of replevin when the issue is who is entitled to the immediate possession of the physical object, but not when the issue is the ownership of the intangible right that is represented by the tangible evidence. Accordingly, replevin will not lie to recover a deed where the title to land is involved in the action.

Analogously, replevin does not lie to recover a

check or passbook where the title or ownership of the funds on deposit in the bank account is involved. This is because replevin is strictly a possessory action where the sole legal issue is the right of immediate possession, not ownership or

This must be contrasted with property that can be the subject of theft under Florida's

omnibus theft statute (x 812.014, Fla. Stat.) which has been held to include credit on a store charge account. See Brown v. State, 414 So.2d 15 (Fla. 5th DCA 1982). Judicial recovery of the converted property is not the object of the criminal trial of a theft case. [footnote by Court, renumbered]

Intangible person property means a mere legal right in or to property as distinguished

from the property itself and includes matters such as causes of action and ownership rights in, and lien interests against, property. Tangible personal property means an object capable of manual possession and whose chief value is intrinsic to the object itself. [footnote by Court, renumbered]

Tangible evidence of intangible property rights includes physical objects representing legal

rights, such as evidence of ownership (deeds, bills of sale, stock certificates, passbooks etc.), and lien interests (mortgages, judgments, deeds of trust, security agreements, etc.) and choses in action which constitute tangible evidence of the right to recover, by action at law, money damages, or possession of property, or money by foreclosure of lien interests (written contracts, bills of exchange, checks, notes, bonds, passbooks, and other evidence of debt, etc.). [footnote by Court, renumbered]

Holder v. Volusia County Bank & Trust Co., 95 Fla. 882, 116 So. 861, (1928). [footnote

by Court, renumbered]

38 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW title.

Money, that is, currency (coined metal and paper bank notes), is personal property which is a proper subject of the tort of conversion for which the rem- edy of conversion (trover) is always appropriate. Nevertheless, as Blackstone noted, normally money is fungible property, like grain, cotton, etc., which, if commingled with other similar money, is incapable of specific identification and not the proper subject of replevin.

When specific bills and coins are identifi-

able because of serial numbers or special markings, or because they are located uncommingled at a specific exclusive place or contained within a identifiable container, the bills and coins, so identifiable, can be replevied.

However, the word "money," or its plural "monies", also has another entirely different meaning. In addition to referring to the generally accepted medium of exchange which exists as tangible (but usually fungible) coined metal and paper currency, the word is commonly used broadly as referring to wealth or value, as reckoned in terms of money, such as an account, credit, or an indebtedness, and, when so, the reference is to an intangible concept often called "funds," "sum," or "monies." Thus, it is common to say, "I have money in the bank" or "he owes me money" or "pay me my money." Such terms do not refer to specific bills or coins but to the property ownership concept of debt or the accounting concept of accounts receivable. It is necessarily in this latter sense that the complaint in this case refers to "The sum of $125,000 taken by R. Bruce Williams without authority from the account of Williams Management Enterprises, Inc. Barnett Bank of Winter Park, Account No. 1074607785" and then refers to "these monies." Accordingly, the reference is to the intangible concept of wealth--of money due and owing or debt--and it is primarily

for

"As you travel through life, brother, whatever be your goal, keep your eye upon the donut, and not upon the hole."

The legal concept is not that inconceivable: If stock certificates are pledged but, by acci- dent or otherwise, find their way back into the possession of the debtor-owner, they can be replevined by the secured creditor who is entitled to their immediate possession although the creditor-plaintiff neither has, nor claims, a title or ownership interest in the corporate shares represented by the stock certificates. [footnote by Court, renumbered]

The problem of replevying commingled goods is treated in 34 Cyclopedia of Law and

Practice, 1359 (1910). [footnote by Court, renumbered]

A major problem in the practice of law today is that law schools teach only "notice

pleading" and not common law pleading theory. Prior to 1950, in Florida, in order for the pleader to know and understand and plead the elements of a cause of action, he had to know the historical reasons that led to the development of that cause of action and the specific purpose it was intended to serve. Under the "notice" pleading concept, a defense motion to dismiss a complaint that fails to allege some essential element (fails to state a cause of action) is now usually met with the plaintiff's attorney's argument that the defendant's counsel "knows what I'm talking about," meaning that the defendant's counsel knows of the particular factual event that gave rise to the claim attempted to be plead and asserted in the complaint. In this case, the defendant attorney is being sued in replevin, a tort or ex delicto cause of action, yet the complaint does not allege that the original receipt of the plaintiff's check by the attorney

September 11, 2000

1.7. A CASE OF CONFUSION 39 this reason that the remedy of replevin is not appropriate in this case.

In the present day cashless "paper" society it is normal for lay persons to think of a check as being a medium of exchange, like currency, or, at least, as having intrinsic value; however, in legal contemplation that is not correct. A check is a bill of exchange drawn on a bank and payable on demand. A bill of exchange or draft is but a written order or direction, signed by a maker or drawer (a creditor), directing a drawee (a debtor, usually a bank) to pay over to a third person (the payee, or other holder of the written order) a certain portion or sum of the money owed to the maker by the drawee. A check or other bill of exchange can be negotiable and, as such, it may have certain peculiar legal characteristics not involved at this stage in this case (e.g., the defendant has not pleaded that he was a holder in due course). Appellant corporation's bank merely received funds (cash or checks or credits) from the corporation with an agreement to repay them (in cash or checks or credits) to the corporation or to third persons as directed (ordered) by the corporation by its checks. The rela- tionship between the corporation and its bank is that of debtor and creditor. The corporation could not replevy its own funds or monies on deposit from its own bank because its corporate deposits have changed their form from tangible currency and checks into intangible accounting credits and cannot be specif- ically identified as tangible property. When the corporation's oAEcer issued a check on the corporate funds and delivered that check to the defendant attorney and the attorney deposited that check in his trust bank checking account, the attorney's bank, through banking channels, duly presented the corporate check or order to the corporation's bank which then transferred (credited) "funds" to the attorney's bank, where they now exist as an accounting credit or "money" owed by the attorney's bank to the attorney. The corporation's bank then deb- ited the corporation's account in the amount of the check and has, doubtless, returned the original executed check to the corporation who should now have it. As a result of this transaction neither the attorney nor the attorney's bank has tangible property capable of specific identification and physical seizure by a sheriff executing a writ of replevin or writ of possession. The attorney has only a credit balance in his favor on the books and records of his bank. The legal result of all of this is that the attorney's bank "owes" (is indebted to) the attor- ney for the sum of "money" the attorney has on deposit in the attorney's bank and the attorney "owes" (is indebted to) all persons (clients) whose "money" the attorney has received and holds in trust in his bank trust account. Replevin is not a proper remedy to recover "funds" held in an account.

A check is a chose in action; it is only tangible evidence of a cause of ac-

was wrongful, or that the defendant is in actual possession of the plaintiff's check, or that, if he were, that his detention of the check (or its proceeds) is wrongful. Detention, following a lawful acquisition of possession, is itself lawful. The purpose of a demand is to change a rightful holding to a wrongful one. See C. Crandall, Florida Common Law Practice 514 (1928). That is the reason many causes of action require a demand as an element of a cause of action provided by law specifically to remedy a wrongful act. [footnote by Court, renumbered]

40 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW tion.

If, instead of depositing the check in his bank trust account, the attorney

(or anyone else) was physically holding the check, and was not entitled to it as a holder in due course or otherwise, and the plaintiff corporation was entitled to the immediate possession of it, doubtless the corporation could replevy the check because it is tangible and is subject to specific identification by number, date, amount, payee, etc. Likewise, if the corporate oAEcer had delivered cur- rency (bills or coins) to the attorney which currency was placed in an identifiable container and placed in a safe in the attorney's oAEce, the corporation, or other person entitled to the immediate possession of that currency, could maintain an action for replevin against the attorney or other person in possession of the identifiable currency. However, in this case, after the defendant deposited the corporate check in his bank, the action of replevin against the defendant was inappropriate to the true owner (possessor) of the "funds" transferred by the check for several reasons: (1) because the defendant then no longer possessed the check, (2) the "funds" were in possession of the defendant's bank, and (3) neither what the defendant then possessed (a bank credit), nor what the defen- dant's bank possessed, was tangible and identifiable personal property subject to physical seizure by an oAEcer executing a writ describing it.

In Belford Trucking Co. v. Zagar, 243 So.2d 646 (Fla. 4th DCA 1970), Zagar, a truck owner-driver, had an agreement with the defendant Belford Trucking Company under which Zagar was to haul freight and receive a percentage of freight charges as compensation. Over a period of months Zagar hauled freight and the trucking company received all of the money representing freight charges, and, on its books, entered a credit to Zagar's account and debited that account with certain expenditures and draws made by Zagar. When a dispute arose, Zagar sued the trucking company for the balance of the agreed percentage of freight charges that he figured was due him after deduction for the expenses and draws paid by the trucking company. However, Zagar sued in conversion alleging that the trucking company had wrongfully deprived or converted to its own use "legal currency" rightfully belonging to Zagar. The trucking company counterclaimed for a balance it claimed to have paid Zagar over and above the agreed percentage due him. The jury found for Zagar and the trucking company appealed. The appellate court stated that the primary trust of the appeal was whether the evidence supported an action for conversion and reversed the judgment in favor of Zagar. However, Belford seems to hold that conversion, an ex delicto tort action, is inappropriate where the plaintiff merely claims that, after credit (receipts) and debits (disbursements) are made, a balance payable in money is due him under an express agreement. The action should have been one ex contractu for sums due under an express contract or for debt due. The court in Belford did not consider the conceptual difference between ex delicto actions and ex contractu actions and in fact held that it knew of no theory

Actually it is not the check that is the chose in action, it is only the debt that is evidenced

by the check that is properly called that. A "chose in action" refers to something like a debt that is the basis for a suit-the word "chose" is just the French for "thing". Things in action are normally contrasted with things in possession, like cats and penthouse apartments. [pdj]

September 11, 2000

1.7. A CASE OF CONFUSION 41 under which Zagar could recover on the facts alleged. Further, the court failed to appreciate the ambiguity in the word money (as being either currency, which is tangible but usually fungible, or as being an intangible concept of wealth existing as credit between a debtor and a creditor) and its statement that "the money" Zagar sought to recover lacked "the specificity required to make it a proper subject of conversion" was unnecessary to its conclusion and is erroneous to the extent that it implies that the action of conversion, being an action only to recover money damages for a wrongful taking or detention, has ever required the specificity in description of the personalty involved that is required by the actions of replevin and detinue. In any event, Belford did not involve the action of replevin and the holding in that case is not relevant to the issue in this case.

In an annotation in point entitled "Replevin For Bank Account" 44 A.L.R. 1522 (1926), no case is cited authorizing replevin of a defendant's bank ac- count. The lead case to that annotation and the one that comes the closest to approving replevin of a bank account is Eaton v. Blood, 201 Iowa 834, 208 N.W. 508, 44 A.L.R. 1516 (1925). In Eaton the probate court held that cer- tain bonds and a savings account were the property of the decedent's sister and that the decedent's husband, as administrator of his wife's estate, was not entitled to that property. The sister then sued the administrator in replevin. Because the defendant admitted in his answer that he was in possession of the savings bonds, passbook, and savings account, the appellate court did not con- sider the problem closely, stating only that: "Replevin for a bank account is somewhat novel, though such cases have not been altogether unknown to the trial courts." (emphasis supplied) 208 N.W. at 511. This masterpiece of under- statement clearly recognizes that the concept is totally unknown to appellate court opinions. Significantly, Eaton did not involve a bank checking account but rather a "passbook" savings account. In such an account the passbook is physically identifiable evidence of the intangible debt owing by the savings bank to the depositor and must be presented to make withdrawals. The court in Eaton considered the passbook as representing or embodying the intangible bank account. There is no passbook or passbook savings account in this case.

The fact that the defendant is an attorney and that the funds sought to be replevied are in an attorney's bank trust account is entirely immaterial to the legal issue of whether the action of replevin is appropriate to funds held by anyone in a bank checking account. A bank checking account is a bank checking account, and the debtor-creditor relationship between the bank and its general checking account depositor is the same in all such cases without regard to the character or capacity of the depositor. The complaint in this case does not seek equitable relief and does not allege that the defendant received or holds the funds in question as attorney for the plaintiff corporation; nor does the complaint allege, directly or indirectly by implication, that the defendant, as an attorney, has any fiduciary relationship as trustee or otherwise to the plaintiff corporation. As to funds held in a trust account, an attorney or anyone else may have a fiduciary relationship to the person for whom the funds are held, or to the true equitable owner, but the trust nature of the funds in the account does

42 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW not establish a trust relationship between the holder of the funds and everyone else in the world. In fact, the trust obligation of an attorney with respect to trust funds received from, and held for, a client requires the attorney to defend his possession of such funds from all persons claiming adverse to his client.

The recognition and enforcement of trust obligations is the exclusive province of equity. If the plaintiff in an equity case were seeking to establish that the defendant owed some fiduciary obligation as an attorney or as equitable account- ing, and, incidentally, was endeavoring to trace trust funds through changing forms, then the defendant's status as an attorney and the fact that the funds were in a trust account could be very material but, in this replevin action at law, those factors are entirely immaterial as is the entire Florida Bar Code of Professional Responsibility and all of the Florida Bar integration rules relating to trust funds. If a bank should refuse to pay an attorney, or anyone else, funds deposited in a "trust account," to recover such funds, except in the rarest of cases, the trustee like any other depositor-creditor would be required to sue the bank as debtor and recover a money judgment representing the "trust" funds. There is no separate cause of action in law just for trustees or beneficial own- ers. There is in equity. While attorneys and other fiduciaries usually segregate trust funds in bank accounts separate and different from bank accounts in which they hold personal funds, the funds of each such client are not separated into their own identifiable account; the funds of multiple clients are commingled. An attorney's bank does not know the amount in the attorney's trust account that belongs, in equity, to each of the attorney's clients. Even if the Williams funds were in a bank trust account all by themselves, such funds are still in- tangible credits not subject to recognition and physical seizure. The "monies" and "funds" cannot be brought within the tactile grasp of an oAEcer executing a writ of replevin. Likewise, when the trustee has converted trust funds, the fact that a client or other trust beneficiary can recover a general money judgment against an attorney, or any other fiduciary, on the theory of conversion is totally immaterial to the question of whether personalty is suAEciently capable of being identified and physically seized by an oAEcer executing a writ of replevin. In a proper case, in a law action, a plaintiff can, in an ejectment action, obtain a writ of possession to effectively recover the possession of real property and, in a replevin action, obtain a writ of replevin to recover the possession of tangible identifiable personal property; otherwise, only a money judgment is recoverable in a law action. To enforce money judgments, ancillary legal remedies, such as garnishment and attachment, are available to reach debts owed to, and funds held for, the judgment debtor, but only in an equity suit can a court adjudicate trust relationships, recognize the equitable ownership of funds or other property held in trust, trace property through changing forms, and enforce the ownership rights of equitable or beneficial owners.

This point is extremely important. Besides the restitutionary relief that is available in

the form of legal actions, there is also restitutionary relief that is available from courts of equity. We shall study equitable restitution hereafter; for the moment it suAEcies to say that the confusion in Williams Management results from the effort to use legal remedies to enforce

September 11, 2000

1.7. A CASE OF CONFUSION 43

The complaint in this case aAErmatively shows that the plaintiff's specifically identifiable check was not in the possession of the defendant when this replevin action was filed. The complaint also aAErmatively shows that the "fund" and "monies" sought to be recovered by writ of replevin in this case exist not in the form of tangible paper bills and coin currency but only in legal and accounting contemplation as an intangible credit or debt in favor of the defendant attorney on the books of the defendant attorney's bank and as an accounting credit in favor of R. Bruce Williams on the trust account records in the oAEce of the defendant attorney. Such accounting credits are mere records of legal debts owed by the defendant attorney's bank to the defendant attorney and owed by the defendant attorney to R. Bruce Williams. The proper legal action and remedy on the facts alleged in the complaint in this case is the action of debt or the concurrent action of general assumpsit in the form of the "common count" known as "money had and received." The thought behind that cause of action is that, in the absence of evidence of some express specific agreement, the law will assume that one who receives and holds money that belongs to another has impliedly assumed the obligation of returning it and is, accordingly, in law indebted to the owner for it. This legal theory is based on an undertaking or agreement to do a right thing which agreement is implied by the law from the facts. Such an action in debt and general assumpsit are ex contractu to enforce an implied agreement or right as distinguished from an ex delicto action to correct wrongful conduct.

If it is alleged and proved that the corporate oAEcer's delivery of the corporate check to the defendant constituted a breach of the corporate oAEcer's fiduciary obligations to the corporation and that in receiving or holding that check or its proceeds the defendant knew, or from the facts and circumstances should have known, that he was participating in a breach of trust, then the defendant would be liable to the corporation in a law action for all damages resulting from such breach of trust. Those facts are not alleged in this case and, if so, would only establish an alternate cause of action for money damages but not for replevin.

The action of replevin is not available to recover a sum of "money" claimed by the plaintiff and "possessed" by the plaintiff only in the form of "funds" on deposit in the defendant's bank checking account.

Affirmed. Cobb, C.J., concurs. Orfinger, J., dissents with opinion. Orfinger, J., dissenting. I respectfully dissent. The complaint describes the personal property sought to be replevied as:

The sum of one hundred and twenty five thousand dollars ($125,000.00) taken by R. Bruce Williams without authorization

a claim that was probably only cognizable in equity. [pdj]

44 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

from the account of Williams Management Enterprises, Inc., Bar- nett Bank of Winter Park, Account No. 1074607785, on or about April 6, 1983 and placed in the attorney trust account of Defendant ROBERT J. BUONAURO, 14 East Washington Street, Orlando, Florida 32801, in the name of R. Bruce Williams.

The complaint further alleges, in substance, that the property is in the at- torney trust account of Buonauro and under his control and direction; that Buonauro wrongfully detains it because Williams took the money out of plain- tiff's bank account wrongfully and without authorization: that Williams gave the money to Buonauro who placed it in his attorney trust account in the name of R. Bruce Williams. In my opinion, these allegations suAEciently describe and identify the money in question so as to make it subject to replevin while held by the attorney in trust.

The majority opinion correctly states that money can be the proper subject of replevin when it can be specifically identified, but it is incorrect when it says that the relationship between the attorney trustee and the true owner of the property is that of debtor and creditor. The relationship between the beneficiary of a trust and the trustee is not one of debtor and creditor. Instead, the trustee "receives the property of the cestui que trust in a fiduciary capacity only, and is bound to hold it sacred and to keep it separate from the general funds . . . " of the trustee. Tomasello v. Murphy, 100 Fla. 132, 129 So. 328, 330 (1930).

There can be no doubt that an attorney holding funds in trust holds them as

I call attention to the fact that the attorney is the only defendant in this case. No bank

is involved as a party and no contention has been made by way of defense that the money is not in the attorney's trust account. Therefore, we need not become involved with the interesting question of whether replevin would lie against the bank which holds the attorney's trust account, where, as in most cases, the bank co-mingles the money in the account with other monies it holds. In this connection, however, see Glidden v. Gutelius, 96 Fla. 834, 119 So. 140, 145 (1928) where the Florida Supreme Court held that a cestui que trust does not part with his title where he deposits funds in trust with a bank, but in such case the bank receives the property in a fiduciary capacity only, "and is bound to hold it sacred and to keep it separate from the general funds of the institution," and that the beneficiary of the trust may trace and recover such funds notwithstanding the fact that the bank commingled the funds with other funds of the bank. The relationship between the attorney and the bank where he keeps his trust account is not involved in this appeal. [footnote by Orfinger, J., renumbered]

[The idea that property held in trust can be replevied from the trustee is remarkably wrong- headed and shows a typical modern misunderstanding of the relation between law and equity. Trusts are solely creatures of equity and it would require some sort of equitable remedy to compel the trustee to turn the corpus of the trust over to the plaintiff; replevin, on the other hand, is not an equitable remedy--in fact, it is one of the oldest legal remedies. Of course, a modern court might decide to ignore the distinction between legal and equitable remedies and allow a proper plaintiff in a proper case to replevy the corpus of a trust. But this is not a proper case for such procedural reforms. The catch is that the beneficiary of the trust, R. Bruce Williams, is not a party to the action; before the plaintiff can proceed against Buonauro on any theory, it should first be required to establish its right to the trust funds against Williams, who is, after all, their equitable owner. But then, if the court had noticed this simple fact, you would have been spared the opportunity to read a most educational case. --p.d.j.]

September 11, 2000

1.7. A CASE OF CONFUSION 45 would any other trustee. Florida Bar Integration Rule, article XI, Rule 11.02(4), says:

Money or other property entrusted to an attorney for a specific pur- pose, including advances for costs and expenses, is held in trust and must be applied only to that purpose. Money and other property of clients coming into the hands of an attorney are not subject to counterclaim or set-off for attorney's fees, and refusal to account for and deliver over such property and money upon demand shall be deemed a conversion. . . .

Attorneys in Florida are required to keep trust funds in a separate, specifically identifiable "trust account," and must maintain records which specifically iden- tify the client or matter for which the trust funds are received, the date, source and reason for which the trust funds were received and the amount of such re- ceipt. Fla. Bar Integr. Rule, art. XI, Rule 11.02(4)(b) and (c). Thus, trust funds in the hands of an attorney are pigeon-holed and classified and identifi- able in the attorney's trust account. Unless it is otherwise demonstrated, we have a right to assume that the defendant/attorney is in compliance with the Integration Rule.

Therefore this case is not one for the collection of a debt

as in Senior

Class of Pekin High School v. Tharp, 261 Iowa 539, 154 N.W.2d 874 (1967); Johnson v. Clutter Music House, 55 Fla. 385, 46 So. 1 (1908) or Malsby v. Gamble, 61 Fla. 310, 54 So. 766 (1911), or in the other cases where there was a debtor-creditor relationship and the fund was not identifiable. Rather, this case is more like Eaton v. Blood, 201 Iowa 834, 208 N.W. 508 (1926), where the Iowa Supreme Court recognized the right of the true owner to replevy a savings account and passbook from a bank which held the same in trust. So too here, Buonouro holds this money in trust, in a designated trust account, specifically designated and identified as funds received from Williams. This identification and segregation of the funds makes them subject to replevin by plaintiff who claims to be the true owner.

There is another basis on which replevin can be supported here. Article XI, Rule 11.02(4) provides that the failure to account for and deliver trust funds upon demand shall be considered a conversion. As with replevin, money is the proper subject of conversion when it can be specifically identified. Belford Trucking Company v. Zagar, 243 So.2d 646 (Fla. 4th DCA 1970). In Allen v. Gordon, 429 So.2d 369 (Fla. 1st DCA 1983) the First District held that the misappropriation of the money in two savings accounts by a signatory on

If this action is any recognized action at law, it would be an action for the collection

of a debt, owed by R. Bruce Williams to the plaintiff. The trouble is that the defendant is not R. Bruce Williams; before the trust funds in the defendant's hands can be attached or subjected to equitable tracing the plaintiff obviously should be required to obtain a judgment (or equivalent equitable decree) against the beneficiary of the trust (who, once again, is R. Bruce Williams). [pdj]

46 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW the accounts would properly subject the wrongdoer to an action for conversion because

The two accounts involved here were separate ascertainable amounts and accounts. The money was, therefore, specific and identifiable. The conversion took place, not while in the accounts, but upon ap- pellant taking the money from the accounts. By withdrawing the money, appellant exercised wrongful dominion and control to the detriment of appellee. Therefore a conversion action was proper. [Emphasis added].

Id. at 371. In Aero International Corporation v. Florida National Bank of Miami, 437 So.2d 156 (Fla. 3d DCA 1983), pet. for review denied, 449 So.2d 264 (Fla. 1984) the court aAErmed a judgment for conversion of money which had been placed with the bank under an escrow agreement, holding that the funds were clearly identifiable, although it is clear from the opinion that the money was commingled with other assets of the bank.

Because the funds held in Buonauro's trust account are subject to an action for conversion if misappropriated, it must be that they are specifically identi- fiable. They are therefore subject to replevin by one claiming to be the true owner.

I would reverse the order dismissing the action and remand the cause for further proceedings.

1.7.2 Notes on Williams Management Enterprises, Inc.

v. Buonauro

1. The problem that faced the plaintiff's lawyer in Williams Management

can be described very simply--if rather unkindly: he sued the wrong defendant. If the allegations in the complaint are true--and on a motion to dismiss a complaint for failure to state a claim the court must assume that the facts are as they alleged in the complaint--R. Bruce Williams had drawn, without authority, a check on the corporate account of the plaintiff and delivered the check to his attorney, the defendant Buonauro (who deposited the check in one of his own bank accounts, his `trust' account). In performing those acts R. Bruce Williams may, or may not, have been guilty of the crime of embezzlement, was probably guilty, under Florida law, of the tort of conversion of the plaintiff's property (i.e., the money that was withdrawn from the plaintiff's account

), would have been

There is, however, a problem (or two) with the idea of conversion of an account--as

opposed to the conversion of a $20 gold piece or even a $20 bill issued by the United States Treasury--for an account is an extreme example of something that is intangible, that has no `physical' existence whatsoever. As the majority in Williams Management suggests, however, since the sheriff does not have to locate the specific money that was converted in order to enforce a judgment issued in a conversion action, courts are often willing to allow a conversion judgment to stand against an embezzler.

September 11, 2000

1.7. A CASE OF CONFUSION 47

liable in an equitable proceeding for some sort of breach of fiduciary duty, would have been liable at law in an action of indebitatus (also known as general) assumpsit for money had and received (and would probably have been liable in debt

) and, as if those remedies would not suAEce, he would

also have been liable to Williams Management in a suit for an equitable accounting (and might even have been liable in a legal action of account.

)

But the defendant Buonauro committed no embezzlement--though maybe an ambitious prosecutor could have convicted him of being an accessory after the fact, or something like that--and violated no fiduciary or other duty that he owed to the defendant. In short, the defendant Buonauro was not alleged to have committed any wrong to the plaintiff.

So why did the plaintiff's lawyer not file suit against R. Bruce Williams rather than going after Buonauro?

One reason--and it is a pretty good reason, even though it was probably never actually articulated by the plaintiff's lawyer--was that the plain- tiff did not care whether R. Bruce Williams had done it wrong. What Williams Management wanted was to get its money back, and it did not care whether it got it back as damages or as restitution. The plaintiff's lawyer apparently hoped to persuade the court--and it did persuade the dissenter--that the monies deposited in Buonauro's trust account--which was really just a debt owed by the bank to Buonauro--was the specific property of his client, Williams Management; if he could do that, after all, then his client would certainly be entitled to restitution of its property.

But suing for restitution--and, in particular--suing for replevin was do- ing things the hard way. So--once again--why didn't they sue R. Bruce Williams rather than poor old Buonauro?

One can't be sure, but the answer may lie in the fact that R. Bruce was broke, or, to phrase the matter in more technical terms, judgment proof. When the president of a company starts misappropriating company funds, it is often because he is going down the tubes.

Now if we assume that R. Bruce was broke, the tactics of the plaintiff's lawyer begin to make sense. Williams Management might be able to get a judgment against R. Bruce Williams, but if he was broke they would

Whether debt would have been available is pretty nearly a meaningless question, for

indebitatus assumpsit is available--except possibly in a count for the use and occupation of land or in an action on a judgment--whenever debt would be available and--as we shall see--in many other cases besides. One would not say that detinue would--or would not--be available on these facts: debt and detinue are historically the same action, but when the action is for the recovery of money it is always called debt (unless the money is in a sealed bag or chest so that it, together with the bag or chest, is specifically identifiable).

The legal action for account is a very close relative of debt/detinue--it too was originally

commenced by a praecepi writ. The legal action of account has been almost completely superseded by the equitable suit for an accounting, in much the same way that the legal action of debt has been superseded by the legal action (even though it is considered to be equitable in nature) of indebitatus assumpsit.

48 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

not be able to collect it.

To make it worse, it seems that R. Bruce may

have been trying to put his assets beyond the reach of his creditors; why else would he have given the check to his lawyer Buonauro for deposit in Buonauro's trust account?

In such circumstances a judgment for tort (or any other type of) dam- ages could well be completely worthless, and certainly would be hard to collect. It is in cases like this that restitutionary relief becomes pecu- liarly attractive: for if Williams Management can prove that the money deposited in Buonauro's trust account is actually the money of Williams Management--if they can trace their money into Buonauro's bank ac- count--then they should be able to get back all that money, even though the other creditors, including judgment creditors, of good old R. Bruce only get one cent on the dollar.

We shall study cases that involve such tracing theories. When we do that I trust that you will notice that replevin is not the traditional remedy by which one traces his money into the bank account of another.

Can we then conclude that the mistake of the plaintiff's lawyer did not lie in suing the wrong defendant but rather in the election of an inappropriate remedy?

2. Today one may wonder why the law should allow a plaintiff to bring re-

plevin for the recovery of tangible goods and chattels but deny him the same remedy when he seeks to recover intangibles, but two hundred years ago, before the subjects of contracts and torts were invented, any lawyer would have understood that replevin was only available to recover tangi- ble goods. After all, the sheriff simply did not have any way of seizing intangibles, for there was nothing tangible to seize.

It is still true that the sheriff cannot seize intangibles. And it is still true that the sheriff in a replevin action has to seize, and therefore has to be able to seize, the goods that are sought to be replevied. So it is still true that replevin cannot be brought to recover an intangible.

If lawyers today are puzzled as to why replevin cannot be brought to recover intangibles, I suggest that that is pretty good evidence that our profession has lost touch with legal reality.

3. On the other hand, considering that R. Bruce Williams may have been try-

ing to conceal his assets from his creditors, there was one very attractive-- and unique--aspect to replevin that would have made it the remedy of choice, if only it had been available. Unlike any other of cause of action, replevin is both a provisional and a final remedy.

The fact that judgments are worthless if the judgment creditor is broke is a subject that

tends to be insuAEciently stressed in courses in `substantive' areas of the law.

Such tracing is normally accomplished by using the equitable remedies of accounting,

constructive trust, and equitable lien.

September 11, 2000

1.7. A CASE OF CONFUSION 49

Provisional remedies are remedies that one gets before trial--like attach- ment or a preliminary injunction--and are especially important to the plaintiff in a case where it looks as if the defendant is hiding his assets or otherwise acting in a way that would render a judgment for the plaintiff nugatory. Replevin serves not only as a cause of action for specific resti- tution of tangible goods or chattels, but the traditional writ of replevin also requires the sheriff--if the plaintiff puts up the required security--to seize the chattels from the defendant, before trial.

Replevin is the only cause of action which also serves as a preliminary remedy.

If the plaintiff had brought an action of conversion against R.

Bruce Williams, there was a slight chance that it might have been able to attach property equal to the amount of its against R. Bruce Williams before trial, but attachment is a separate provisional remedy, and is not a cause of action nor is it available in most cases.

If the plaintiff really wanted to get a provisional remedy, I think that its best bet would have been to have sued both R. Bruce Williams and Buonauro in equity to have them declared constructive trustees for the plaintiff of the funds representing the proceeds of the check that was de- posited in Buonauro's trust account and to obtain a preliminary injunction against Buonauro forbidding him from dissipating the funds held in that account. As we shall see, the constructive trust is the classic form of restitutionary relief that is available in equity.

4. As I suggested in note 2, above, replevin--and even detinue--traditionally

were available only to recover the possession of tangible goods and chattels. They were not available to recover something as ethereal as a credit that someone--in this case, Buonauro--had with a bank.

The law relating to checks and bank accounts, and bills and notes and other forms of commercial paper, was originally developed as part of the law merchant rather than the common law.

When the law merchant was

An injunction, preliminary or otherwise, is a form of equitable relief and is not a legal

remedy. One of the major differences between law and equity is that suits in equity were commenced by filing a `bill' with the chancellor, rather than by purchasing a writ issued to the sheriff. Bills in chancery never became standardized in the way that the common law writs did and the concept of specific causes of action--like debt or trespass--has, therefore, never been applicable to suits in equity.

The law merchant was administered by special mercantile courts and was, in theory at

least, not limited to a particular jurisdiction. The most memorable, if only because of their delightful name, of the courts merchant were the pie powder courts, so named because they were held at traveling fairs and the participants had dusty feet, or, as one would say in the French of the time, pieds poudres.

The common law courts had no reported experience with negotiable instru- ments until the year 1602 when Martin v. Boure, Cro. Jac. 6, was decided. It is useful to place this landmark in perspective.

Negotiable instruments in one form or another had been well known since the days of antiquity. In English experience, at least from the Norman conquest, they were enforced as part of the law merchant, in a series of mercantile courts, the

50 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

absorbed into the common law actions on bills and notes sometimes took the form of debt, but were more often brought in assumpsit.

As we shall see in the next case, there was an old, common-law remedy known as account, but this was available only when the parties to the action stood in a special `fiduciary' relation to each other, such as mas- ter and bailiff, copartners, or--by statute--cotenants. Perhaps R. Bruce Williams could successfully have brought an action in account against his lawyer Buonauro, perhaps Williams Management could successfully have brought an action in account against R. Bruce Williams, but it would have been rather a departure from tradition if Williams Management were al- lowed to bring an action of account against Buonauro: there simply is not the requisite privity between Williams Management and Buonauro to support such an action of account.

5. You will recall that the court said in Williams Management that:

Because replevin and detinue involve recovery of the person- courts of the fair and the staple, and later the courts of admiralty. The extended reign of the mercantile courts is most likely attributable not only to their own intrinsic strengths but also to the concurrent inhospitality of the common law courts. For a good part of the six hundred years when the mercantile courts were active, the common law courts were preoccupied, as a matter of substance, with other kinds of claims perceived to be of greater urgency: suits sounding in tort, and hence related to the keeping of the King's (or the Queen's) peace; or suits concerning real property, and hence significant for a land-oriented society. Procedurally too the common law courts were cumbersome: wager of law was still a defense in an action for debt, and immediate parties, when testimony was otherwise admissible, were disabled from being witnesses in their own behalf. By contrast, the mercantile courts had a reputation for eAEcient, expeditious process, and the legitimacy of their fact-finding was enhanced by regular recourse to juries of merchants. By 1602, however, the comparative advantage of the mercantile courts began to diminish. For 1602 is also the year of Slade's Case, 4 Co. Rep. 92b, in which the common law judges resolved a half-century of disagreement to determine that assumpsit should be available as a general remedy for the breach of any executory contract, without the allegation of a special subsequent promise to pay and despite the alternative of a remedy in debt. Assumpsit opened the common law courts for broad expansion of promissory liability in a climate of opinion increasingly receptive to the needs and concerns of merchants.

Ellen A. Peters, A Negotiable Instruments Primer 2 (2d ed. 1974).

This Primer is an excellent introduction to the law of Bills--and a check is a type of bill-- and Notes, a subject that nowadays is likely to be called Commercial Paper. Professor Peters does have, however, the usual prejudice of a substantive law teacher against restitutionary remedies; she keeps seeing contracts in the strangest places.

That last contention can be easily illustrated by pointing to her description of the holding in Slade's Case, which is just plain wrong. The court in Slade's case did not hold that "assumpsit should be available as a general remedy for the breach of any executory contract;" quite to the contrary, the court held that (general) assumpsit would be available as an action to recover the sales price of goods that had been sold by the plaintiff to the defendant; previously debt had been the only action available action to enforce such a sale. More broadly, Slade's case can be read as holding that general assumpsit--which is a cause of action that is not based on a contract--would be available in most cases where debt was available. (We shall return to Slade's case when we study the case of Moses v. Macferlan.)

September 11, 2000

1.7. A CASE OF CONFUSION 51

alty itself, in specie, the personal property which is the proper subject matter of those actions has, by necessity, always been re- stricted to the recovery of tangible personalty capable of specific identification and manual seizure.

and that:

Personalty can be incapable of identification and seizure either (1) because it is fungible property commingled with property of like kind, or (2) because it is intangible personal property . . . . "Funds" deposited in a bank account with other funds suffer from both such identification infirmities.

What you may not understand from reading that case, however, is that there is a very good reason--a very good reason of policy--in cases like Williams Management to require the plaintiff to be able to point to the specific goods that are claimed and say: "Look! There--right there!-- are my specific goods." The policy is one of fairness to the defendant, especially a defendant like Buonauro who is not alleged to have done anything wrong.

Consider what would have happened if Williams Management had been allowed to replevy the funds that Buonauro held in his trust account for R. Bruce Williams. The sheriff

would then have to replevy the funds and

at that point things might get rather confusing, since Buonauro could, quite reasonably, say that he does not have the funds, his bank has them. Then the sheriff would order Buonauro to write him a check on the bank for the funds, and Buonauro would argue that the court did not order him to write a check to the sheriff.

And then . . . .

Let us just assume that after Buonauro picks himself up from the floor and persuades the sheriff to remove the barrel of the .38 caliber police special from his nose, he does write the check to the sheriff.

And then assume that the next day R. Bruce Williams turns up and asks Buonauro to return his money to him.

Buonauro is going to say: "Sorry. I don't have it. The sheriff grabbed your money."

And R. Bruce Williams is going to reply. "Sorry, but it was your money that the sheriff grabbed, not mine."

It is a characteristic of legal actions--almost a definitive characteristic--that judgments

and preliminary relief are enforced by the sheriff.

Buonauro's point, if technical, would seem to be well taken. Buonauro, is, after all, a

lawyer. The court could have ordered Buonauro to give the sheriff--or the plaintiff--a check for the funds, but such an order would not be replevin, it would be a mandatory injunction or a decree for the payment of money, a form of relief granted by courts of equity, not courts of law.

52 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

And that is the problem--forget about the fact that the funds in the account were intangible and the fact that traditionally one could only bring replevin for tangible goods and chattels. The problem was that, whether the money was tangible or not, the plaintiff's money was mixed up with other money belonging to Buonauro or his other clients and there was no way to tell which was which, without much more sophisticated tracing than is possible in an action of replevin or detinue.

6. Williams Management, like all the other cases that we have studied so far,

involves an action to recover something specific on a proprietary theory. In Williams Management, however the something specific is funds in a bank account. Funds in a bank account may be analyzed by human beings and economists as being money, but to a lawyer funds in a bank are a debt owed by the bank to the `owner' of the account. Looked at in this fashion, it turns out that the plaintiff in Williams Management brought an action in replevin to recover a debt owed by a bank to Buonauro. But to a lawyer, the word `debt' is just shorthand for a cause of action in debt, so one can say that in Williams Management the plaintiff was seeking to replevy a cause of action.

In the next couple of cases, and in many of the other cases in these mate- rials, the plaintiffs seek value restitution, rather than specific restitution. In value restitution the plaintiff seeks a judgment for the monetary value of something that the defendant has, rather than a judgment for the thing itself. But a judgment for money simply creates a debt,

so in Williams

Management one could argue that the plaintiff was seeking value restitu- tion. After all, the value of $10,000 is $10,000.

1.8 An Action for Accounting 1.8.1 Johnson v. Covey

Johnson v. Covey Utah Supreme Court Utah , 264 P.2d 283, 39 ALR 2d 553

(1953)

Appeal from a judgment for plaintiff in an action for accounting of pipe which he claimed defendant mixed or confused with that belonging to the latter, who in turn sold the confused mass without plaintiff's consent. AAErmed, with costs to plaintiff.

This is a rather unusual debt that can be recovered simply by delivering the judgment

and a writ of execution to the sheriff. But one can also sue on the debt created by a money judgment and, in fact, this is the traditional way of enforcing a foreign judgment against the defendant's assets in the forum state.

September 11, 2000

1.8. AN ACTION FOR ACCOUNTING 53

Under a joint oil exploration venture, defendant agreed to furnish pipe to the driller. After exhausting the 5,014 feet of pipe furnished by defendant, the driller obtained money from plaintiff, one of the joint venturers, and purchased 1,586 feet more of the same kind of pipe. The venture failed and the pipe was pulled and stacked. Later the defendant sold all that remained. Plaintiff contended that he owned the pipe purchased with his money. He was upheld by the trial court, and there was suAEcient evidence in the record to support such conclusion under familiar principles enunciated by this court, having to do with appellate review. In aAErming the lower court's finding of ownership in plaintiff, it is unnecessary further to detail the facts or treat other errors assigned except defendant's urging that the trial court failed to recognize and apply correct principles relating to confusion of goods.

Confusion of goods results when personal property belonging to two or more owners becomes intermixed to the point where the property of any of them no longer can be identified except as part of a mass of like goods. No forfeiture of interest problem presents itself here, since the court found, on suAEcient evi- dence, that the commingling was not accomplished by the wrongful act of either of the owners, but by the act of a third person. In such case, the just and proper procedure is to determine the proportionate share of each owner and divide the goods, or the proceeds from the sale thereof (if the sale be fair and for a rea- sonable price), on the fractional ownership basis which has been so determined. This the lower court did, after making proper adjustments on a proportionate basis, for the pipe lost by breakage and theft, and after deducting the expenses of salvage and sale. It was determined that plaintiff owned 25.17mass and hence that percentage of the proceeds of sale, and the record reasonably sustains the trial court's conclusions.

MCDONOUGH, CROCKETT and WADE, JJ., concur. WOLFE, Ch. J., not participating. Rehearing denied.

1.8.2 Notes to Johnson v. Covey

1. Notice that there was apparently no allegation, and certainly was no find-

ing, that the defendant in this case had committed any wrong, not even a breach of contract. In this respect Johnson v. Covey is a very common type of restitutionary case.

Notice also that the plaintiff's claim was based on the fact that the plaintiff had been the owner of some of the pipe that the defendant had sold to a third party. The plaintiff clearly could not reover the pipe from the defendant as the defendant no longer had the pipe. Instead the plaintiff received his pro rata share of the proceeds from the sale of the pipe.

This could be considered an example of value restitution, although there is no finding that the sales price of the pipe was exactly equal to its value. It could also be considered an example of tracing, in that the plaintiff

54 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

successfully traced his pipe, first into the "confused mass," and then into the proceeds of the sale of that mass. Johnson v. Covey can also be analyzed as an unjust enrichment case, for the defendant obviously would be unjustly enriched were he allowed to keep the proceeds of the sale of that portion of the pipe that belonged to the plaintiff. (If the case is based on an unjust enrichment theory, then general assumpsit for money had and received would have been the more usual modern cause of action.)

2. It is not clear whether the court in Johnson v. Covey thought that the

proceeding was an action of account at law or a suit for an accounting in equity. Probably the court did not worry itself about this point; there was no reason why it should.

The legal action of account was available between copartners (and that would include joint venturers) and therefore it is not inappropriate to treat this case as a modern example of the old praecipe writ of account.

Account has justly been called "the father of the count for money had and received".

From restricted origins and appli-

cation it was developed until it became available where one had received money for another to be applied in a particular way. It was no longer confined to guardians, bailiffs, or other re- ceivers who could be classed among those specially appointed to receive rents or other monies. Since the obligation imposed on the defendant by this writ was to give an account of his stewardship it could be used outside those restricted categories. Hence if somebody had money belonging to another--for what- ever reason--it became recognized that by this writ he could be made accountable for it to whomever was lawfully entitled to it. These instances of "constructive account" are amongst the earliest cases of restitution. . . .

Today the general availability of the equitable suit for an accounting (to say nothing of modern discovery techniques) has made the legal action of account pretty well obsolete.

3. Account traditionally was not available against someone with whom the

plaintiff had no privity, with whom he had no previous connection. Thus, for example, you could not bring account against someone who simply stole money from you nor could Williams Management have brought an action in account against Buonauro.

This is the most common of the common counts in indebitatus assumpsit, which is fre-

quently used today in so-called `quasi-contract' actions based on unjust enrichment.

On the other hand, R. Bruce Williams could probably have sued his lawyer, Buonauro,

in account, because of the fiduciary relation that existed between them.

September 11, 2000

1.9. AN ACTION FOR CONVERSION 55 1.9 An Action for Conversion 1.9.1 Welch v. Kosasky

Welch v. Kosasky Appeals Court of Massachusetts 24 Mass. App. Ct. 402; 509 N.E.2d 919

(1987)

Armstrong, J.

In 1974 a thief broke into the Welches' home in Cambridge and stole twelve lots of valuable antique silver from Mrs. Welch's collection. A month later the defendant, a physician, purchased eleven of the lots from a dealer in Brookline for $ 2,750, items for which Mrs. Welch had paid in excess of $ 40,000 during the previous twelve years. There was evidence that the Brookline dealer was involved in receiving stolen goods, and the trial judge, who heard the case without a jury, concluded that the defendant, despite his denials, knew or should have known that the silver items he purchased from the Brookline dealer were stolen goods.

In 1981, the defendant approached Firestone and Parson, a Boston dealer, to sell the silver. There, nine of the eleven lots were purchased by an English dealer for $ 40,000. He left several items on consignment with Firestone and Parson for sale in this country. One of the two lots not purchased by the English dealer was a set of three James II castors that Mrs. Welch had purchased from a New York dealer in 1971 for $ 7,500. These were thought by the English dealer to have been altered in the Victorian period and, for that reason, to lack substantial value as collector's items. He recommended certain alterations (removal of feet and some chasing) to restore them to what he thought to be original form. The defendant authorized the changes, and the work was done in London.

One day in 1981, Mrs. Welch saw two of the stolen items in Firestone & Par- son's window. (They were identified as the stolen items through photographs, descriptions, and hallmarks.) Through this discovery, over the next year or two, Mrs. Welch succeeded in recovering all of the stolen items that had been pur- chased by the defendant. The Welches then brought this action for conversion of all the items and for damages (by the alterations) to the James II castors.

The judge found for the Welches and awarded damages as follows: $ 10,000 for loss of use of the silver during its eight-year absence; $ 22,000 for diminution in the value of the James II castors; and $ 5,000 in consequential damages, representing in part a fee of $ 994.78 paid to an attorney in connection with the recovery of the castors from London, and in part a portion of a $ 10,000 fee paid for another attorney who performed services in seeking to locate and recover all the items stolen in the 1974 housebreak, including many works of art and antiques other than the silver items previously discussed.

Is this finding relevant to the outcome of the case? [pdj]

56 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

The most diAEcult question raised by the defendant's appeal concerns the damages awarded for the diminution in value of the castors. Here the evidence conflicted sharply. The London dealer who recommended and arranged for the alterations to the James II castors testified, as would be expected, that the alterations did not diminish their value, that it simply conformed their appear- ance to the original and made them more aesthetically pleasing. Another expert shared the London dealer's view that the castors had been altered previously and that the latest alterations did not affect their value. The New York dealer who had sold the castors to Mrs. Welch for $ 7,500 in 1971 testified that the castors were then unaltered; that they were worth $ 7,500 in 1971; that in 1984 (two years after their recovery), when he appraised the castors again, they would have been worth $ 25,000 to $ 30,000 in their previous condition but that, as altered, they were worth only $ 3,000. (The London dealer agreed with the last figure.) As this was all the evidence bearing on the value of the castors, it is clear that the judge credited the testimony of the New York dealer and that the $ 22,000 damages awarded for diminution of value represents the difference (as found by the judge) between the value of the castors at the time they were returned and the value that they would have had at that time had they not been altered.

This, the defendant contends, is an improper measure of damages. He re- lies on the rule of damages in conversion cases, long settled in this State, and reaAErmed as recently as George v. Coolidge Bank & Trust Co., 360 Mass. 635, 640-643 (1971), that damages are measured by the value of the converted goods at the time of the conversion, with interest from that time, and that subsequent fluctuations in the value of the converted goods neither enhance nor dimin- ish the damages recoverable. The rule and the reasons for it are discussed in Kennedy v. Whitwell, 4 Pick. 466 (1827); Glaspy v. Cabot, 135 Mass. 435, 439- 441 (1883); Hall v. Paine, 224 Mass. 62, 64-71 (1916); Koski v. Haskins, 236 Mass. 346, 349 (1920); and Welsch v. Palumbo, 321 Mass. 399, 402-404 (1947). Where, as here, the rightful owner elects to receive back the converted goods, the rule of damages, as the defendant correctly observes, is still based on value at the time of the conversion, but the converter is (1) credited with the value of the returned goods at the time of their return, and (2) charged with damages for loss of use of the goods during the period of the detention. See Lucas v. Trumbull, 15 Gray 306, 308, 310 (1860); Jackson v. Innes, 231 Mass. 558, 560 (1919); Lawyers Mortgage Inv. Corp. v. Paramount Laundries, Inc., 287 Mass. 357, 361-362 (1934); George v. Coolidge Bank & Trust Co.[,] 360 Mass. at 641. The defendant thus contends that damages applicable to the castors should have been computed as follows: value of the castors in 1974, $ 7,500

less their value

The defendant also contends that the purchase price of the goods in 1971, $ 7,500, was

too remote from the date of the conversion in 1974 to warrant a finding that the castors were worth $ 7,500 in 1974, and that, absent other evidence bearing on the value of the castors in 1974, the Welches have failed to prove that the castors were worth more when stolen than when returned. Thus, the defendant would restrict damages for the conversion to those for loss of use (which he does not contest). The point is not frivolous, but there was evidence (from the defendant's expert witness Goriansky) that the market for silver antiques was generally

September 11, 2000

1.9. AN ACTION FOR CONVERSION 57 when returned in 1982 ($ 3,000) for a net reduction of $ 4,500.

The defendant's formulation of the rule applicable to conversion cases is cor- rect as far as it goes, but we find nothing in the decisions cited that definitively precludes the rightful owner from recovering the value of the converted prop- erty as appreciated if an independent basis for doing so appears. Typically the owner of converted goods that appreciated after the conversion would, if the goods could be located, sue in replevin rather than trover (under the common law forms of action) and would thereby recover the appreciated goods in specie. See Glaspy v. Cabot, 135 Mass. at 439. Trover (or, later, tort for conversion) was the preferred remedy when the goods depreciated or were damaged after the conversion, because the rightful owner could elect to treat the conversion as a sale and recover the undepreciated value. For an equitable remedy, see Fowle v. Ward, 113 Mass. 548 (1873).

In Jones v. Hoar, 5 Pick. 285 (1827), it was held that, when the converter sold the converted goods, the owner, at his election, could waive the conversion and sue in contract for the purchase price (assumpsit for money had and received to plaintiff's use) and could in this manner recover the value of any appreciation after the conversion. The rule of Jones v. Hoar was recognized or applied in such later cases as Gilmore v. Wilbur, 12 Pick. 120, 124 (1831); Brown v. Holbrook, 4 Gray 102, 103 (1855); Ladd v. Rogers, 11 Allen 209, 212 (1865); Bartlett v. Tucker, 104 Mass. 336, 345 (1870); Child v. Boston & Fairhaven Iron Works, 137 Mass. 516, 522 (1884); Arizona Commercial Mining Co. v. Iron Cap Copper Co., 236 Mass. 185, 190 (1920); Rock-Ola Mfg. Corp. v. Music & Television Corp., 339 Mass. 416, 423 (1959).

The cases which, on superficial reading, seem most strongly to support the defendant's contention (Kennedy v. Whitwell, 4 Pick. at 466, where whiskey worth thirty cents per gallon when converted was sold for forty-six cents per gallon six months later; Koski v. Haskins, 236 Mass. at 346, where onions found to be worth $ 1,822 when attached, mistakenly, by a deputy sheriff were sold a week later for $ 2,260; and Welsch v. Palumbo, 321 Mass. at 399, where property worth $ 1,500, sold to the defendant under an invalid mortgage, was resold two days later for $ 2,000) are seen on closer reading to turn on an infelicitous election of remedies.

Contrary to the defendant's contention, the

general rule of substantive law, broadly stated, is: "The conscious wrongdoer cannot make a profit and is responsible for losses." Loring v. Baker, 329 Mass. 63, 66 (1952). Under this rule the Welches' damages with respect to the castors are not necessarily capped by their value on the date of the conversion.

rising during the entire period in question; and from this we think it was reasonable for the judge to draw the inferences that any difference in the value of the castors between 1971 and 1974 would probably be favorable to the Welches and that treating the values as identical would probably not be prejudicial to the defendant. Absent some indication in the record that silver prices dropped significantly over that three-year period (a point that could have been developed by either party), we think it was reasonable for the judge to find that the 1974 value was the same as the purchase price. [footnote by Court, renumbered]

A major reason for studying restitution is to learn what remedies are available and to

make felicitous elections among them. [pdj]

58 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

In 1981, prior to the alteration of the castors, the Welches had a legal right to their return in specie, although they were not then able to vindicate that right because they had not yet located the castors. The value of that right, on the judge's findings, approximated $ 25,000. The alteration of the castors reduced their value, and correspondingly the value of the Welches' right to replevy, by $ 22,000. The alteration was not authorized by the Welches. As to them it was a tortious act of trespass or injury to their castors, a tort distinct from the previous eight-year detention. If the defendant had then been rightfully in possession of the castors as a bailee, his act of commissioning the unauthorized alterations would give rise to an action for damages by the Welches, either for the injury to the castors (trespass) or for their full value prior to the alteration (conversion). See Restatement (Second) of Torts, xx 217, comments f and g; 219(a), comment b; 222A(1), illustration 20; 223(b); and 226, comment d, il- lustration 2 (1965). See also xx 256, comment b (1965) and x 927, comment d, illustration 3 (1979). It would be incongruous to hold that he escapes that liability because his possession was wrongful. The Welches may consistently seek damages for both torts. See Bradley v. Brigham, 149 Mass. 141, 144-145 (1889). The award for damage to the castors was not error.

The award of consequential damages, $ 5,000, is not contested as to the amount of $ 994.78 paid to the second attorney who arranged the return of the silver from England. The balance is contested. It represents a portion of the fee paid to the first attorney for services in attempting to locate and recover the items stolen in the housebreak. There was evidence from which it could be found that the value of all items stolen roughly approximated $ 200,000 and that the stolen silver represented perhaps one quarter of that total.

Assessment of damages often is based on estimate and judgment, e.g, Piper v. Childs, 290 Mass. 560, 563 (1935), so a plausible allocation, based on such evidence as may be available, will not be upset lightly. An allocation based on mere conjecture is, of course, improper. See A. DaPrato Co. v. Boston, 334 Mass. 186 (1956). In the absence of more specific evidence bearing on the allocation of the first attorney's services between the silver items and non- silver items, we think that an award on account of those services not based on proportionality is justly open to criticism as arbitrary. The award should be reduced to $ 2,500 (i.e., 25 per cent of $ 10,000) for the first attorney's services, plus the uncontested $ 994.78 for the second attorney, a total of $ 3,494.78 for all consequential damages. . . . .

The judgment is to be modified to reflect the reduction in consequential damages described above, and, as so modified, the judgment is aAErmed.

So ordered.

1.9.2 Notes on Welch v. Kosasky

1. The finding in Welch v. Kosasky "that the defendant, despite his denials,

knew or should have known that the silver items he purchased from the

September 11, 2000

1.9. AN ACTION FOR CONVERSION 59

Brookline dealer were stolen goods" may seem important, but it is not as important as one might expect. The defendant would have been liable in conversion even if he had not known, and had no reason to know, that the goods were stolen. The court might not, however, have been so willing to find him liable for the damages resulting from the alteration of the silver, if he had been innocent of any wrong doing. On the other hand, liability in conversion is traditionally fixed as the value of the converted goods at the time of conversion, without regard to the converter's guilty knowledge, or the lack thereof, while the recovery of the damage caused by the alterations sounds more like trespass or some sort of action on the case analogous to waste (which applies only to damage done to real property).

2. When did the conversion by Kosasky occur? When the silver was stolen?

Or at the time that Kosasky purchased it? Or at the time in 1981 that the defendant caused the silver to be altered?

What would the defendant's liability have been if a thief had stolen the silver castors in 1981? Would he still have been liable for their later increase in value after he purchased them?

Notice that Judge Armstrong uses language that suggests that the result in the case is justified on unjust enrichment grounds:

Contrary to the defendant's contention, the general rule of sub- stantive law, broadly stated, is: "The conscious wrongdoer can- not make a profit and is responsible for losses." Loring v. Baker, 329 Mass. 63, 66 (1952). Under this rule the Welches' damages with respect to the castors are not necessarily capped by their value on the date of the conversion.

The only trouble with this is that the quotation from Loring v. Baker is about the liability of an express trustee who makes unauthorized invest- ments. The quotation from Loring v. Baker is problematical even there, but it is hard to see how it can have any bearing on the liability of the defendant in an action of conversion. Judge Armstrong's appeal to "sub- stantive law" ignores that the substance of the law of express trusts is radically different from the law of conversion.

Treating the alteration of the castors as a trespass is a much more sensible approach. The only trouble with that is that traditionally trespass would not have been available, because the goods that were altered (and thereby decreased in value) were not in the possession of the plaintiff at the relevant time. This last objection is, however, purely formal and easily avoided. Since trespass will not lie, the action can simply be called trespass on the case.

60 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW 1.10 An Action for Money Had and Received 1.10.1 Moses v. Macferlan

Moses v. Macferlan

King's Bench 2 Burrow 1005

1760

Lord Mansfield delivered the resolution of the Court in this case; which stood for their opinion, "Whether the plaintiff could recover against the defendant, in the present form of action, (an action upon the case for money had and received to the plaintiff 's use

); or whether he should be obliged to bring a special action

upon the contract and agreement between them."

It was an action upon the case, brought in this Court, by the now plaintiff, Moses, against the now defendant, Macferlan, (heretofore plaintiff in the Court of Conscience, against the same Moses now plaintiff here,) for money had and received to the use of Moses the now plaintiff in this Court.

The case, as it came out upon evidence and without dispute, at nisi prius

before Lord Mansfield at Guildhall, was as follows.

It was clearly proved, that the now plaintiff, Moses, had endorsed to the now defendant, Macferlan, four several promissory notes made to Moses himself by one Chapman Jacob, for 30s. each, for value received, bearing date 7th November 1758; and that this was done in order to enable the now defendant Macferlan to recover the money in his own name, against Chapman Jacob. But previous to the now plaintiff's endorsing these notes, Macferlan assured him "that such his endorsement should be of no prejudice to him:" and there was an agreement signed by Macferlan, whereby he (amongst other things) expressly agreed "that Moses should not be liable to the payment of the money, or any part of it; and that he should not be prejudiced, or be put to any costs, or any way suffer, by reason of such his endorsement." Notwithstanding which express condition and agreement, contrary thereto, the present defendant Macferlan summoned the present plaintiff Moses into the Court of Conscience, upon each of these 4 notes, as the indorser thereof respectively, by 4 separate summonses. Where- upon Moses (by one Smith, as Solicitor for him and on his behalf,)tendered the said indemnity to the Court of Conscience, upon the first of the said four causes; and offered to give evidence of it and of the said agreement, by way of defense

That is, and action on the case for general (or indebitatus assumpsit for money had and

received to the plaintiff's use. The count for money had and received is the most common of the common counts in general assumpsit. (By the way, the word "use" means "benefit", it has nothing to do with the concepts of "using" or "custom". [pdj]

"At nisi prius" means "at trial". The three royal courts (King's Bench, Common Pleas,

and Exchequer) each consisted of a bench of several judges, but jury trials were held before a single judge (who might not even be a judge of the court in which the case was pending) at nisi prius. The name nisi prius comes from the first words in the writ to the sheriff telling him to summon a jury; they literally mean "unless before that".

September 11, 2000

1.10. AN ACTION FOR MONEY HAD AND RECEIVED 61 for Moses in that court. But the Court of Conscience rejected this defence, and refused to receive any evidence in proof of this agreement of indemnity, thinking that they had no power to judge of it; and gave judgment against Moses, upon the mere foot of his indorsement, (which he himself did not at all dispute,) with- out hearing his witnesses about the agreement "that he should not be liable:" for the commissioners held this agreement to be no suAEcient bar to the suit in their court; and consequently decreed for the plaintiff in that court. . . .

[And Moses thereafter paid the money due upon all four notes to Macferlan.]

**** The Court, having heard the counsel on both sides, took time to advise. Lord Mansfield now delivered their unanimous opinion in favour of the present action.

There was no doubt at the trial, but that upon the merits the plaintiff was intitled to the money: and the jury accordingly found a verdict for the 6l. subject to the opinion of the Court upon this question, "Whether the money might be recovered by this form of action," or "must be by an action upon the special agreement only."

Many other objections, besides that which arose at the trial, have since been made to the propriety of this action in the present case.

The 1st objection is, "That an action of debt would not lie here; and no assumpsit will lie, where an action of debt may not be brought:" some sayings at nisi prius, reported by note-takers who did not understand the force of what was said, are quoted in support of that proposition. But there is no foundation for it.

It is much more plausible to say, "That where debt lies, an action upon the case ought not to be brought." And that was the point relied upon in Slade's case:

but the rule then settled and followed ever since is, "That an action of

assumpsit will lie in many cases where debt lies, and in many where it does not lie."

A main inducement, originally, for encouraging actions of assumpsit was, "to take away the wager of law :" and that might give rise to loose expressions, as if the action was confined to cases only where that reason held.

2d Objection--That no assumpsit lies, except upon an express or implied contract: but here it is impossible to presume any contract to refund money, which the defendant recovered by an adverse suit.

4 Coke 92. [footnote by Court, renumbered]

Slade's case is, as this passage indicates, of fundamental importance in the evolution of the action of indebitatus assumpsit. It held that an action of indebitatus assumpsit could be brought in most cases where debt could be brought, thus allowing the plaintiff to elect between the two writs. (The plaintiff almost always elected to proceed in indebitatus assumpsit since in that actio trial was by jury, while in debt the defendant was permitted to wage his law.) [pdj]

62 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

Answer. If the defendant be under an obligation, from the ties of natural justice, to refund ; the law implies a debt, and gives this action, founded in the equity of the plaintiff's case, as it were upon a contract ("quasi ex contractu,") as the Roman law expresses it.

This species of assumpsit ("for money had and received to the plaintiff's use,") lies in numberless instances, for money the defendant has received from a third person; which he claims title to, in opposition to the plaintiff's right; and which he had, by law, authority to receive from such third person.

3d Objection. Where money has been recovered by the judgment of a court having competent jurisdiction, the matter can never be brought over again by a new action.

Answer. It is most clear, "that the merits of a judgment can never be over- haled by an original suit, either at law or in equity." Till the judgment is set aside, or reversed, it is conclusive, as to the subject matter of it, to all intents and purposes.

But the ground of this action is consistent with the judgment of the Court of Conscience: it admits the commissioners did right. They decreed upon the indorsement of the notes by the plaintiff: which indorsement is not now dis- puted. The ground upon which this action proceeds was no defence against that sentence.

It is enough for us, that the commissioners adjudged they had no cognisance of such collateral matter. We can not correct an error in their proceedings; and ought to suppose what is done by a final jurisdiction, to be right. But we think "the commissioners did right, in refusing to go into such collateral matter." Otherwise, by way of defence against a promissory note for 30s. they might go into agreements and transactions of a great value: and if they decreed payment of the note, their judgment might indirectly conclude the balance of a large account.

The ground of this action is not, "that the judgment was wrong;" but, "that, (for a reason which the now plaintiff could not avail himself of against that judgment,) the defendant ought not in justice to keep the money." And at Guildhall, I declared very particularly, "that the merits of a question, determined by the commissioners, where they had jurisdiction, never could be brought over again, in an shape whatsoever."

Money may be recovered by a right and legal judgment; and yet the iniquity of keeping that money may be manifest, upon grounds which could not be used by way of defence against the judgment.

Suppose an indorsee of a promissory note, having received payment from the drawer (or maker ) of it, sues and recovers the same money from the indorser who knew nothing of such payment.

Suppose a man recovers upon a policy for a ship presumed to be lost, which afterwards comes home;--or upon the life of a man presumed to be dead, who afterwards appears;--or upon a representation of a risque deemed to be fair, which comes out afterwards to be fraudulent.

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1.10. AN ACTION FOR MONEY HAD AND RECEIVED 63

But there is no occasion to go further: for the admission that, unquestionably, an action might be brought upon the agreement, is a decisive answer to any objection from the judgment. For it is the same thing, as to the force and validity of the judgment, and it is just equally affected by the action, whether the plaintiff brings it upon the equity of his case arising out of the agreement, that the defendant may refund the money he received; or, upon the agreement itself, that, besides refunding the money, he may pay the costs and expences the plaintiff was put to.

This brings the whole to the question saved at nisi prius, viz. "Whether the plaintiff may elect to sue by this form of action, for the money only; or must be turned round, to bring an action upon the agreement."

One great benefit, which arises to suitors from the nature of this action, is, that the plaintiff needs not state the special circumstances from which he concludes "that, ex aequo et bono, the money received by the defendant, ought to be deemed as belonging to him:" he may declare generally, "that the money was received to his use;" and make out his case at the trial.

This is equally beneficial to the defendant. It is the most favourable way in which he can be sued: he can be liable 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 it; in short, he may defend himself by every thing which shews that the plaintiff, ex aequo et bono, is not intitled to the whole of his demand, or to any part of it.

If the plaintiff elects to proceed in this favourable way, it is a bar to his bringing another action upon the agreement; though he might recover more upon the agreement, than he can by this form of action. And therefore, if the question was open to be argued upon principles at large, there seems to be no reason or utility in confining the plaintiff to an action upon the special agreement only.

[And the Lord Mansfield claimed that the matter had been long settled and cited many precedents supposedly supporting that position.]

This kind of equitable action, to recover back money, which ought not in justice to be kept, is very beneficial, and therefore much encouraged. It lies only for money which, ex aequo et bono, the defendant ought to refund: it does not lie for money paid by the plaintiff, which is claimed of him as payable in point of honour and honesty, although it could not have been recovered from him by any course of law ; as in payment of a debt barred by the statute of limitations, or contracted during his infancy, or to the extent of principal and legal interest upon an usurious contract, or, for money fairly lost at play; because in all these cases, the defendant may retain it with a safe conscience, though by positive law he was barred from recovering. But it lies for money paid by mistake; or upon a consideration which happens to fail ; or for money got through imposition, (express, or implied;) or extortion; or oppression or an undue advantage taken of the plaintiff's situation, contrary to laws made for the protection of persons

64 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW under those circumstances.

In one word, the gist of this kind of action is, that the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity to refund the money.

Therefore we are all of us of opinion, That the plaintiff might elect to wave any demand upon the foot of the indemnity, for the costs he had been put to; and bring this action, to recover the 6l. which the defendant got and kept from him iniquitously.

Rule--That the postea be delivered to the Plaintiff.

1.10.2 Notes on Moses v. Macferlan

1. You may think that this case is a bit dated, but exactly the same problem

could arise today. The Court of Conscience, despite its fancy name, was nothing but a small claims court, and small claims courts still have limited jurisdiction. On the other hand, Moses's lawyer certainly could have done a better job for his client; but if he had, we and the law would be the losers, for the lawyer's clumsy tactics allowed Lord Mansfield to write the opinion that is the basis for the entire law of quasi-contract as a ground for unjust enrichment.

2. You should be aware that quasi-contract has no more to do with con-

tracts than mock turtle soup has to do with turtles. The distinction exists because Roman law, at the time of the end of the Roman Em- pire, distinguished between real actions--which were actions for specific restitution--and personal actions of contract, quasi-contract, tort, and quasi-tort. Common law judges and scholars, including Bracton and Mansfield, later tried to adapt these Roman categories to the common law, where they do not fit very well.

In the common law tradition quasi-contracts are actions that are not based on contract but that are brought in assumpsit, the same writ or cause of action that is used to recover "damages" for breach of contract; the only difference is that the quasi-contactual actions are in "general" (or "indeb- itatus") assumpsit, while the actions actually based on a special contract are in "special" assumpsit.

Quasi-contractual actions are generally clas-

In other words, in more modern terminology actions in general assumpsit for money

had and received are used to prevent unjust enrichment. In the preceding paragraph Lord Mansfield has listed many of the types of unjust enrichment for which an action of money had and received is available (and he also lists cases where it is not available).

Quasi-contractual actions are said to "contracts implied in law". There are also so-called

"contracts implied in fact", where a contract--an actual contract--is created by the parties' conduct rather than by their words. The form of the action for breach of a contract implied in fact is also general (or indebitatus) assumpsit. This can make it diAEcult in some cases to tell whether an action in general assumpsit is based on a "contract" implied in law or on a contract implied in fact. Fortunately, whichever way one decides that issue is not likely to make any practical difference.

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1.11. FORMS OF ACTION AND THE SYSTEM OF WRITS III 65

sified as restitutionary and, as we shall see, are typically treated as one of the remedies for unjust enrichment.

Up to now, no one that I know of has suggested that there are such things as actions in quasi-tort in the common law. But wouldn't it make sense to describe actions imposing liability without fault as quasi-delictual? If quasi-contract actions are actions where the plaintiff seeks a contractual remedy even though there is no contract, quasi-tort actions would be actions where the plaintiff seeks a tort remedy even though there is no tort. In particular, quasi-torts would include the restitutionary actions of conversion--which, as we will see when we come to Hambly v. Trott,

is, despite being formally a tort, an action for value restitution based on property rights--and ejectment.

3. Notice that Lord Mansfield says that actions in quasi-contract are equi-

table in nature and that the defendant may raise any equitable defense. This is true, but it does not mean that quasi-contractual actions are heard by courts of equity. They are heard by courts of law, like the Court of Kings Bench. Courts of law often act on equitable principles (and one of the maxims of equity often quoted by chancellors is that: "Equity follows the law").

1.11 Forms of Action and the System of Writs

III

1.11.1 Stephen on Pleading

Selections from: A Treatise on the Principles of Pleading in Civil Actions

by John Henry Stephen, Esq.

(1824)

CHAPTER I Of the Proceedings in an Action from Its Commencement to Its

Termination.

Actions are divided into real, personal, and mixed. Real actions are those brought for specific recovery of lands, tenements, or hereditaments; personal, are those brought for specific recovery of goods and chattels,--or for damages, or other redress, for breach of contract, or other injuries, of whatever description, the specific recovery of lands, tenements, and hereditaments, only excepted.

See infra Section 1.12.1

Pages 3-23. The beginning of a page is indicated by braces containing a star and the

number of the page. Footnotes in the original are omitted.

66 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW Mixed actions are such as appertain, in some degree, to both the former classes, and therefore are properly reducible to neither of them, being brought both for specific recovery of lands, tenements, or hereditaments, and for damages for injury sustained in respect of such property. Again, in real actions, there is a division between those founded on the possession, and those founded on the absolute property or right.

There are three Superior courts of the common law, in each of which actions may be brought. These are the King's Bench, the Common Pleas, f?4g and the Exchequer--each consisting, at present, of four judges. The original distribution of business among them, upon their first establishment, was as follows: The cognizance of crime, and of such matters of litigation in general, as directly concerned the crown (those relating to the revenue excepted) was exclusively appropriate to the Court of King's Bench; civil suits between subject and subject (called communia placita) to the Common Pleas; and matters relating to the royal revenue, to the Exchequer. In course of time, considerable violations of this arrangement took place, usurpation of the province of the Common Pleas being made by each of the other courts. Of these changes the general result is as follows. The King's Bench has now jurisdiction not only in those matters which belonged to it by its original constitution, but in all personal actions whatever. The case is the same with the Exchequer; but both these courts are still excluded from the cognizance of actions real and mixed. The Common Pleas retains its original province, and therefore entertains all actions whatever between subject and subject, whether of the real, mixed, or personal class.

An action is commenced in the King's Bench or Common Pleas, either by original writ or by bill ;

f?5g in the Exchequer, by bill only. Of these methods

of proceeding, the former is the regular and ancient one; and the latter is in the nature of an exception to it. The proceeding by original writ (breve originale), is a mandatory letter issuing out of the Court of Chancery, under the great seal, and, in the King's name, directed to the sheriff of the county where the injury is alleged to have been committed, containing a summary statement of the cause of complaint, and requiring him, in most cases, to command the defendant to satisfy the claim; and, on his failure to comply, then to summon him to appear in one of the Superior courts of common law, there to account for his non-compliance. In some cases, however, it omits the former alternative, and requires the sheriff simply to enforce the appearance.

A bill was very much like the modern complaint and also closely resembled the declaration

(or, in the case of a real action, the count) that the plaintiff had to file once the defendant responded to the original writ. For our purposes, the fact that in some cases an action at law might be commenced by a bill, rather than a writ, is of no importance; on the other hand, you should be aware that suits in equity were always commenced by a bill (and that original writs were never used in equity).

These two alternative types of writs are, of course, the descendants of the old writs that

Maitland labels `praecipe' and `si te fecerit securum', respectively. See supra text at 14.

The writ in which the defendant is commanded to satisfy the plaintiff's claim is a praecipe writ; the writ in which the sheriff is simply to enforce the defendant's appearance is a writ in the form of a writ si te fecerit securum.

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1.11. FORMS OF ACTION AND THE SYSTEM OF WRITS III 67

One object of the original writ therefore, is, to compel the appearance of the defendant in court; but it is also necessary, as authority for the institution of the suit; for it is a principle (subject only to the exception introduced by the practice of proceeding by bill ), that no action can be maintained in any Superior court, without the sanction of f?6g the king's original writ: the effect of which is, to give cognizance of the cause, to the court in which it directs the defendant to appear. To sue out an original writ, is, consequently, the first step taken in the suit. It is the business of the plaintiff to sue it out, and he obtains it, as a matter of course; upon payment however to the king, of a fine proportionate to the amount of the demand in the action.

The original writs differ from each other in their tenor, according to the nature of the plaintiff's complaint, and are conceived in fixed and certain forms. Many of these forms are of a remote and undefined antiquity, but others are of later origin, and their history is as follows.

The most ancient writs had

provided for the most obvious kinds of wrong;

but in the progress of society,

cases of injury arose, new in their circumstances, so as not to be reached by any of the writs then known in practice, and it seems that either the clerks of the Chancery (whose duty it was to prepare the original writ for the suitor) had no authority to devise new forms to meet the exigency of such new cases, or their authority was doubtful, or they were remiss in its exercise. Therefore by the Statute Westminster 2, 13 Ed. I. c. 24, it was provided,

"That as often as it shall happen in the Chancery, that in one case a writ is found, and in a like case (in consimili casu), falling under the same right, f?7g and requiring like remedy, no writ is to be found, the clerks of the Chancery shall agree in making a writ, or adjourn the complaint till the next parliament, and write the cases in which they cannot agree, and refer them to the next parliament,"

&c.

This statute, it will be observed, while it gives to the oAEcers of the

Chancery, the power of framing new writs in consimili casu with those that for- merly existed, and enjoins the exercise of that power, does not give or recognize any right to frame such instruments for cases entirely new. It seems, therefore, that for any case of that description, no writ can be lawfully issued, except by

I am afraid that Stephen, too, is fond of telling just-so stories; but even if his history is

not good history, it still may be good law, for what he says was the accepted legal wisdom of his day.

Note how Stephen, too, seems to slip into the idea that the early actions were concerned

with wrongs, rather than being based on rights; but in Stephen's case this distortion of history causes no harm, since he sets out the actual forms of the writs and does not discuss them in terms of abstract legal theory.

This consimili casu clause of the Statute of Westminster confirmed a pre"existing practice;

the clerks in Chancery had been formulating new writs for a long time before the passage of that statute. In general these new writs (which were labeled `case' or `trespass on the case') were modeled on trespass rather than on one of the more ancient praecipe writs; trespass had, as we have seen, a lot of procedural advantages over the earlier forms of action.

68 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW authority of parliament. But on the other hand, new writs were copiously pro- duced, according to the principle sanctioned by this act, i.e. in consimili casu, or upon the analogy of actions previously existing; and other writs also, being added from time to time, by express authority of the legislature, large accessions were thus, on the whole, made to the ancient stock of brevia originalia.

All forms of writs once issued, were entered from time to time, and preserved, in the Court of Chancery, in a book called The Register of Writs, which in the reign of Hen. VIII. was first committed to print and published. This book is still in authority, as containing, in general, an accurate transcript of the forms of all writs as then framed, and as they ought still to be framed in modern f?8g practice. It seems, however, that a variation from the Register, is not conclusive against the propriety of a form, if other suAEcient authority can be adduced to prove its correctness.

An original writ (as already stated) is essential to the due institution of the suit. These instruments have consequently had the effect of limiting and defining the right of actions itself; and no cases are considered as within the scope of judicial remedy, in the English law, but those to which the language of some known writ is found to apply, or for which some new writ, framed on the analogy of those already existing, may, under the provision of the Statute of Westminster 2, be lawfully devised. The enumeration of writs, and that of actions, have become, in this manner, identical.

The law of actions, comprising their more particular divisions, and the rules as to their respective competency in different cases, the proper parties to the suit, and the power of joining different claims or demands, in the same writ, is a subject which it is not necessary here to discuss, the object of this work being only to treat those general and fundamental rules of pleading, which are applicable to all actions alike. In order, however, to illustrate these rules, it will be proper to present the reader with examples of such of the forms of original writs as most frequently occur in modern practice.

f?9g The real and mixed actions which, in modern times, have perhaps come most frequently into use, are those of a writ of right, formedon, dower, and quare impedit.

The writ of right is the remedy appropriate to the case where a party claims the specific recovery of corporeal hereditaments

in fee-simple; founding

his title on the right of property, or mere right, arising either from his own seisin, or the seisin of his ancestor or predecessor. Its form is as follows:--

writ of right. 7

This last sentence is important. When the writ system was abolished, the actions that

were originally started by the writs remained. Even after the writs were abolished, if there had never been a writ that covered one's case, even by analogy, then one did not have a cause of action. And this was so, even though writs were no longer required.

"Corporeal hereditaments" are interests in land that are subject to physical possession

(or seisin); "specific recovery of corporeal hereditaments" is, of course, specific restitution of corporeal hereditaments.

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1.11. FORMS OF ACTION AND THE SYSTEM OF WRITS III 69

George the Fourth, by the grace of God, of the United Kingdom of Great Britain and Ireland King, Defender of the Faith, and so forth, to the Sheriff of greeting. Command

C.D., that justly

and without delay he render unto A.B. four messuages,

four gar-

dens, and four acres of land, with the appurtenances, in the parish of in the county of which he claims to be his right and inheritance, and whereof he complains that the aforesaid C.D. deforces him. And unless he shall so do, and if the said A.B. shall give you security of prosecuting his claim, then summon by good summoners, the said C.D., that he be before our justices at West- minster,

in eight days of Saint Hilary, to show wherefore he hath

not done it; and have you there the summoners and this writ. f?10g Witness ourself, at Westminster, on the day of in the

year of our reign.

The writ of formedon lies where a party claims the specific recovery of lands and tenements, as issue in tail; or as remainder-man, or reversioner, upon the determination of an estate tail. Its form is as follows:--

writ of formedon.

George the Fourth, &c. to the Sheriff of greeting. Command C.D., that justly and without delay he render unto A.B. the manor of N., with the appurtenances which E.F. gave to G.B. and the heirs of his body issuing, and which, after the death of the said G.B., ought to descend to the said A.B., the son and heir of the said G.B., by form of the gift aforesaid, as it is said. And unless he shall so do, and if the said A.B. shall give you security of prosecuting his claim, then summon, by good summoners, the said C.D., that he be before our justices at Westminster, in eight days of Saint Hilary, to show wherefore he hath not done it; and have you there the summoners and this writ. Witness ourself, at Westminster, on the day of

in the year of our reign.

The writ of dower lies for a widow claiming the specific recovery of her dower, no part of it having yet been assigned to her.

f?11g Its form is as follows:--

This word `Command' is the English translation of the Latin word `Praecipe'.

According to the Concise Oxford Dictionary a messuage is a "dwelling house with out-

buildings & land assigned to its use."

I.e., the court of Common Pleas; Common Pleas had a monopoly over the real actions.

The form of this writ, which is actually a writ of formedon in the descender, though clearly

a praecipe writ, was established by the statute known as De Donis Conditionalibus, 13 Edw. 1, c. 1 (1285), which, as you should know, created the estate in fee tail.

70 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

writ of dower. George the Fourth, &c., to the Sheriff of greeting. Com- mand C.D., that justly and without delay he render to A.B., widow, who was the wife of E.B., now deceased, the reasonable dower which falleth to her of the freehold, which was of the said E.B., her late husband, in the parish of whereof she hath nothing as she says, and whereof, she complains that the said C.D. deforces her. And unless he shall so do, and if the said A.B. shall give you secu- rity of prosecuting her claim, then summon by good summoners, the said C.D., that he be before our Justices of the Bench at Westmin- ster, in eight days of Saint Hilary, to show wherefore he hath not done it; and have you there the summoners and this writ. Witness ourself, at Westminster, the day of in the year of our reign.

The writ of quare impedit is the remedy by which, where the right of a party to a benefice is obstructed, he recovers the presentation; and is the form of action now constantly adopted to try a disputed title to an advowson.

Its form is as follows:--

writ of quare impedit.

George the Fourth, &c., to the Sheriff of greeting. Com- mand T., bishop of , and C.D., Esquire, and E.F., clerk, that justly and without delay they permit A.B., f?12g widow, to present a fit person to the church of which is vacant, and belongs to her presentation as she saith, and whereof, she complaineth that the said bishop, and C.D. and E.F., unjustly hinder her. And unless they shall so do, and if the said A.B. shall give you security of pros- ecuting her suit, then summon by good summoners, the said bishop, and C.D. and E.F., that they be before our justices at Westminster, in eight days of Saint Hilary, to show wherefore they will not do it; and have you there the names of the summoners and this writ. Wit- ness ourself, at Westminster, the day of in the year of our reign.

Of personal actions, the most common are the following--debt, covenant, detinue, trespass, trespass on the case, and replevin.

According to the Concise Oxford Dictionary a `benefice' is a "church living," e.g., the

oAEce of being the minister (or pastor) of a particular church, and an `advowson' is a "right of presentation to a benefice", i.e., the right to appoint someone to the living.

This praecipe writ is a good illustration of the fact that the interests that could be recovered in a real action were not necessarily limited to corporeal hereditaments (i.e., tangible interests) in land.

The historic distinction between the real actions, on the one hand, and personal actions,

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1.11. FORMS OF ACTION AND THE SYSTEM OF WRITS III 71

The writ of debt lies where a party claims the recovery of a debt, i.e. a liquidated or certain sum of money alleged to be due to him.

Its form is as follows:

writ of debt.

George the Fourth, &c., to the Sheriff of greeting. Com- mand C.D., late of gentleman, that justly and without delay he render to A.B. the sum of pounds, of good and lawful money of Great Britain, which he owes to, and unjustly detains from him, as it is said. And unless he shall do so, and if the said A.B. shall make you secure of prosecuting his claim, then summon, by good summoners, the said C.D., that he be before us, in eight days of Saint Hilary, wheresoever we shall then be in England,

f?13g to

show wherefore he hath not done it; and have you there the names of the summoners and this writ. Witness ourself, at Westminster, the day of in the year of our reign.

The writ of covenant lies where a party claims damages for breach of covenant, i.e. of a promise under seal.

on the other, turned on whether the initial process, rather than the action itself, was directed at the property--that is, the res--that was claimed or at the person of the defendant. All actions that were historically considered to be real actions are proprietary, and therefore restitutionary, but the fact that an action was historically commenced by process issued against the person of the defendant rather than against a res--that is, the fact that the action is traditionally classified as personal rather than real--in no way keeps that action from being properly classified as a proprietary, to say nothing of a restitutionary, action.

Notice that of all the listed personal actions, only tresspass and trespass on the case are wrong-based actions; all the rest are restitutionary and they all are, with the sole exception of replevin, praecipe actions.

Notice that the operative language of the writ of debt is identical to that of the writ of

right, though debt has always been classified as a personal action and the writ of right was always considered to be the greatest--and most real--of the real actions.

That operative language is:

Command C.D., [. . .] that justly and without delay he render unto [or `to'] A.B. [something or other] [which is claimed on some theory or other and] whereof C.D. deforces him [or which C.D. `unjustly detains from him]'.

Though the subject matter of these two writs, some land in the first case and a debt in the second, are about as different in legal concept as it is possible for two things to be, the forms of the two writs (and therefore to a large extent the formal aspects of the two actions) are identical.

This phrase indicates that this particular writ is returnable in King's Bench rather than

Common Pleas (which sat at Westminster), although originally all the praecipe writs, not only the real actions, were returnable only in Common Pleas.

Despite this description, you will notice that the writ orders the sheriff to command the

defendant C.D. to `keep' the covenant, not to pay damages for its breach. The action of covenant was originally conceived, not as an action for damages, but as one for the specific performance of the covenant--the `keeping' of the covenant--that the plaintiff was entitled to receive.

72 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

Its form is as follows:--

writ of covenant.

George the Fourth, &c., to the Sheriff of greeting. Com- mand C.D., late of gentleman, that justly and without delay he keep with A.B. the covenant made by the said C.D., with the said A.B., according to the force, form, and effect of a certain indenture in that behalf made between them, as it is said. And unless he shall do so, and if the said A.B. shall make you secure of prosecuting his claim, then summon, by good summoners, the said C.D., that he be before us, in eight days of Saint Hilary, wheresoever we shall then be in England,

to show wherefore he hath not done it; and have you

there the names of the summoners and this writ. Witness ourself, at Westminster, the day of in the year of our reign.

The writ of detinue lies where a party claims the specific recovery of goods and chattels, or deeds and writings, detained from him. This remedy is in somewhat less frequent use than any of the other personal actions above enumerated. The form of the writ is as follows:--

f?14g writ of detinue.

George the Fourth, &c., to the Sheriff of greeting. Com- mand C.D., late of yeoman, that justly and without delay he render to A.B. certain goods and chattels of the value of pounds,

of lawful money of Great Britain, which he unjustly de-

tains from him, as it is said. And unless he shall so do, and if the said A.B. shall make you secure of prosecuting his claim, then summon, by good summoners, the said C.D., that he be before us, in eight days of Saint Hilary, wheresoever we shall then be in England, to show wherefore he hath not done it; and have you there the names of the summoners and this writ. Witness ourself, at Westminster, the day of in the year of our reign.

This phrase indicates that this particular writ is returnable in King's Bench rather than

Common Pleas. Originally the praecipe writs, even the ones used in personal actions, could only be brought in the court of Common Pleas.

Although the writ of detinue, like the writ of right and the writ of debt, which it so closely

resembles, is clearly by its terms a writ for specific restitution, the victorious plaintiff did not necessarily get specific restitution of the goods and chattels mentioned in the writ, for the defendant had the option of paying the plaintiff the value of those goods and chattels, rather than returning them to the plaintiff.

Note that according to the court in Williams Management Enterprises, supra, Section 2, Footnote 1.7.1, the value of the goods and chattels is to be determined as of the date of the verdict, rather than as of the date of the "conversion" as is the case in replevin.

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1.11. FORMS OF ACTION AND THE SYSTEM OF WRITS III 73

The writ of trespass lies where a party claims damages for a trespass committed against him. A trespass is an injury committed with violence; and this violence may be either actual or implied ; and the law will imply violence, though none is actually used, where the injury is of a direct and immediate kind, and committed on the person, or tangible and corporeal property, of the plaintiff. Of actual violence, an assault and battery is an instance; of implied, a peaceable, but wrongful entry upon the plaintiff's land. The form of the writ is as follows:

writ of trespass. For an Assault and Battery.

George the Fourth, &c., to the Sheriff of greeting. If A.B. shall make you secure of prosecuting his claim, then put by gages and safe pledges, C.D., late of yeoman, that he be before us on the morrow of All Souls, f?15g wheresoever we shall then be in England, to show wherefore, with force and arms, at aforesaid, he made an assault upon the said A.B., and beat, wounded, and ill-treated him, so that his life was despaired of, and other wrongs to him there did, to the damage

of the said A.B., and against our peace; and

have you there the names of the pledges and this writ. Witness ourself, at Westminster, the day of in the year of our reign.

writ of trespass. Quare clausum fregit.

George the Fourth, &c., to the Sheriff of greeting. If A.B. shall make you secure of prosecuting his claim, then put by gages and safe pledges, C.D., late of yeoman, that he be before us on the morrow of All Souls, wheresoever we shall then be in England, to show wherefore, with force and arms, he broke and entered the close of the said A.B., situate and being in the parish of in the county of and with his feet, in walking, trod down, trampled upon, consumed, and spoiled the grass and herbage of the said A.B. there growing, and being of great value, and other wrongs to the

Note that the writ of trespass (and the writ of trespass on the case) do not start with the

word `Praecipe' (i.e., `Command'). Instead they begin with the words "If [he] shall make you secure . . . ," which are, of course, the English translation of the Latin "Si te fecerit securum . . . ," which Maitland used as the heading for his second category of writs.

Notice that it is only in the writs for trespass and trespass on the case that there is an

allegation that the plaintiff suffered damages.

"Quare clausum fregit" literally means "he broke the close", i.e., that the defendant

crossed and broke the imaginary boundary line that encloses the plaintiff's land. "Trespass quare clausum fregit" (or "trespass q.c.f.") is the traditional name of the action for trespass to land.

74 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

said A.B. there did, to the damage of the said A.B., and against our peace; and have you there the names of the pledges and this writ. Witness ourself, at Westminster, the day of in the year of our reign.

The writ of trespass upon the case, lies where a party sues for damages for any wrong or cause of complaint to which covenant or trespass will not apply. This action originates in the power given by the statute of Westminster 2, to the clerks of the Chancery to frame new writs in consimili casu with writs already known.

Under this power, they f?16g constructed many writs for different

injuries, which were considered as in consimili casu with, that is, to bear a certain analogy to, a trespass. The new writs invented for the cases supposed to bear such analogy, have received, accordingly, the appellation of writs of trespass on the case (brevia de transgressione super casum), as being founded on the particular circumstances of the case thus requiring a remedy, and to distinguish them from the old writ of trespass; and the injuries themselves, which are the subject of such writs, are not called trespasses, but have the general names of torts, wrongs, or grievances.

The writs of trespass on the case, though

invented thus, pro re nata, in various forms, according to the nature of the different wrongs which respectively called them forth, began, nevertheless, to be viewed as constituting, collectively, a new individual form of action; and this new genus took its place, by the name of trespass on the case, among the more ancient actions of debt, covenant, trespass, &c. Such being the nature of this action, it comprises, of course, many different species. There are two, however, of more frequent use than any other species of trespass on the case, or, perhaps, than any other form of action whatever. These are, assumpsit and trover.

The action of assumpsit lies where a party claims damages for breach of simple contract, i.e. a promise not under seal. Such promises may be express or implied ; and the law always implies a promise to f?17g do that which a party is legally liable to perform.

The remedy is consequently of very large

and extensive application. The action of trover is that usually adopted (by

This statement is debatable; but what matters is that the clerks of Chancery exercised

the power, not where the power came from.

Notice that as late as 1824, the date of Stephen's treatise, there was no idea that torts

constituted a separate area of the law; `tort' was just one of several names that could be applied to a non-trespassory wrong. To make matters worse, it appears that the label `tort' was not applied to a trespass, although today most legal academics--and, I fear, most real lawyers--would cite trespass as the paradigmatic example of a tort.

Notice also that Stephen gives no example of a writ for breach of contract. The categories of contract and tort, so ubiquitous today, simply could not be--and still cannot be--coherently applied to the causes of action that were embodied in the original writs.

`Trover' is also known as `trover and conversion' and today is often just called `conversion'.

Such implied "contracts" are, of course, the basis of the restitutionary quasi-contract

actions that are used to prevent unjust enrichment.

September 11, 2000

1.11. FORMS OF ACTION AND THE SYSTEM OF WRITS III 75 preference to that of detinue) to try a disputed question of property in goods and chattels. In form, it claims damages; and is founded on a suggestion in the writ (which in general, is a mere fiction), that the defendant found the goods in question, being the property of the plaintiff; and proceeds to allege, that he converted them to his own use. Specimens shall here be given of the original writ in assumpsit, in trover, and in another species of frequent occurrence, namely, an action on the case for libel.

writ of trespass on the case.

In Assumpsit. For goods sold and delivered.

pounds, of lawful money of Great Britain, for divers goods, wares, and merchandizes, by the said A.B. before that time sold and delivered to the said C.D., at his special instance and request; and being so indebted

, he, the said C.D., in consideration thereof

afterwards, to wit, on the day and year aforesaid, at aforesaid, in the county aforesaid, undertook

and faithfully promised the said

A.B. to pay him the said sum of money, when he the said C.D. should be thereto afterwards requested; Yet the said C.D., not regarding his said promise and undertaking, but contriving and fraudulently intending, craftily and subtilly, to deceive and defraud the said A.B.

Goods sold and delivered was, and still is, one of the common counts in general (also

known as indebitatus) assumpsit, the form of assumpsit that is not based on the breach of an express promise; the remedy for breach of contract, and the basis for almost all the actions that you studied in your course in contracts, is known as special assumpsit.

An action for goods sold and delivered (or any other action in general assumpsit) may be based on an express contract or on one implied in fact; more commonly, however, such actions are brought when there is no contract whatsoever. As I have mentioned before, assumpsit actions that are not based on contract are misleadingly said to be based on a `contract implied in law' or are confusingly said to sound in `quasi-contract'.

General assumpsit is used primarily as the cause of action at law when the plaintiff is seeking value restitution on the theory of unjust enrichment. We shall be spending a great deal of time on the possible permutations of this protean cause of action.

It is interesting, but probably not significant, that Stephen's example of an assumpsit writ sounds in general assumpsit rather than one for breach of a special contract.

The Latin for `being indebted' is `indebitatus'.

The Latin for `he undertook' is `assumpsit'.

The particular undertaking or assumpsit here alleged is a fiction; in general assumpsit the plaintiff does not have to prove that the assumpsit took place; the liability of the defendant is based, not on his undertaking or promise, but on the underlying indebtedness.

76 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

in this behalf,

f?18g hath not yet paid the said sum of money, or

any part thereof, to the said A.B. (although oftentimes afterwards requested). But the said C.D. to pay the same, or any part thereof, hath hitherto wholly refused, and still refuses, to the damage of the said A.B. of pounds, as it is said; and have you there the names of the pledges and this writ. Witness ourself, at Westminster, the day of in the year of our reign.

writ of trespass on the case.

In Trover.

day of in the year of our Lord at in the county of was lawfully possessed, as of his own property,

certain goods and chattels, to wit, twenty tables and twenty chairs of great value, to wit, of the value of pounds, of lawful money of Great Britain; and being so possessed thereof, he, the said A.B. afterwards, to wit, on the day and year aforesaid, at aforesaid, in the county aforesaid, casually lost

the said goods and chattels

out of his possession; and the same afterwards, to wit, on the day and year aforesaid, at aforesaid, in the county aforesaid, came to the possession of the said C.D. by finding;

Yet the said C.D., well

knowing the said goods and chattels to be the property of the said A.B., and of right to belong and appertain to him, but contriving and fraudulently intending, craftily and subtilly, to deceive and defraud the said A.B.

in this behalf, hath not as yet delivered the said

goods and chattels, or any part thereof, to the said A.B. (although often requested so to do); but so to do hath hitherto wholly refused, and still refuses; and afterwards, to wit on the day of in

All of this business about deceiving and defrauding is also a fiction that the plaintiff is

not required to prove. It does make clear, however, that assumpsit actions were originally based on tort, not on contract or quasi-contract.

Note that the trover writ actually refers to the converted goods as the "property" of the

plaintiff; it is the only writ that uses that word.

This casual loss, as Stephen makes clear, is almost always a fiction. I mean, how could

someone casually lose twenty tables and twenty chairs of great value?

`Trover' is the old French word for finding, and it is this allegation of finding that gives

the writ its name. But, of course, this finding is a fiction that the plaintiff does not need to prove, anymore than he needs to prove the assumpsit in an action of general assumpsit.

The allegation that the defendant knew that the chattels were the property of the plaintiff

and the allegation of fraud were both fictions that the plaintiff did not have to prove.

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1.11. FORMS OF ACTION AND THE SYSTEM OF WRITS III 77

the year at aforesaid, in the county aforesaid, converted and disposed

of the said goods and chattels to his, the said C.D.'s

own use, to the damage of the said A.B. of pounds, as it is said; and have you there the names of the pledges, and this writ. Witness ourself, at Westminster, the day of in the

year of our reign.

f?19g writ of trespass on the case.

For a Libel.

George the Fourth, &c., to the Sheriff of greeting. If A.B. shall make you secure of prosecuting his claim, then put by gages and safe pledges, C.D., late of gentleman, that he be before us in eight days of Saint Hilary, wheresoever we shall then be in England, to show for that whereas the said A.B. now is a good, true, and honest subject of this realm, and, as such, hath always conducted himself: and, until the committing of the grievance here- inafter mentioned, was always reputed to be a person of good fame and credit, and hath never been guilty, nor, until the committing of the said grievance, been suspected to have been guilty of per- jury, or any other such crime; by means of which said premises, he, the said A.B., before the committing of the said grievance, had deservedly obtained the good opinion of all his neighbours, and of all other persons to whom he was known, to wit, at in the county of . And whereas, before the committing of the said grievance, a certain action had been depending in our Court before us, at Westminster, in the county of Middlesex, wherein one E.F. was the plaintiff, and one G.H. was the defendant, which said ac- tion had been then lately tried at the assizes in and for the county of ; and on such trial, the said A.B. had been examined on oath, and had given his evidence as a witness on the part of the said E.F., to wit, at aforesaid, in the county last aforesaid; Yet the said C.D., well knowing the premises, but greatly envying the happy condition of the said A.B., and contriving, and wickedly and maliciously intending to injure the said A.B. in his good fame and credit, and to bring him into public scandal, infamy, and dis- grace, and to cause it to be suspected and believed that he, the said A.B., had been guilty of perjury, heretofore, to wit, on the day of in the year of our Lord at aforesaid, in the county last aforesaid, falsely, wickedly, and maliciously did com- pose and publish, and cause and procure to be published, of and concerning the said action, and the evidence so given by the said A.B., a certain false, scandalous, malicious, and defamatory libel,

This allegation of conversion is the real gravamen of the plaintiff's complaint and gives

the action of trover and conversion the second, and more meaningful, portion of its name.

78 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

containing, among other things, the false, scandalous, defamatory, and libellous matter following, of and concerning the said A.B., and of and concerning the said action, and the evidence so given f?20g by the said A.B., that is to say: He (meaning the said A.B.) was forsworn on the trial (meaning the said trial, and thereby then and there meaning that he, the said A.B. in giving his evidence as afore- said, had committed wilful and corrupt perjury). By means of the committing of which grievance, he, the said A.B., hath been, and is greatly injured in his said good fame and credit, and brought into public scandal, infamy and disgrace, insomuch that divers good and worthy subjects of this realm, by reason of the committing of the said grievance, suspected and believed, and still do suspect and believe the said A.B. to have been guilty of perjury; and have, by reason of the committing of the said grievance, from thenceforth hitherto refused to have any transaction or acquaintance with the said A.B., as they otherwise would have had, to the damage of the said A.B. of pounds, as it is said; and have you there the names of the pledges, and this writ. Witness ourself, at Westminster, the day of in the year of our reign.

In the action of replevin (which is the last of those above enumerated), there is no original writ,--this action not being commenced in the Superior courts. It is, however, entertained there, by virtue of an authority which the Superior courts exercise of removing suits, in certain cases, from an inferior jurisdiction, and transferring them to their own cognizance. Where goods have been distreined, a party making plaint to the sheriff may have them replevied, that is re-delivered to him, upon giving security to prosecute an action against the f?21g distreiner, for the purpose of trying the legality of the distress; and, if the right be determined in favour of the latter,--to return the goods.

The

action so prosecuted is called an action of replevin, and is commenced in the county court. From thence it is removed into one of the Superior courts, by a writ either of recordari facias loquelam, or accedas ad curiam. In form, it is an action for damages,

for the illegal taking and detaining of the goods

and chattels. It is held that a replevin may be had, and an action of replevin

Notice that, unlike any of the other actions we have been considering, in replevin the

sheriff returns the goods to the plaintiff before trial. Thus replevin is as much a preliminary remedy, like attachment, as it is a cause of action.

The original function of replevin was to obtain the return of the distrained (or otherwise

detained) chattels; that is still its major function in the United States. It appears, however, that, at least in cases of replevin that got removed to the superior courts in England by 1824 the plaintiff's claim got converted into a claim for damages. Presumably, however, the successful plaintiff only got damages equal to the value of the goods when it turned out to be impossible to actually return the distrained chattel to him; in such cases it would make sense to award damages to the plaintiff as a sort of `second-best' remedy. Where the goods were returned to the plaintiff, the damages recovered were only those incidental to the taking and the period of wrongful detention.

September 11, 2000

1.11. FORMS OF ACTION AND THE SYSTEM OF WRITS III 79 brought, upon other kinds of illegal taking, besides by way of distress; but, in no other case, is the proceeding now known in practice.

The reader has now seen the form of the writs in the most usual actions, as well those real and mixed, as personal; but it is proper, before proceeding farther, to explain that even those more common real and mixed actions, are incomparably less frequent than the ordinary actions of the personal class, and may be said to be of rare occurrence. At a very early period, indeed, that is, soon after the reign of Ed. III.,

the two former kinds of remedy began gradually

to fall into neglect, in consequence of their being more dilatory and intricate in their forms of proceeding, than personal actions, and of their being cognizable only in the f?22g Court of Common Pleas. In lieu of them, recourse was had to certain personal actions, which, though they did not claim the specific recovery of land (like those of the real and mixed class), were yet attended with incidents that indirectly produced that benefit. Of these, the principal, and that which is alone retained in modern practice,

was the action of ejectment--(ejectio

firmae),--a species of the personal action of trespass, in which damages were claimed by a tenant for a term of years, complaining of forcible ejection or ouster from the land demised. In favour of this mode of remedy, the courts determined that the plaintiff was entitled not only to recover damages claimed by the action, but should also, by way of collateral and additional relief, recover possession of the land itself for the term of years of which he had been ousted.

In consequence of the establishment of this doctrine, which gave an ejectment an effect similar to that of a real or mixed action, claimants of land were led to have recourse to it, in lieu of those in-f?23gconvenient remedies. Regularly, indeed, none could resort to this form of suit, but those who had sustained ouster from a term of years; such being the shape of the complaint; but it was rendered much more extensive in its application, by the invention of a fictitious system of proceeding, which enabled claimants of land, in almost every instance, upon whatever title they relied (whether term of years or freehold), to bring their cases ostensibly within the scope of this remedy. This fictitious method, being favored and protected by the courts, passed into regular practice; and the consequence is, that ejectment has long been the usual remedy for the specific recovery of real property. There are cases, however, in which the writ of right, the writ of dower, and other real and mixed actions, are still necessary, and to which the proceeding by ejectment is held inapplicable; and it may be laid down

This statement is certainly correct for England. In the United States, however, replevin

became the remedy for the specific recovery of any chattels wrongfully taken or withheld.

King Edward III died in 1377.

Stephen notes at this point that there were other actions for the recovery of land including

"[t]he action of forcible entry, given by the stat. 8 Hen. VI."

In some states--and in the District of Columbia--the action for forcible entry and detainer has been converted into a summary proceeding for the recovery of real property; in other ju- risdictions there are statutory forms of summary proceedings for the recovery of real property. These summary proceedings do not usually apply to all forms of real property, but, where they are available, they are much more expeditious than the modern version of the relatively old action of ejectment.

80 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW generally, on this subject, that whenever the case is such that the claimant has not in him the right of entry, the fiction on which an ejectment rests, ceases to be allowable, and recourse must consequently be had to a real or mixed action.

1.11.2 A Note on Real Actions In 1824, when Stephen wrote his treatise on pleading, the old real actions were already pretty well obsolete, having been replaced in almost all cases by eject- ment. But a modern lawyer should still know something about the real actions-- even though we no longer have to memorize all their ins and outs. After all, our substantive law of real property was developed in the context of the old real actions; it is, in fact, little more than a codification of the rules that governed those actions. For a good description of real actions, written when such actions were still in use, see George Booth, The Nature and Practice of Real Actions (1701).

It is an over-simplification, but one can divide the old real actions into two different categories: actions commenced by writs of right and possessory actions. The writs of right were in praecipe form, as were many of the writs that were used to institute a possessory action. The difference between the two types of actions is indicated by their names: the issue in the case of a writ of right was: who has the best right to the land? While in the case of a possessory action the issue was: without going into all the ins and outs of the issue of who has the right to the land, who is entitled to possess it right now? Actions by writ of right took a very long time to try. Possessory actions were much more expeditious, since if there was an error it could be corrected by the loser later bringing a writ of right. Thus it was possible that A could have the right to Blackacre, but have acquired possession of Blackacre improperly from B; in such a case B could regain the land from A by bringing a possesory action and then A could regain the land from B by bringing an action by writ of right.

Thus both writs of right and possessory actions were restitutionary in nature; in fact, in the case of the writ of right, there was never any claim of wrong-doing. Both the writs of right and the possessory actions were replaced by ejectment.

1.11.3 Law as an Evolutionary System The passages from Stephen on Pleading that we have just read give us a glimpse at the common law writs at a time--the last time--when they were dominant in the ecology of the law. Within a few more years these legal dinosaurs will have vanished from the earth,

if not from legal memory: "The forms of action

In England, which is after all the home of the common law, in 1832 the writs for the

personal forms of action were replaced by a new uniform writ, but the plaintiff still had to mention one of the old forms of action in the new writ; in 1833 most of the old real actions were abolished by the Real Property Limitation Act and replaced by ejectment, though the writ of dower and the writ of quare impedit survived for a few more years, since ejectment

September 11, 2000

1.11. FORMS OF ACTION AND THE SYSTEM OF WRITS III 81 we have buried, but they still rule us from their graves."

That last quotation from Maitland, the English legal historian, is justly famous. With our modern prejudices in favor of progress and against history, we are likely to balk at the idea of our law still being ruled by these old writs, but, though one may object as loudly as one likes, one thing is certain: however much we may refuse to recognize the power of these old forms, they still contain the sources--and the limitations--of most of our substantive law. To invoke another famous quotation: "So great is the ascendancy of the Law of Actions in the infancy of Courts of Justice, that substantive law has at first the look of being gradually secreted in the interstices of procedure; and the early lawyer can only see the law through the envelope of its technical forms."

One may well object to being forced today to look at the world of the law through the eyes of--or, at least, the forms used by--`primitive' lawyers. But consider the alternative: if we did not have access to those old causes of action, which were originally invoked by the issuance of an original writ, we would have to invent them, or something very much like them. For example, how could Ms. Livengood get her cat back--leaving aside the socially questionable remedy of self-help--if there was not some procedure like the cause of action in replevin? You may think that procedure is dependent upon substantive law: Ms. Liven- good can get the cat back in replevin, because the cat is her property. But it is just as true--and just as false--to say that the reason that we can conclude that the cat is Ms. Livengood's property is because she can get it back in replevin. To make the point more tellingly, the fact that Williams Management could not bring replevin against the funds held by Buonauro confirms our suspicion that those particular funds are not the property of Williams Management. If it is true that the existence of a right implies the existence of a remedy, then it must be equally true that the non-existence of a remedy implies that there is no right.

was not suitable for selecting the land that should be held subject to a widow's dower or for determining who had the power to appoint a pastor to a church; in 1852 the Common Law Procedure Act provided that it should not be necessary to mention a form or cause of action in a writ of summons; and in 1875 all of the old forms of action were finally abolished by the Judicature Act of 1873, which also provided for the concurrent administration of law and equity. For a more extensive discussion of this history of the abolition of the forms of action, see F.W. Maitland, Equity, Also, The Forms of Action at Common Law 301-03 (1909).

In the United States some jurisdictions abolished the forms of action at a relatively early date, others later. Probably the most significant reform of judicial procedure in the United States, before the adoption of the Federal Rules of Civil Procedure in 1938, was the adoption of the New York Code of Civil Procedure in 1848, which substituted 'code' pleading for common law pleading and provided, like the English Judicature Act, for the merger of law and equity. In general, however, though in England and the United States the forms of action have been oAEcially abolished, the courts still find themselves deciding cases on the basis of the substantive law developed in the context of those ancient forms.

Id. at 296.

H.S. Maine, Dissertations on Early Law and Custom 389 (1886).

Notice that one cannot conclude that the presence of a remedy insures that there is a

corresponding right. There are many administrative law cases in which one can say that a

82 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

All of which more than justifies paying attention to what Maitland had to say to his students about the forms of action after those forms had been abolished:

What was a form of action? Already owing to modern reforms it is impossible to assume that every law student must have heard or read or discovered for himself an answer to that question, but it is still one which must be answered if he is to have more than a very superficial knowledge of our law as it stands even at the present day. . . . Let us then for awhile place ourselves in Blackstone's day, or, for this matters not, some seventy years later in 1830, and let us look for a moment at English civil procedure.

Let it be granted that one man has been wronged by another;

the first thing that he or his advisers have to consider is what form of action he shall bring. It is not enough that in some way or another he should compel his adversary to appear in court and should then state in the words that naturally occur to him the facts on which he relies and the remedy to which he thinks himself entitled. No, English law knows a certain number of forms of action, each with its own uncouth name, a writ of right, an assize of novel disseisin or of mort d'ancestor, a writ of entry sur disseisin in the per and cui, a writ of besaiel, of quare impedit, an action of covenant, debt, detinue, replevin, trespass, assumpsit, ejectment, case. This choice is not merely a choice between a number of queer technical terms, it is

plaintiff has been granted standing to seek judicial review, even though the plaintiff has no right--or other legally protected interest--that he can assert against the defendant. See, Jaffe, The Citizen as Litigant in Public Actions: The Non-Hohfeldian or Ideological Plaintiff, 116 U.Pa.L.Rev. 1033 (1968). Procedure and substantive law have evolved together and in this co"evolutionary process each is dependent upon the other.

This assumption that the defendant has committed a wrong is unnecessary--and posi-

tively misleading--when one attempts to trace the evolution of restitutionary actions. Mait- land, however, seems like Stephen to have assumed that every action--even a praecipe action-- was based upon a wrong by the defendant. But that wrong was not necessarily alleged in the writ. Thus he notes:

It is worthy of notice that the Praecipe for land, the Writ of Debt, and many other writs afterwards invented, are not in the first instance writs instituting litigation; that, according to their tenor, is not their primary object. The king through his sheriff commands a man to do something, bids him give up the land that he wrongfully withholds, or pay the debt that he owes. Only in case of neglecting to obey this command is there to be any litigation. May we not say then that the `cause of action' in the king's court is in theory not the mere wrong done to the plaintiff or demandant by keeping him out of his land or neglecting to pay money due to him, but his wrong coupled with disobedience to the king's command? There can I think be little doubt that such a conception was operative in the growth of royal jurisdiction.

F.W. Maitland supra Footnote 1 at 319.

But why must these actions be analyzed as necessarily involving any allegation of wrong by the defendant? As the very name of the Writ of Right suggests, in the praecipe actions the plaintiff was relying solely on the plaintiff's right.

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1.11. FORMS OF ACTION AND THE SYSTEM OF WRITS III 83

a choice between methods of procedure adapted to cases of different kinds. Let us notice some of the many points that are implied in it.

(i) There is the competence of the court. For very many of the ordinary civil cases each of the three courts which have grown out of the king's court of early days, the King's Bench, Common Pleas and Exchequer is equally competent, though it is only by means of elab- orate and curious fictions that the King's Bench and the Exchequer can entertain these matters, and the Common Pleas still retains a monopoly of those actions which are known as real.

(ii) A court chosen, one must make one's adversary appear; but what is the first step towards this end? In some actions one ought to begin by having him summoned, in others one can at once have him attached, he can be compelled to find gage and pledge for his appearance. In the assize of novel disseisin it is enough to attach his bailiff.

(iii) Suppose him contumacious, what can one do? Can one have his body seized? If he can not be found, can one have him outlawed? This stringent procedure has been extending itself from one form of action to another. Again, can one have the thing in dispute seized? This is possible in some actions, impossible in others.

(iv) Can one obtain a judgment by default, obtain what one wants though the adversary continues in his contumacy? Yes in some forms, no in others.

(v) It comes to pleading, and here each form of action has some rules of its own. For instance the person attacked--the tenant he is called in some actions, the defendant in others--wishes to oppose the attacker--the demandant he is called in some actions, the plaintiff in others--by a mere general denial, casting upon him the burden of proving his own case, what is he to say? In other words, what is the general issue appropriate to this action? In one form it is Nihil debet, in another Non assumpsit, in another `Not guilty,' in others, Nul tort, nul disseisin.

(vi) There is to be a trial; but what mode of trial? Very generally of course a trial by jury. But it may be trial by a grand or petty assize, which is not quite the same thing as trial by jury; or in Blackstone's day it may still conceivably be a trial by battle. Again in some forms of action the defendant may betake himself to the world-old process of compurgation or wager of law. Again there are a few issues which are tried without a jury by the judges who hear witnesses.

(vii) Judgment goes against the defendant, what is the appropri- ate form of execution? Can one be put into possession of the thing that has been in dispute? Can one imprison the defendant? Can one have him made an outlaw? or can he merely be distrained?

(viii) Judgment goes against the defendant. It is not enough that he should satisfy the plaintiff's just demand; he must also be

84 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

punished for his breach of the law--such at all events is the theory. What form shall this punishment take. . . .

(ix) Some actions are much more dilatory than others; the dila- tory ones have gone out of use, but still they persist. In these oldest forms--forms invented when as yet the parties had to appear in per- son and could only appoint attorneys by the king's special leave--the action may drag on for years . . . .

These remarks may be enough to show that the differences be- tween the several forms of action have been of very great practi- cal importance--`a form of action' has implied a particular original process, a particular mesne process, a particular final process, a particular mode of pleading, of trial, of judgment. But further to a very considerable degree the substantive law administered in a given form of action has grown up independently of the law administered in other forms. Each procedural pigeon-hole contains its own rules of substantive law, and it is with great caution that we may argue from what is found in one to what will probably be found in another; each has its own precedents. It is quite possible that a litigant will find that his case will fit some two or three of these pigeon holes. If that be so he will have a choice, which will often be a choice be- tween the old, cumbrous, costly, on the one hand, the modern, rapid, cheap, on the other. Or again he may make a bad choice, fail in his action, and take such comfort as he can from the hints of the judges that another form of action might have been more successful. The plaintiff's choice is irrevocable; he must play the rules of the game that he has chosen.

Lastly he may find that, plausible as his case

may seem, it just will not fit any one of the receptacles provided by the courts and he may take to himself the lesson that where there is no remedy there is no wrong.

We have seen, in the selection quoted from Stephen, the forms of many of the writs as they had finally evolved. But the wording of the writs themselves does not tell us the answer to all of the issues that Maitland raises. Two of those issues are of extreme importance to an understanding of the development of restitutionary remedies: Can the plaintiff proceed against the thing itself--i.e., is the action in rem--or must the plaintiff press his claim against the person of the defendant? Can the plaintiff recover the thing itself or does he get value restitution or damages?

The actions in which the plaintiff could proceed in rem and ultimately recover the thing itself were known as the real actions and were brought to recover land or something that was considered to be an interest in land. A real action in

But this does not mean that, if the plaintiff has chosen the wrong form of action, he is

barred from starting another action with the proper writ.

F.W. Maitland supra Footnote 1 at 295-99.

September 11, 2000

1.11. FORMS OF ACTION AND THE SYSTEM OF WRITS III 85 which the plaintiff could also recover damages was known as a mixed action. All other actions were personal actions.

We are not going to have to discuss the old real actions in this course, but that is not to say that they are unimportant. They are as important today as the common law of real property, for the law of the old real actions is, except for statutory modifications and occasional bits of judicial legislation, the substantive modern land law in a large majority of the states.

In the historical development of the land law one can find striking examples of the co"evolution of the substantive law and the forms of action. One of the most instructive--though admittedly not of great importance today--of these examples is the creation of the estate in fee tail by the Statute De Donis Con- ditionalibus.

That statute, after reciting the fact that in the case where land

was conveyed to a purchaser "and the heirs of his body" the courts had held that after a child was born to the purchaser the latter had the power to cut off the interest of his descendants and the reversion of the grantor by alienating the land in fee simple, declared:

Wherefore our Lord the King, perceiving how necessary and expe- dient it should be to provide Remedy in the aforesaid Cases, hath ordained, That the Will of the Giver, according to the Form in the Deed of Gift manifestly expressed, shall be from henceforth observed; so that they to whom the Land was given under such Condition, shall have no Power of aliene the Land so given, but that it shall remain unto the Issue of them to whom it was given after their Death, or shall revert unto the Giver, or his Heirs, if Issue fail (whereas there is no Issue at all) or if any Issue be, and fail by Death, or heir of the Body of such Issue failing.

and then went on to provide that "forasmuch as in a new Case new Remedy must be provided, this Manner of Writ shall be granted to the Party that will purchase it," setting forth the praecipe writ of formedon (i.e., `form of the gift') that you have already seen at page 69 in the material quoted from Stephen.

But, as I said, we are not going to discuss the forms of the real actions in this course. We are not going to discuss them here, not because they are unim- portant, but because the law surrounding them is the law that you studied--or should have studied--in the course in property.

On the other hand, one cannot hope to understand the restitutionary issues involving personal property, money, work, labor and services, bills and notes, etc., unless one has a decent understanding of the personal actions, which are still very much with us, if not as writs, then disguised as claims for which relief can be granted. Here is what Maitland has to say about personal actions:

We may say that they were nine in number, (1) Replevin, (2) 8

13 Edw. I, c. 1 (1285).

86 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

Detinue, (3) Debt, (4) Account, (5) Covenant, (6) Trespass, (7) Case, (8) Trover, and (9) Assumpsit.

Replevin we may quickly put aside, its importance in the middle ages was very great, but it was not capable of much development.

It is an action founded upon a wrongful distraint--the distrainee of- fers security that he will contest the distrainor's rights in court, and thereupon the distrainor is bound to surrender the goods--usually cattle. If he does not do so the sheriff is to raise the posse comi- tatus

and retake them. An action beginning thus with a demand

for replevin (i.e. that the goods be `repledged' pending action) be- comes the normal mode of trying the rightfulness of distraint, and such actions are of very common occurrence in the middle ages.

. . . . A few instances of replevin used to recover goods though not taken by way of distress are known. These occur late in the day, and are not important in relation to general theory.

Detinue. This is a very old action. The defendant is charged with an unjust detainer (not, be it noted, an unjust taking)--injuste detinet. This action looks very like a real action. The writ originat- ing it bears a close similarity with the writ of right (praecipe in capite), but in the first place the mesne process is not in rem, and in the second (and this is very important) the defendant when worsted is always allowed the option of surrendering the goods or paying as- sessed damages. The reason of this may perhaps be found partly in the perishable character of medieval moveables, and the consequent feeling that the court could not accept the task of restoring them to their owners, and partly in the idea that all things had a `legal price' which, if the plaintiff gets, is enough for him.

This statement was, and remains, true for England; in the United States, however, replevin

has, usually by statute, become the standard action for the specific recovery of chattels.

Literally: "power of the county." The posse comitatus is nothing other than the posse

that you have seen the sheriff raising in many a cowboy movie. The sheriff, by the way, was the chief royal oAEcer in a county.

Such instances occur very frequently within the United States. Whether there is any

`theory' of replevin within the United States is, on the other hand, open to question.

The fact that the defendant has the option to make value restitution, rather than specific

restitution, is one of the reasons that detinue has become obsolete. In many jurisdictions in the United States replevin has the same limitation: after the plaintiff posts a bond and the sheriff seizes the goods the defendant can post a counter-bond and get the goods back; in such a case the plaintiff who prevails will recover the goods' value out of the defendant's counter-bond rather than the specific goods.

Another reason which may in part explain why the plaintiff cannot get specific restitution of a chattel is that:

The court [of law as opposed to a court of equity] was unwilling to exert pressure on the defendant to compel him to restore the specific property. It's procedural theory . . . was that the parties to an action owe no obedience to the court. Hence its judgment is a mere declaration of the rights as between the parties over the subject-matter of the litigation, and its process for execution is

September 11, 2000

1.11. FORMS OF ACTION AND THE SYSTEM OF WRITS III 87

This option leads Bracton to say that there is no real action for chattels, and this sentence is the starting-point of the fashion which teaches us to say that goods and chattels are not `real' but `personal' property.

. . . . Here we must note the great defect of the action for Detinue-- a defect which it shares with its sister Debt--the defendant may wage and make his law, in other words, may resort to the compur- gatory oath. Attempts have been made to rationalize and explain this fact. It has been said that debt and detinue were matters more particularly within the knowledge of the parties, and so on, but the simple explanation is that detinue and debt were older than trial by jury. . . .

Debt. An action for a fixed sum of money due for any reason, and own sister to Detinue. Here also we have a praecipe quod reddat. Praecipe quod reddat (1) terram, (2) catalla, (3) pecunia are the writs of right (for land), of detinue, and of debt respectively.

Its first and chief use was for the recovery of money lent--a sense in which the word `recovery' is still used. The difference between commodatum and mutuum--the loan to be returned and the loan to be repaid--was hardly seen. It is hardly seen to-day by the vul- gar. `My money at the bank,' is a phrase in common use. Another use of the action of debt was for the recovery of the price upon a sale, and another was the recovery of rent due. There were other causae debendi, and gradually the progress towards generalization got to be expressed in the phrase that debt would lie for a fixed sum of money if there were a quid pro quo or, later, if there were `con- sideration.' Thus Debt, originally conceived of as recuperatory,

like Detinue, becomes capable of being used for the enforcement of

directed to the sheriff, commanding him to realize the situation contemplated by the judgment as just; to put the plaintiff in possession of the real property adjudged to be his, or to take the personal property which he [sic] wrongfully withheld from the plaintiff and deliver it to the plaintiff. Clearly the nature of real property enabled the sheriff specifically to fulfill the first command, but the defendant might in many cases remove or secrete chattels so as to defy the sheriff's search. Specific enforcement through the power of the sheriff is here, at least, relatively ineffective, and the best that the court of common-law jurisdiction could do, with its mode of execution, was to command its oAEcer to seize what property of the defendant he could find capable of seizure, and apply it to the satisfaction of the judgment. Thus damages came to constitute the characteristic remedy of the courts of common law in practically all except the relatively narrow field of questions of the ownership of real property and the specific enforcement upon an oAEcer of the performance of his duties by means of the extraordinary remedy of mandamus.

C.A. Huston, The Enforcement of Decrees in Equity (1915).

I.e., `restitutionary.'

88 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

contracts of sorts.

One limitation, however, remained--the un-

transcendible limit--the claim must be for a fixed sum. Debt can not be used to obtain compensation for breach of contract. And further, debt can always

be met by wager of law, which becomes

more and more absurd. It is never forgotten that the action of debt is not necessarily based on contract--it serves for the recovery of statutory penalties, of forfeitures under bye-laws, of amercements, and of monies adjudged by a court to be due.

Account. The action of Account is another praecipe, originally granted against manorial bailiffs. Praecipe quod reddat compotum. Auditors were appointed to supervise the account. At a later stage it was extended to some other classes, thus it could be used be- tween partners, but partnership is uncommon and unimportant in the England of the middle ages. A few modern instances of its use are recorded, but the common law action of account remains at a low level of development because of the fact that it was in practice superseded by the equitable jurisdiction of the Chancellor, who in the Bill for account had a more modern remedy operating under a more favourable and convenient procedure.

Covenant. This action is also an old one. Its writ directs quod conventio teneatur.

The earliest use of the action is for the pro-

tection of the termor;

at one time it is the lessee's only remedy.

It early sends off a branch which is reckoned a real action because land is recovered, in other cases the action results in money being obtained. It appears for a time as if covenant might be of general use wherever there is an agreement (conventio), might become, in fact, a general action for breach of contract; but the practice of the thirteenth century decides that there must be a sealed writing. A sacramental importance was attached to the use of the seal--collatio sigilli--and it was finally adopted as the only acceptable evidence of a covenant. Thus we come to the English formal contract, the

Note that this enforcement is specific enforcement, not compensation for breach of con-

tract, and not damages.

And perhaps it is not even enforcement. Consider the following hypothetical situation: A agrees to sell a horse named Dobbin to B for $10 and (as a quid pro quo and vice versa) B agrees to buy Dobbin from A for $10 pounds. ("Ah ha!" you say, "a bilateral contract!" "Wrong!" say I, "it's just a completed sale.") After reaching this agreement B has an action in detinue to recover Dobbin, who is B's horse, and A has an action in debt to recover the $10, his $10, that B owes him. Both actions are restitutionary; neither action is for the enforcement of a contract.

Well, almost always. It appears that the defendant could not insist on wager of law when

the action of debt was for rent, or where the debt was evidenced by a specialty (i.e. an instrument under seal) or created by a judgment.

I.e., that the defendant `keep his covenant'.

A `termor' is a tenant for a term of years. Since there was no real action available to a

termor, his interest in the land--the demise for a term of years--was not, and is not, classified as `real property'; instead it is classified as a `chattel real.'

September 11, 2000

1.11. FORMS OF ACTION AND THE SYSTEM OF WRITS III 89

Covenant under Seal. One curious limitation appears, and is main- tained until the seventeenth century; Covenant can not be brought for the recovery of a debt, though attested under seal. This action remains useful but in its own narrow sphere.

At this point Maitland ends his Lecture V on the Forms of Action; he dis- cusses the remaining personal actions, which all grow out of trespass, in Lecture VI. This is a good point for us to stop and consider the common characteristic of all the actions that Maitland has discussed up to now.

The real actions all result in the plaintiff's (or, rather, the demandant's) recovering an interest in real property, usually, but not always--recall the action of quare impedit in which the demandant recovers an advowson

--seisin or

possession. The personal actions, with the inevitable exception of replevin, all order the sheriff to command [praecipe] C.D. [the defendant] that he render [quod reddat] or otherwise restore some entitlement--the horse Dobbin, a debt, an accounting--to A.B.

The writs in these actions do not allege that the

defendant has done something wrong; the emphasis is so clearly on the plaintiff's right, rather than the defendant's wrong, that the greatest of the real forms of action was known simply as the Writ of Right.

The personal actions, on the other hand, that we have seen up to now, though in form they closely mimic the Writ of Right with its "Praecipe . . . quod reddat," differ in two respects, the defendant, rather than the claimed property, is what is brought into court--i.e., the action is against the person, in personam, rather than against the thing, in rem--and the plaintiff often recovers the monetary value of his claim rather than the thing itself.

These distinctions seemed, to the medieval mind, the critical ones. The medieval classification was: real actions and personal actions. The later writs of trespass and case were classified as personal actions, except for ejectment, which grew out of trespass, and can be classified as a mixed action.

For our purposes, however, the critical distinction is between those actions-- all that have been discussed up to now--in which the plaintiff seeks restitution of some entitlement (often the possession--or seisin--of land or of a chattel) and those in which the plaintiff seeks compensation for a wrong done by the defendant, i.e., those actions sounding in trespass or trespass on the case.

Before we go on and examine what Maitland has to say about trespass and case, it may be helpful to look at what an earlier writer had to say about the forms of action.

F.W. Maitland, supra Footnote 1 at 355-88.

See supra page 70.

In covenant the entitlement is the covenant (or agreement) that the defendant is com-

manded to keep (or hold) [teneatur].

The mode of trial also differed: in debt, as you know, trial was by wager of law, while

in an action commenced with a Writ of Right trial was originally by battle and later by the Grand Assize, which was more or less like a jury trial, only fancier.

90 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

The first treatise on the common law is the book known as Glanvill, De Legibus et Consuetdinibus Regni Angliae.

There no sharp division is

made between real and personal actions; the distinctions made are those between criminal and civil proceedings, and between actions which are brought in the royal court and those in the county courts. Criminal actions, which include the appeals of felony, need not concern us. What is striking is that all of the civil actions appear to be proprietary, actions in which the plaintiff seeks to recover an entitlement. Among these proprietary actions discussed by Glanvill are various real actions, replevin, and debt.

Replevin is listed by Glanvill along with a miscellaneous collection of other writs that are tried before the sheriff. The writ for replevin is as follows:

Rex vicecomiti salutem. Praecipio

tibi quod juste et sine dilatione

facias habere G. averia sua per vadium et plegium, unde queritur quod R. ea cepit et detinet iniuste pro consuetudinibus quas ab eo exigit, quas ipse non cognoscit se debere, et ipsum praeterea inde iuste deduci facias, ne oporteat etc. Teste etc.

or, in translation,

The King to the Sheriff, Health. I command you, that justly and without delay, you cause G. to have his Beasts by Gage and pledges, of which he complains that R. has taken them, and unjustly detains them, for the Customs which he exacts from him, and which he does not acknowledge to owe him; and, in the mean time, cause him justly &c. least &c. [Witness &c.]

The replevin writ does not really fit into the standard categories of original writs. The words "habere facias" suggest that it is more like a writ of execu- tion than an original writ, a suggestion that is supported by the fact that the plaintiff in a replevin action obtains possession of the claimed chattels before trial. Pollock and Maitland explain that the abuse of distraint was the abuse of a judicial remedy and that the king, and his sheriff, treated such an abuse as

"Of the Laws and Customs of the Kingdom of England".

This treatise was written around 1188 toward the end of the reign of Henry II (1154-89) when Ranulph Glanvill or Ranulph de Glanville (c.1130-90) was Chief Justicar of England. Whether Ranulph Glanvill actually wrote the book is debated; it has been suggested that it was actually written by his son and secretary William Glanvill or by another of his secretaries, Hubert Walter, his wife's nephew, who later himself held the oAEce of Chief Justicar. Whoever wrote the treatise, he certainly had first hand knowledge of the law, including the extensive reforms instituted during the reign of Henry II.

English quotations in the text are taken from the 1900 edition of J. Beames, A Translation of Glanville (a translation that is not very satisfactory); Latin quotations are taken from Woodbine's 1932 edition of the treatise. Citations are given to the appropriate book and chapter.

This word means "I command". It should not be confused with the imperative "Praecipe".

Book XII, Chapter 12.

September 11, 2000

1.11. FORMS OF ACTION AND THE SYSTEM OF WRITS III 91 "a serious offence which has been committed against the king";

thus replevin

may have been a little bit like a modern contempt of court proceeding. It may also be that replevin is simply a very old writ, so old that the writ consisted only of an order to the sheriff to satisfy the plaintiff's claim and did not contemplate any subsequent judicial proceedings.

The writ of debt, on the other hand, looks remarkably like the writ that was in use in Stephen's time:

Rex vicecomiti salutem. Praecipe N. quod iuste et sine dilatione red- dat R. centum marcas quas ei debet ut dicit, et unde queritur quod ipse iniuste ei deforciat. Et nisi fecerit, summone eum per bonos summonitores quod sit coram me vel iustitiis meis apud Westmonas- terium a clauso Pascha in quindecim dies, ostensurus etc.

or, in translation,

The King to the Sheriff, Health. Command N. that justly and with- out delay, he render to R., one hundred Marks which he owes him, as he says, and of which he complains that he has unjustly deforced

him. And, unless he does so, summon him, by good Summoners, that he be before me or my Justices at Westminster in fifteen days from the Pentecost, to shew wherefore he has not done it. And have there the Summoners and this Writ. Witness, &c.

Of the action in debt, Glanvill says that the debt may arise "either upon a Lending, or a Sale, or a Borrowing, or a Letting out, or a Deposit, or from some other just cause inducing a Debt"--Aut enim debetur quid ex causa mutuii aut ex causa venditionis aut ex commodato aut ex locato aut ex deposito, aut ex alia iusta debendi causa.

The distinction between upon a Lending [ex causa mutuii] and upon a Bor- rowing [ex causa commodato] is the distinction that we have already seen in Maitland as the "difference between commodatum and mutuum--the loan to be returned and the loan to be repaid."

To my mind, the most important part of this statement is that a debt can arise from a sale [ex causa venditionis], which is strong evidence that originally in our legal system a sale amounted to a mutual conveyance, rather than what we today call a contract.

2 F. Pollock & F.W. Maitland, The History of English Law 577 (2d. ed., 1968).

The use of the word `deforces' [deforciat] rather than the weaker sounding `owes' [debit]

(in debt) or `detains' [detinet] (in detinue) is the major difference between Glanvill's writ and that of Stephen.

Book X, Chapter 2.

Book X, Chapter 3.

See supra page 87.

92 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

A Debt also arises by reason of a Purchase and Sale. When any person sells a thing to another, the price is due to the Vendor, and the thing contracted for to the Purchaser.

But a purchase and sale are effectually perfected from the mo- ment the price is settled between the contracting parties; provided possession of the thing purchased and sold be delivered, or that the price, either wholly, or in part, be paid, or, at least, that Earnest

be given and received.

Notice that there was no distinction made between debt and detinue. The Vendor had an action in debt for the price, the purchaser had an action in debt, though we would now call it an action in detinue, for the thing sold.

It is also worth noticing that Glanvill thought that debt would be available "from some other just cause," words whose promise was never quite fulfilled by the action of debt itself, but which foreshadow Lord Mansfield's notion in Moses v. Macferlan that indebitatus assumpsit will lie whenever "the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity."

It thus is clear that by Glanvill's time, a hundred years after William I conquered England, the praecipe writs were quite well developed. Glanvill also knew of criminal proceedings. But what is striking to modern eyes is that he has nothing to say about damage actions. As Holmes once put it: the significant fact is that the dog did not bark in the night. As Pollock and Maitland point out:

An `action for damages' was a novelty. By an action for damages we mean one in which the plaintiff seeks to obtain, not a fixed b^ot

appointed by law, but a sum of money which the tribunal, having regard to the facts of the particular case, will assess as a proper compensation for the wrong that he has suffered. We repeat that this was a novelty. We may doubt whether Glanvill ever presided at

Arrae.

Book X, Chapter 14.

Here is an example of the circular evolution of the law. For many minor injuries the

plaintiff had an action in the local, not the royal, courts for a fixed amount of `compensation', or b^ot, from the person who caused the injury. This approach to compensation has been reinvented in this century with Workers Compensation laws and compulsory no-fault insurance schemes. The analogy between modern no-fault schemes and 12th century compensation is even stronger than may at first appear, for in the 12th century criminal liability was `no fault' in the sense that the liability for punishment was based solely on the fact that the defendant had physically performed the wrongful act, without regard to mens rea, intent, or other mental `subjective' factors. " `The thought of man shall not be tried for the devil himself knoweth not the thought of man':--thus at the end of the middle ages spoke Brian C. J. in words that might well be the motto for the early history of criminal law." [2 Pollock & Maitland, The History of English Law 474-75 (2d ed., 1968), citing Y.B. 7 Edw. IV. f. 2 (Pasch. pl. 2).]

September 11, 2000

1.11. FORMS OF ACTION AND THE SYSTEM OF WRITS III 93

the hearing of such an action.

This may for a moment seem strange. In later days we learn to look upon the action for damages as the common law's panacea, and we are told that the inability of the old courts to give `specific relief' was a chief cause for the evolution of an `equitable jurisdiction' in the chancery. But when we look back to the first age of royal justice we see it doing little else than punishing crime and giving `specific relief.' The plaintiff who goes to the king's court and does not want vengeance, usually goes to ask for some thing of which he is being `deforced.' This thing may be land, or services, or an advowson, or a chattel, or a certain sum of money; but in any case it is a thing unjustly detained from him. Or, may be, he demands that a `final concord' or a covenant may be observed and performed, or that an account may be rendered, or that a nuisance may be abated, or that (for sometimes our king's court will do curiously modern things) a forester may be appointed to prevent a doweress from committing waste.

Even the feoffor who fails in his duty of warranting his

feoffee's title is not condemned to pay damages in money; he has to give equivalent land.

No one of the oldest group of actions is an

Glanvill, x. 13, holds that if a thing that has been lent perishes in the borrower's hands,

he is bound to return its rationabile pretium. He then asks how this is to be assessed, and gives no answer. [footnote by Pollock & Maitland, renumbered]

It should be noted that the return to the lender of the `reasonable price' of the perished goods is hard to treat as damages. The lender, who is entitled to restitution in an action of debt/detinue, gets value restitution, and value restitution typically is the functional equiv- alent of damages. But damages are awarded as compensation for the injury caused by the defendant's wrong and it is clear that Glanvill considered the borrower to be absolutely liable for the value of the `perished' goods, whether or not he had done anything wrong. Moreover, Glanvill clearly describes the obligation of the borrower as a `returning' or `restitution'. To Glanvill damages was an alien concept.

Since the problem of calculating the reasonable price of something is a basic issue in de- termining the amount of both damages and value restitution it is interesting to see the issues that occurred to Glanvill:

[I]f the thing itself be destroyed, or has by any means been lost, whilst in your Custody, you are absolutely bound to return [restituendum!] me a reasonable price. But by what, or whose proof, it is to be shewn--or if any one has lent his property to be used in a certain place, or for a certain Term, and he who thus received it has used it, either in another place, or at another time, the extent to which he ought to make a recompense, or upon what proof, or whose property it is to be adjudged, are points that may be questioned. . . .

Glanvill, Book X, Chapter 13.

In this list of actions that result in `specific enforcement,' only the actions to abate a

nuisance and to appoint a forester are not proprietary (or, at least, restitutionary) in nature.

The warranty of the feoffor to his feoffee corresponds very closely to the modern warranty

of title which a vendor of goods makes to his vendee. In a modern action--is it in contract or tort?--on this type of warranty, the vendee recovers the value of the warranted goods, rather than substituted goods. But is that value recovered as damages? Or as value restitution based on unjust enrichment? The fact that the warranty of title is normally implied by law, rather than express, may be some indication that the second answer is the correct one.

94 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

action for damages.

Moreover, the practice of giving damages even as a supplement for specific relief is one that we may see in the first stage of its growth. It makes its appearance in an influential quarter, in the popular assize of novel disseisin. Glanvill's text shows us the embryo. The writ which begins the action commands the sheriff `to cause the tenement to be reseised of the chattels taken in it' by the disseisor, and `to cause the tenement with the chattels to be in peace' until the hearing of the cause.

So the disseisee is to recover the chattels

as well as the land of which he has been dispossessed; but even this is specific relief. We further learn, however, that the disseisee can obtain the `fruits' of the tenement from the disseisor, and we are left to imagine that, if he can not get the corn or hay itself, he may be able to get money instead. In a few years all had changed; Bracton has noticed the change. The sheriff was no longer expected to `reseise the tenement' of the abstracted chattels; the recognitors in the assize were being told to estimate in money the dampna which the disseisee had suffered. Along with the land he now `recovered' a sum of money assessed as a compensation for the wrong done him. Long the novel disseisin remained the only action in which both land and damages could be obtained; slowly in the course of the thirteenth century our legislators multiplied the cases in which this double remedy was to be had.

When the sacred `freehold' was not concerned, the hands of the justices were freer. They could award damages as a subsidiary rem- edy in actions of detinue, debt and the like. The assize of novel disseisin suggested to them a method of assessing pecuniary com- pensation: the verdict of a jury. To find the exact place at which they first crossed the narrow line which divides an action for mere damages from an action in which damages may be given as comple- mentary to the recovery of a specific thing or specific debt would be a toilsome task. Here it must suAEce that one by one there came into existence actions in which the plaintiff could obtain nothing but a money compensation assessed by justices or jurors. In this con- text we may mention the action for vee de naam (de vetito namii) brought against a distrainor, who, though he as now given back the beasts, has been guilty of detaining them `against gage and pledge'; also those frequent actions brought against men who have persisted in going to the ecclesiastical tribunals after receipt of a royal prohi- bition. But there is one all important action which is stealing slowly to the front, the action of trespass (de transgressione) against those who to a plaintiff's damage have broken the king's peace with force and arms. Though early precedents may be found for it, this fertile mother of actions was only beginning her reign in the last years of

Glanvill, xiii. 33. [footnote by Pollock & Maitland, renumbered]

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1.11. FORMS OF ACTION AND THE SYSTEM OF WRITS III 95

Henry III. Her progeny throve and multiplied, until a time came when, the older forms having been neglected, an action for dam- ages, an action which traced descent from the breve de transgessione, seemed to be almost the only remedy offered by the common law.

The striking point, once again, is not that damage actions became important in our law, but rather that they did not exist at its beginnings. The common law as it existed at the time of Glanvill may strike us as incomplete, but--due to the reforms instituted by Henry II and his royal administrators, including Ranulf Glanvill--it was the most advanced legal system in the Europe of its time. The important things then were the punishment of crimes and the restoration of entitlements; the modern damage action for tort or breach of contract was thus shown--however desirable we may find it--to be unnecessary. The importance of the recovery of entitlements has not been reduced by our ubiquitous damage actions. All that has happened is that legal academics have been so mesmerized by the actions that grew out of trespass that they have ignored the fact that the recognition of rights--not compensation for wrongs--is still the major function of the civil law.

Now, after that historical digression, let us return to Maitland's lectures on the forms of action:

Trespass. All the other personal actions branch out from one, namely Trespass. Trespass appears circ. 1250 as a means of charg- ing a defendant with violence but no felony. The writ, as we have seen, contains the words vi et armis contra pacem, the procedure is enforced by a threat of outlawry, imprisonment is resorted to by way of mesne process, and the vanquished defendant is punished for his offence. He is not merely in misericordia, he is liable to a capias pro fine. There is a trifurcation, the writ varying according as the vio- lence is done (1) to land, (2) to the body, or (3) to chattels. Speaking of trespass to land let us once more remember how trespass quare clausum fregit sends out the action for ejectment as a branch.

Trespass to the body (assaults and batteries) covered the whole ground of personal injury, and no great development was possible here. Trespass to goods, trespass de bonis asportatis is an action which results in damages, never return of the goods, for carrying goods off from the plaintiff's possession--and therefore the bailee can bring it.

I have already said that the writ-making power wielded by the king and his Chancellor was gradually curbed by our parliamentary constitution, and in Edward I's day it has become necessary to tell the Chancery that it is not to be too pedantic, but may make vari- ations in the old formulas when a new case falls under an old rule.

2 F. Pollock & F.W. Maitland, The History of English Law 522-25 (2d. ed., 1968).

96 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

Some use was made of this liberty, but slowly and cautiously; it had not been intended that the Chancellor should legislate. . . . [T]he most important use made of this liberty consisted in some exten- sions of the action of trespass. Gradually during Edward III's reign we find a few writs occurring which in form are extremely like writs of trespass--and they are actually called writs of trespass--but the wrong complained of does not always consist of a direct application of unlawful physical force to the body, lands, or goods of the plain- tiff; sometimes the words vi et armis do not appear. Sometimes there is no mention of the king's peace. Still they are spoken of as writs of trespass, they appear in the Chancery Register as writs of trespass, mixed up with writs which charge the defendant with violent assaults and asportations. The plaintiff is said to bring an action upon his case, or upon the special case, and gradually it be- comes apparent that really a new and a very elastic form of action has been created. I think that lawyers were becoming conscious of this about the end of the fourteenth century. . . . The title of Case covers very miscellaneous wrongs--specially we may notice slander and libel (for which, however, there are but few precedents during the middle ages, since bad words are dealt with by the local courts, and defamation by the ecclesiastical courts), also damage caused by negligence, also deceit.

Case becomes a sort of general residuary action; much, particu- larly, of the modern law of negligence developed within it. . . .

. . . . Sub-forms of Case become marked off, e.g. Case for negligence, for deceit, for words (slander and libel); but two great branches were thrown out which gain an independent life, and are generally important, viz. Assumpsit and Trover.

Assumpsit. The most curious offshoot of Case is Assumpsit and the great interest of this action lies in the fact that it becomes the general form by which contracts not under seal can be enforced by way of action for damages.

Under the old law the contracts are

formal, or `real,' the form required being the instrument under seal, the bond or covenant, and the `real' contracts--the word `real' being used in the sense of general jurisprudence--are protected by Debt- Detinue without it being seen that contract is the basis.

Gradually

however within the delictual action of Case various precedents collect in which the allegation is made that the defendant had undertaken

Quaere: Whether it is proper to say that a broken contract is "enforced" when damages

are given for its breach?

But is contract the basis? Or is the basis the conveyance of an entitlement? Or is a

conveyance a contract?

As to the last question, I do not think so. But there are those who do. In answering this question for yourself, consider whether a conveyance seems very much like the paradigmatic contracts that you studied in your contracts course.

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1.11. FORMS OF ACTION AND THE SYSTEM OF WRITS III 97

to do something and then hurt the plaintiff either in his person or in his goods by doing it badly--by misfeasance.

. . . . Gradually the line between mis-feasance and non-feasance was transcended, and gradually lawyers awoke to the fact that by ex- tending an action of tort they had in effect created a new action by which parol contracts could be enforced. It is, I think, about the be- ginning of the sixteenth century that they begin to regard Assumpsit as a different form from Case, a form with precedents of its own and rules of its own. Then begins a new struggle to make Assumpsit do the work of Debt. Plaintiffs wish for this result because they desire to avoid that wager of law which is allowed in Debt, and defendants may fairly argue that according to the law of the land they are enti- tled to this ancient mode of proof. . . . Through the sixteenth century, an actual express agreement alone gives rise to Assumpsit, and there- fore if Assumpsit is to be used to enforce a debt, for example for the price of goods sold and delivered, a new promise--a promise to pay the debt--must be proved. However, in 1602, Slade's case (4 Rep. 92b) decides that Assumpsit may be brought where Debt would lie, and thenceforth Assumpsit supplants Debt as a means for recovering liquidated sums. In that case such a new promise had been alleged and the jury by special verdict had found the bargain and sale to be proved but that `there was no promise or taking upon him, besides the bargain aforesaid.' Upon this finding the case was argued in the King's Bench and the action in Assumpsit was held to lie, the Court resolving that `Every contract executory imports in itself an assumpsit, for when one agrees to pay money or to deliver anything, thereby he assumes or promises to pay or deliver it.' Thenceforth the proof of the new promise becomes unnecessary. This form of Assumpsit takes the name of Indebitatus Assumpsit.

Some seven years later we have this action extended from cases of express executory contract to cases where the original bargain was an implied contract, in the sense that a contract is really to be implied from the facts of the case, for example, cases of actions for Quantum meruit.

Lastly, at some date between 1673 and 1705, Indebitatus As- sumpsit is extended to actions upon Quasi-Contracts in which the element of contract is purely fictitious.

As we have already seen, this action of Assumpsit, which at least seems to us as of delictual origin, becomes the general mode of en- forcing contracts even when a sum certain has to be recovered, and thus Assumpsit becomes a rival to and a substitute for Debt in which latter action the defendant may still wage his law. For some reason

An action for quantum meruit is an action for the value of work, labor, and services

performed.

98 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

Debt was brought as late as 1824 in the case of King v. Williams, 2 B. and C. 538, when the defendant, although the court refused to assist him even to the extent of telling him how many helpers he needed, produced eleven helpers (jurare decima manu) and the plaintiff withdrew. Wager of law was however not formally abolished until 1833.

Trover. One other great branch is thrown out by Case, namely Trover. . . . This also is an action for damages based upon a fic- titious loss and finding and a subsequent conversion to the use of the defendant. Here there is no trespass, the defendant may be a perfectly innocent purchaser from the original wrongdoer; and there is no `recuperation'--the gist of the action is the conversion.

I believe that Trover begins to appear about the middle of the sixteenth century. Gradually it begins to supplant Detinue, in which there is wager of law, and it becomes the normal mode of trying the title to moveable goods. The plaintiff charges that he was possessed of goods, that he lost them, that the defendant found them and con- verted them to his own use. The court will not permit the defendant to dispute the loss and finding, but obliges him to answer the charge of conversion.

Since the provisions of sec. 78 of the Common Law Procedure Act of 1854 the old option, between paying the value of the chattel and restoring it to the successful plaintiff, is not necessarily left to the defendant, the court may order the restitution of the chattel.

This statute has removed the original basis for the use of the terms by which we call lands `real' and chattels `personal' property; but the terms were adopted long ago and are likely to endure. The yet abiding distinction between lands and chattels lies in the two systems of intestate succession applicable to them.

Thus, by the beginning of the eighteenth century, Trespass and the various branches that it had thrown out, had come to be the only forms of action that were in very common use. Trespass in eject- ment, or ejectment, served the purpose of most of the real actions, though, as already said, there were occasions on which the latter

Notice how debt becomes extinct, not because of any considerations of public policy, but

by the invasion of its environmental niche by assumpsit, an offshoot of case, that weedy sort of action which has spread like crab grass or a kudzu vine through the old fields of the law.

This statutory power to order restitution of the converted goods in a conversion action

probably explains why replevin never took on the importance that it has acquired in most of the United States. In most of the United States the courts have the statutory power to order the return of goods, but the statutes give this power as part of the action of replevin, rather than trover and conversion.

In most, if not all, of the United States today there is no distinction between the intestate

succession of real and that of personal property; real property goes to the heirs, while personal property ultimately goes to the next of kin, but the heirs and the next of kin are the same persons.

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1.11. FORMS OF ACTION AND THE SYSTEM OF WRITS III 99

had to be used. Assumpsit covered the old province of Debt, and a much larger province as well. Trover covered, and more than cov- ered, the old province of Detinue. Trespass vi et armis still served for all cases in which the defendant had been guilty of directly ap- plying unlawful force to the plaintiff's body, goods or chattels. Case covered the miscellaneous mass of other torts. Of the old actions Replevin maintained itself as the proper action against a distrainor. Covenant remained in use for the enforcement of promises under seal. The province of Account was gradually annexed by the Court of Chancery, and brought within the sphere of the equitable juris- diction . . . .

And there we have it. The old praecipe actions and replevin--the actions to recover an entitlement--were gradually vanquished in the evolutionary struggle for survival by the actions of trespass and case--actions in which the plaintiff seeks monetary damages for an injury caused by the defendant. These new damage actions filled a gap in the old system, which had no way to compensate a plaintiff for injuries--pain and suffering, for example, or the destruction of a chattel--that could not be cured in a restitutionary action, but they also created a conceptual gap that persists in modern law. Today, we tend to think that an action at law must be one for damages, either for a tort committed by the defendant or for breach of contract.

This leads to some strange consequences.

For example, an action in debt is clearly as restitutionary today as it was in the 12th century, but an action in indebitatus assumpsit to collect the same debt seems to be an action for damages,

yet today, now that we have abolished the

forms of action, it makes no sense to try to distinguish between the two actions. For another example, an action in detinue is clearly restitutionary, while an action in conversion sounds in tort, even though the converter may be innocent of any wrong-doing, and even though conversion is simply a replacement for detinue.

The substantive consequence of this `progress' over the centuries is not so much that restitution was replaced by damages but rather that the law tended more and more to give judgments for money rather than specific restitution or other forms of specific relief.

Restitution did not disappear, but value

restitution came more and more to replace specific restitution; the plaintiff who sought the latter relief had to do so in a court of equity rather than one of law. And once value restitution became available in the `quasi-contractual' action

F.W. Maitland, supra Footnote 1 at 360-66.

I suppose that there is something wrong with the way that I view the world, but for the

life of me I cannot see that there is any meaningful difference between committing a tort and breaking a contract: both, after all, are wrongs.

But one cannot say that it is an action in tort or one for breach of contract; it is an action

in quasi-contract, which is neither the one nor the other.

Of course, this distinction is hardly meaningful in the case of debt where the plaintiff

seeks restitution of a sum of money.

100 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW of indebitatus assumpsit, it became possible to award restitution (of a sort) even for intangibles, like work, labor, and services, or for other benefits that the defendant had received, but had consumed. This new type of restitution using indebitatus assumpsit supplies the legal remedy in cases of unjust enrichment, a new area of substantive law that, for the most part, evolved after the end of the 17th century.

1.12 Detinue, Conversion, and Assumpsit 1.12.1 Hambly v. Trott

Hambly v. Trott

King's Bench 1 Cowper 371, 98 Eng. Rep. 1136

1776

In Trover against an administrator cum testamento annexo, the declaration laid the conversion by the testator in his lifetime. Plea, that the testator was not guilty. Verdict for the plaintiff.

Mr. Kerby had moved in arrest of judgment upon the ground of this being a personal tort, which dies with the person; upon the authority of Collins v. Fennerell,

and had a rule to shew cause.

Mr. Buller last term showed cause--The objection made to the plaintiff's title to recover in this case is founded upon the old maxim of law which says, actio personalis moritur cum persona. But that objection does not hold here; nor is the maxim applicable to all personal actions; if it were, neither debt nor assumpsit would lie against an executor or administrator. If it is not applicable to all personal actions, there must be some restriction; and the true distinction is this: Where the action is founded merely upon an injury done to the person, and no property is in question; there, the action dies with the person: as in assault and battery, and the like. But where the property is concerned, as in this case, the action remains notwithstanding the death of the party.

Trover is not like trespass, but lies in a variety of cases where a party gets the possession of goods lawfully. It is founded solely in property: And the value of the goods only can be recovered. Therefore the damages are as certain as in any action of assumpsit. As to the case of Collins v. Fennerell it is a single authority and was not argued; therefore, most probably was determined simply on the old maxim. . . .

Where the damages are merely vindictive and uncertain, an action will not lie against an executor; but where the action is to recover property, there the damages are certain, and the rule does not hold. This is an action for sheep, goats, pigs, oats, and cyder converted by injustice to the use of the person deceased: Therefore this action does not die with the person.

Trin. 22 & 23 Geo. 2, B.R. [Footnote by reporter, renumbered]

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1.12. DETINUE, CONVERSION, AND ASSUMPSIT 101

Mr. Kerby contra for the defendant cited, Palm 330. Where Jones Justice said, "that when the act of the testator includes a tort, it does not extend to the executor; but being personal dies with him; as trover and conversion does not lie against an executor for trover fait par luy." Collins v. Fennerell above cited.

Here, the goods came to the hands of the testator, and he converted them to his own use. Trover is an action of tort; and conversion is the gist of the action: No one is answerable for a tort, but he who commits it; consequently this action can only be maintained against the person guilty of such conversion. But here the conversion is laid to be by the testator. Therefore the judgment must be arrested. The distinction that has been taken in the books is, that the action may be maintained by an executor but not against him. . . .

Lord Mansfield. If this case depends upon the rule, actio personalis moritur cum persona, at present only a dictum has been cited in support of the argument. Trover is in form a tort, but in substance an action to try prop- erty.

Mr. Kerby. The executor is answerable for all contracts of the testator, but not for torts.

Lord Mansfield. The fundamental point to be considered in this case is, whether if a man gets the property of another into his hands it may be recovered against his executors in the form of an action of trover, where there is an action against the executors in another form. It is merely a distinction whether the relief shall be in this form or that. Suppose the testator has sold the sheep, &c. in question: In that case, an action for money had and received would lie. Suppose the testator had left them in specie to the executors, the conversion must have been laid against the executors. There is no diAEculty as to the administration of the assets, because they are not the testator's own property. Suppose the testator had consumed them, and had eaten the sheep; what action would have lain then? Is the executor to get off altogether? I shall be very sorry to decide that trover will not lie, if there is no other remedy for the right.

Aston Justice. Suppose the executor had had a counter demand against the plaintiff, he could not have set it off in Trover : but in an action for money had and received, he might. If these things had been left by the testator in specie, the conversion must have been laid to be by the executor. There seems to be but little difference between actions of trover, and actions for money had and received. As at present advised, I incline to think trover maintainable in this case.

Ashhurst Justice. The maxim does not hold as an universal proposition; because assumpsit lies. As to the case of Collins v. Fennerell, all the court considered it as unargued, and given up rather prematurely by Mr. Henley.

Lord Mansfield. The criterion I go upon is this: Can justice possibly be done in any other form of action? Trover is merely a substitute of the old action of detinue. . . .

--The Court ordered it to stand over.

102 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

Upon a second argument . . . . Lord Mansfield. Many diAEculties arise worth consideration. An action of trover is not now an action ex maleficio, though it is so in form; but it is founded in property. If the goods of one person come to another, the person who converts them is answerable. In substance, trover is an action of property. If a man receives the property of another, his fortune ought to answer it. Suppose he dies, are the assets to be in no respect liable? It will require a good deal of consideration before we decide that there is no remedy.

Aston, Justice. The rule is, guod oritur ex delicto, non ex contractu, shall not charge an executor. . . Where goods come to the hands of the executor in specie, trover will lie; where in value, an action for money had and received. But the diAEculty with me is, that here it does not appear whether the goods came to the hands of the defendant in specie or in value.

Cur. advisare vult. Afterwards, . . . Lord Mansfield delivered the unanimous opinion of the court as follows:

This was an action of trover against an administrator, with the will annexed. The trover and conversion were both charged to have been committed by the testator in his life-time: The plea pleaded was, that the testator was not guilty. A verdict was found for the plaintiffs, and a motion has been made in arrest of judgment, because this is a tort, for which an executor or administrator is not liable to answer.

The maxim, actio personalis moritur cum persona, upon which the objection is founded, not being generally true, and much less universally so, leaves the law undefined as to the kind of personal actions which die with the person, or survive against the executor.

An action of trover being in form a fiction, and in substance founded on property, for the equitable purpose of recovering the value of the plaintiff's specific property, used and enjoyed by the defendant; if no other action could be brought against the executor, it seems unjust and inconvenient, that the testator's assets should not be liable for the value of what belonged to another man, which the testator had reaped the benefit of.

We therefore thought the matter well deserved consideration. We have care- fully looked into all the cases upon the subject. To state and go through them all would be tedious, and tend rather to confound than elucidate. Upon the whole, I think these conclusions may be drawn from them.

First, as to actions which survive against an executor, or die with the person, on account of the cause of action. Secondly, as to actions which survive against an executor, or die with the person, on account of the form of action.

As to the first, where the cause of action is money due, or a contract to be performed, gain or acquisition of the testator, by the work and labor, or property of another, or a promise of the testator express or implied; where these are the causes of action the action survives against the executor. But

September 11, 2000

1.12. DETINUE, CONVERSION, AND ASSUMPSIT 103 where the cause of action is a tort, or arises ex delicto (as is said in Sr. T. Raym. 57, Hole v. Blandford,) supposed to be by force and against the King's peace, where the action dies; as battery, false imprisonment, trespass, words, nuisance, obstructing lights, diverting a water course, escape against the sheriff; and many other cases of the like kind.

Secondly, as to these which survive or die, in respect of the form of action. In some actions the defendant could have waged his law, and therefore, no action in that form lies against an executor. But now, other actions are substituted in their room upon the very same cause, which do survive and lie against the executor.--No action where in form the declaration must be quare vi et armis, et contra pacem, or where the plea must be, as in this case, that the testator was not guilty, can lie against the executor. Upon the face of the record, the cause of action arises ex delicto; and all private criminal injuries or wrongs, as well as all public crimes, are buried with the offender.

But in most, if not in all the cases, where trover lies against the testator, another action might be brought against the executor, which would answer the purpose.--An action on the custom of the realm against a common carrier, is for a tort and supposed crime: The plea is not guilty; therefore, it will not lie against an executor. But assumpsit, which is another action for the same cause, will lie.--So if a man take a horse from another, and bring him back again; an action of trespass will not lie against his executor, though it would against him; but an action for the use and hire of the horse will lie against the executor.

There is a case in Sir Thomas Raymond, 71,

which sets this matter in a

clear light; There, in an action upon the case, the plaintiff declared, "that he was possessed of a cow, which he delivered to the testator, Richard Bailey, in his lifetime to keep the same for the use of him the plaintiff;

which cow the

said Richard afterwards sold, and did convert and dispose of the money to his own use; and that neither the said Richard, in his life, nor the defendant after his death, ever paid the said money." Upon this state of the case, no one can doubt but the executor was liable for the value. But the special injury charged obliged him to plead, that the testator was not guilty. The jury found him guilty. It was moved in arrest of judgment, because this is a tort for which the executor is not liable to answer, but moritur cum persona. For the plaintiff it

Bailey v. Birtles et uxor: executrix of Richard Baily [sic]. [footnote by reporter, renum-

bered]

Notice that this transaction sounds like a trust. Notice also that the law court was willing

to treat the misappropriation by the trustee of the subject matter of the trust--viz., the cow--as a conversion. From the point of view of the law court, however, the delivery was probably seen as creating a bailment (rather than a trust or use).

A bailment arises when the owner of goods or chattels bails them--that is, delivers them-- to another person--the bailee--without transferring the ownership of the goods or chattels. When you rent an automobile from Hertz, Hertz is the bailor and you are the bailee of the car. When you store your winter garments at the cleaner's, you are the bailor and the cleaner is the bailee of those clothes. The bailee who refuses to return the bailed goods--or who converts them to his own use in a way not permitted by the terms of the contract of bailment or who misdelivers the bailed goods to someone other than the bailor--is liable to the bailor as a converter. [pdj]

104 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW was insisted, that though an executor is not chargeable for a mis-feasance, yet for non-feasance he is: as for non-payment of money levied upon a fieri facias,

and cited Cro. Car. 539 . . . where this very difference was agreed; for non- feasance shall never be vi et armis, nor contra pacem: But notwithstanding this the court held "it was tort, and that the executor ought not to be chargeable." Sir Thomas Raymond adds, "vide Saville 40 a difference taken." That was the case of Sir Henry Sherrington, who had cut down trees upon the Queen's land, and converted them to his own use in his life-time. Upon an information against his widow, after his decease, Manwood, Justice, said, "In every case where any price or value is set upon the thing in which the offense is committed, if the defendant dies, his executor shall be chargeable; but where the action is for damages only, in satisfaction of the injury done, there his executor shall not be liable." These are the words Sir Thomas Raymond refers to.

Here therefore is a fundamental distinction. If it is a tort of injury by which the offender acquires no gain to himself at the expense of the sufferer, as beating or imprisoning a man, &c. there, the person injured has only a separation for the delictum in damages to be assessed by a jury. But where, besides the crime, property is acquired which benefits the testator, there an action for the value of the property shall survive against the executor. As for instance, the executor shall not be chargeable for the injury done by his testator in cutting down another man's trees, but for the benefit arising to his testator for the value or sale of the trees he shall.

So far as the tort itself goes, an executor shall not be liable; and therefore it is, that all public and all private crimes die with the offender, and the executor is not chargeable; but so far as the act of the offender is beneficial, his assets ought to be answerable; and his executor therefore shall be charged.

There are express authorities, that trover and conversion does not lie against the executor. I mean, where the conversion is by the testator. . . . There is no saying that it does.

The form of the plea is decisive, viz. that the testator was not guilty; and the issue is to try the guilt of the testator. And no mischief is done, for so far as the cause of action does not arise ex delicto, or ex maleficio of the testator, but is founded in a duty which the testator owes the plaintiff; upon principles of civil obligation, another form of action may be brought, as an action for money had and received. Therefore, we are all of opinion that the judgment must be arrested.

Per Cur.

Judgment arrested.

`Fieri facias' was a writ of execution--not an original writ, but one issued to enforce

a judgment--ordering the sheriff to levy on the judgment debtor's personal property--i.e., seize and sell the personal property--and pay over the proceeds to the judgment creditor in satisfaction of the judgment. [pdj]

September 11, 2000

1.12. DETINUE, CONVERSION, AND ASSUMPSIT 105 1.12.2 Notes to Hambly v. Trott

1. The actual issue in Hambly v. Trott, the issue of whether a cause of action

will survive the death of the defendant,

is one that at one time was

important in much of the United States. Today, however, it is not a matter of much significance in most states, since the old common law rules relating to survivorship of causes of action have been largely replaced or modified by statutes.

For an historical study of the common law rules relating to the survival of liability for tort, and to the maxim actio personalis moritur cum persona, "Personal actions die with the person." At common law all actions except the real actions were deemed to be personal, even such praecipe actions as debt/detinue which appear to us as proprietary in their essential nature. See Winfield, Death as Affecting Liability in Tort, 29 Columb. L.J. 239 (1929).

2. Hambly v. Trott is a leading case discussing the possibility of "waiving

the tort and suing in assumpsit," though, of course, Lord Mansfield never used such naive and misleading terminology.

If Trott's decedent had not died, it is clear that Hambly's declaration (i.e., complaint) in trover and conversion would have stated a good cause of action against the converter. But Trott's decedent was dead

and the

court in Hambly held, however reluctantly, that Hambly's cause of action against the decedent did not survive and thus could not be brought against Trott as the administrator of the decedent's estate. The court also said that Hambly could not bring detinue against Trott as the administrator of the decedent's estate.

But Lord Mansfield did suggest that there would have been other causes of action that Hambly could successfully have brought to recover the value of the converted sheep, goats, pigs, oats, and cyder, even though the converter was dead.

If the decedent had sold the converted sheep, goats, pigs, oats, and cyder, what cause of action would Hambly have had? Lord Mansfield said that:

The same type of problem could arise if it was the plaintiff who had died. See, e.g.,

Jacksonville Street Ry v. Chappell, 22 Fla. 616, 1 So. 10 (1886) (action in tort to recover injuries received by deceased plaintiff through negligence of railroad did not survive the death of the plaintiff).

See, e.g., Ill. Rev. Stat. 1971, ch. 3, par. 339, which provides, in part: "In addition to

the actions which survive by the common law, the following also survive: actions of replevin, actions to recover damages for an injury to the person (except slander and libel), actions to recover damages for an injury to real or personal property or for the detention or conversion of personal property . . . ."

It should be noted that the right to sue in equity always survived.

As decedents inevitably are.

What reason did Lord Mansfield give for this rule? (The reason that he gave was not that

actio personalis moritur cum persona.)

106 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

"In that case, an action for money had and received would lie." Would this action have lain against Trott?

If the decedent still had had the converted sheep, goats, pigs, oats, and cyder at the time of his death, what cause of action would Hambly have had? And against whom? Lord Mansfield said that in that case "the conversion must have been laid against the executors." In other words, on such facts, though Trott could not have been sued in conversion as the decedent's administrator,

he could have been sued as the converter

himself.

There is one case, however, that worried Lord Mansfield: "Suppose the testator had consumed them, and had eaten the sheep; what action would have lain then? Is the executor to get off altogether? I shall be very sorry to decide that trover will not lie, if there is no other remedy for the right." But Lord Mansfield did decide that trover did not lie against the executor in such a case, and he never suggested another remedy that might have been available to Hambly if the converter had eaten the sheep.

Can you

think of any action that might be available in such a case?

3. It is clear--and very important--that, though Lord Mansfield ultimately

held that an action for conversion does not survive the converter's death (because the defendant's plea was "not guilty"), he recognized that trover and conversion is, in actuality, a restitutionary action and not an action for damages based on tort.

Lord Mansfield did not, of course, actually use the word "restitutionary"-- the modern meaning of "restitution" is strictly a product of the Twentieth Century. But what he said was: "An action of trover . . . [is] in form a fiction, and in substance [is] founded on property, for the equitable purpose of recovering the value of the plaintiff's specific property, used and enjoyed by the defendant."

Where we would say: "restitutionary," Lord Mansfield said: "founded on property."

4. Hambly v. Trott teaches us that conversion is an action based on the

plaintiff's claim of property, but is treated as if it were in reality, as well as in form, an action in tort. Hambly is not, however, one of those all too frequent cases in which an innocent person is held liable in conversion. Trott's decedent, who could not be held liable because he was dead, may well have been an intentional converter of the sheep, goats, pigs, oats, and cyder; Trott himself--the personal representative--could not, so Hambly teaches, be sued for the conversion allegedly committed by his decedent. But what would have happened if Trott, as personal representative, had

Or executor. Lord Mansfield seems to have been under the impression that Trott was an

executor, rather than an administrator c.t.a. as he was described by Cowper, the reporter.

As the converter may very well have done.

September 11, 2000

1.12. DETINUE, CONVERSION, AND ASSUMPSIT 107

acquired the sheep, goats, pigs, oats, and cyder upon the death of his decedent and--not knowing that they actually belonged to Hambly--had sold them for less than their market value?

In that case, even though he did not knowingly do anything wrong, Trott would have been liable in conversion for the fair market value of the goods, would have been liable for an amount greater than he had received as the sales price. Such a result troubles lots of people and, as the next case shows, leads to strange compromises between the law of conversion and the courts' concept of fairness.

There is dicta in Hambly v. Trott that suggests--correctly--that Hambly would in that

case have had a good action in general assumpsit for money had and received against Trott for the amount received for the goods from the buyer. On the hypothetical facts, however, this action would have resulted in a judgment for less than the value of the goods, the amount recoverable in a conversion action.

The next case explains what should happen in the case where Trott sells the goods for more than their market value.

108 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW 1.13 The Innocent Converter 1.13.1 Railway Co. v. Hutchins

Railway Co. v. Hutchins

32 Ohio St. 571 Supreme Court of Ohio

1877

Syllabus

Timber was cut from lands of B. by trespassers, who, by their labor, con- verted it into cord wood and railroad ties, thus increasing its value three-fold. It was then sold to an innocent purchaser who was sued by B. for the value of the wood and ties. Whatever might be the rule of damages, as against innocent purchasers, B. can not recover the value of the timber as enhanced by the labor of the wrong-doers, after it was severed from the realty.

Error to the District Court of Cuyahoga county. The petition in this case avers that the said minors Joseph and Edward Barbour are owners in fee simple of a certain tract of land in Lake county, and then proceeds as follows:

Said land, when owned by said minors, was thickly wooded with excellent timber, and was very valuable on that account; that all, or nearly all, of said timber, while said land was owned by said minors, was cut down and removed by persons now to this plaintiff unknown, without any authority whatever, and the same taken, used, and possessed for its own benefit, without any authority what- ever, by the Cleveland, Painesville, and Ashtabula Railroad Company, which was, on or about the 1st day of April, 1869, consolidated with certain other railroad companies under the name and style of the Lake Shore and Michigan Southern Railway Company, which last named company is made the defendant in this action.

By reason of said timber being taken from said land and converted to its own use by the Cleveland, Painesville, and Ashtabula Railroad Company, said minor children were damaged in the amount of four thousand six hundred and fifty dollars ($ 4,650), for which sum, by reason of the premises, plaintiff asks judgment against the defendant, the Lake Shore and Michigan Southern Railway Company.

It is denied in the answer, that plaintiffs were owners in fee simple of the land in question.

A large quantity of wood and railroad ties was cut, upon this land, by persons who were trespassers, acting without legal right. There is some attempt in the evidence to show that these trespassers had some lawful claim, by virtue of a tax title, to part of the premises. But for the purposes of the case, this claim is ignored, and it is assumed that the timber was actually stolen. Having been thus unlawfully appropriated, it was sold by the parties who took it to the

September 11, 2000

1.13. THE INNOCENT CONVERTER 109 railroad company, but it is admitted that the company purchased and paid for the wood, trees, and ties, in good faith, without notice of plaintiffs' rights, or that any wrong had been or was done his woods.

The fair value of the timber standing upon plaintiffs' land, and before cut into cord wood, and hauled to the defendant's railroad, was about $ 1 per cord-- after being so cut and hauled it was worth about $ 3 per cord. There was the same difference as to the relative value of standing timber and that cut into ties and hauled.

The railroad company claimed, as the rule of damages, that it was liable only for the value of the timber as it stood upon the ground, say $1 per cord. Plaintiffs claim that the company was liable for the wood, as it was increased in value by the labor of the trespasser, cutting and hauling it, say $3 per cord. Defendant, the railroad company, asked the court to charge:

"2. That if the jury find the fact to be that the defendant cut no timber upon the land of plaintiff's said wards, and employed no person to do so, but purchased all the wood and timber of all sorts that it is charged with the con- version of from persons who did cut and remove it from the land and sold it to the defendant; that the defendant would not be liable to the plaintiff for the value of the timber, wood, and ties purchased, at the time of the purchase, but only for the value of the timber before it was cut into wood and ties and sold to defendant. That the measure of damages if the defendant purchased said prop- erty in good faith was the fair value of the timber standing on the plaintiff's woodland, and, before it was cut into wood or ties and hauled onto defendant's railway and sold to it."

This charge was refused, and the court did charge as follows: "Judge Foot in a former trial of this case settled the rule of damages to be the value of the timber, in the condition it was at the time it was received and converted by the defendant. This I also say to you should be the rule you should adopt in ascertaining the amount of your verdict.

"I have found it much easier to repose confidence in the court, and adopt its consideration in this question of damages than reconcile myself to its correctness. But you will take it as the law of the case."

The refusal to charge as requested, and the charge as given was excepted to. On the first trial to the court, November term, 1871, plaintiff recovered a judgment of $ 2,500. On the second trial to a jury, February term, 1872, the verdict was $ 3,843.72. This judgment was reversed in the district court. At the third trial, November term, 1873, the verdict for plaintiff was $ 5,680, which was reduced by the court to $ 3,412.72, and judgment was rendered for that amount.

The principal errors assigned are, in the charge as to the matter of title, and the rule of damages.

The district court having aAErmed the judgment of the common pleas, a petition in error was filed in the supreme court.

110 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

Wright, J. We have not deemed it necessary to solve all the nice and diAEcult questions that relate to the plaintiffs' (Barbours') title to this land. Whether or not they had the legal, they did also Claim an equitable title, and there was some evidence to sustain the claim. This question of fact was left to the jury, who found upon it for plaintiffs below. We are not clear that this finding was so palpably against the weight of evidence as to justify interference by us. We therefore assume that plaintiffs had title suAEcient to maintain the action in that respect, and proceed to the second point, the rule of damages.

The petition, it will be noticed, is not as for a trespass to real estate, but to recover the value of the wood and timber stolen; the action throughout was treated as one to recover that value, and the case is so treated here.

Upon the point now to be determined, the case is thus: A large amount of wood was cut down upon plaintiffs' land, and stolen. The thieves work it up into cord-wood and ties, thus increasing its value three-fold. The depredators then sell it to the railroad company, who is entirely innocent in the whole matter. The real owner now sues the railroad company for the property taken from his land. Shall he recover one dollar or three?

It is said upon the one hand to be an universal rule of law that a man's property can not be taken from him without his consent, unless by law, and that stealing can convey no title to the thief. In Silsbury v. McCoon, 3 Comst. 381, it is said: "It is an elementary principle in the law of all civilized communities, that no man can be deprived of his property, except by his own voluntary act, or by operation of law. The thief who steals a chattel, or the trespasser who takes it by force, acquires no title by such wrongful taking." It is then argued that the thief, having none himself, could convey no title to any other person taking it however innocently. Hence when the railroad company obtained the property they obtained what was the plaintiffs', and they could have replevied it, increased in value as it was, by the labor of the thief. If this were so, then it is argued that the company were liable for the value of the wood in its improved condition, enhanced to the extent of three-fold.

If the owners were bringing this action against the thieves, perhaps it might be conceded that the full amount could be recovered. This we understand to be upon the principle "in odium spoliatoris." The thief will not be allowed to have anything by virtue of his own wrong, and if he has spent his labor upon stolen goods, he shall not profit by it. It is his own loss.

"The English law will not allow one man to gain a title to the property of another, upon the principle of accession, if he took the other's property willfully as a trespasser." 2 Kent, 363.

But it seems to be well understood that the rights of the parties are made to depend, to a great extent, upon the intent with which the conversion of property has been brought about. If it was taken mala fide, by theft, or with a willful purpose to do wrong, the consequences are different from those which follow upon the act done under an honest mistake, and perhaps it is as wise to punish the robber as to protect the innocent.

September 11, 2000

1.13. THE INNOCENT CONVERTER 111

In treating of confusion of goods, Blackstone speaks of the difference between cases where admixture is by consent of both parties, and where it is by the willful act of one, and in regard to the latter the author says: "Our law, to guard against fraud, gives the entire property, without any account to him whose original dominion is invaded." In case of the confusion by consent, it is otherwise, and each party retains his interest.

Mr. Cooley, in his note to page 404, book 2, recognizes the same distinction between a fraudulent purpose, and an innocent mistake. The same distinction is made in 2 Kent, 363; Sedg. Dam. 484.

Field on Damages, section 818, says: "There should certainly be a distinction between a case of mere technical conversion, when, perhaps, the defendant acts in good faith, and that of a willful conversion and wrong done by the defendant."

The cases as to what is the proper rule of damages, where property has been taken and by the taker improved in condition or enhanced in value, are numerous, but a reference to some will show some of the diAEculties attending the subject.

In Silsbury v. McCoon, the corn of one Wood had been manufactured into whisky by plaintiff. The defendants, as judgment creditors of Wood, took it, and plaintiff sued for the value of the whisky. The case is first reported 6 Hill, 425. Here it is decided that the change from corn to whisky was a change of identity, and transferred the property to plaintiffs, who were the manufacturers producing the change. This decision goes wholly upon the question of identity.

There is a learned note to this case, which discusses the question of inno- cent and wrongful conversion, and the citations there given from Puffendorf, Justinian, and Wood's Institutes are apposite.

This case is again reported in 4 Denio, 332. Here the idea that the rights of the parties depend upon motive or intention is flatly repudiated, the court holding that as long as the owner can trace his property, he may regain it; thus again making identity the criterion.

The case is reversed in 3 Comstock, 381, upon the ground that the animus with which the corn was converted was an important element, and that if plain- tiffs, when they took it, knew that they had no right to it, they could obtain no title, although by the manufacture into whisky they had changed the identity.

The simple fact, therefore, that the property can be traced into its improved state is not always suAEcient to insure a recovery of the improved article or its value.

It must be remarked, however, that the text books do assert that the propo- sition of identity is the controlling one. Kent says: "It was a principle settled as early as the time of the Year Books, that whatever alteration of form any prop- erty had undergone, the owner might seize it in its new shape, and be entitled to it in its state of improvement, if he could prove the identity of the original materials; as if leather be made into shoes, or cloth into a coat, or a tree be squared into timber." 2 Kent, 263; Betts v. Lee, 5 Johns. 348; 2 Blk. 404. It

112 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW will, however, appear that other considerations enter into the solution of the question.

In Hyde v. Corkson, 21 Barb. 92, it is held that, "in acquiring title to property by accession, the law makes a distinction between a willful and an involuntary wrong-doer. The former can never acquire the title, however great the change wrought in the original article may be, while the latter may."

"Where a manufacturer has expended his money and labor, in good faith, upon property, in pursuance of a contract with the owner, he can not be regarded as a wrongdoer, or deprived of the enhanced value which he has given to the property, in an action by the owner, sounding in damages."

It is said, in the course of the opinion, that the "distinction between a willful and an involuntary wrong-doer runs through the authorities, and stands upon the principle that a party can obtain no right by his own wrong." (p. 105.)

Martin v. Porter, 5 M. & W. 351, was a case where defendant, in working his coal mine, broke through the barrier, and took the coal under the land belonging to plaintiff. Plaintiff recovered the full value, without any deduction to defendant for his expenses in getting the coal. But in Hilton v. Woods, L. R., 4 Eq. 440, the rule in Martin v. Porter is limited to cases of fraudulent conduct. And such is the effect of the case of Morgan v. Powell, 3 Ad. & El. (N. S.) 278; and in Wood v. Morewood, 3 Ad. & El. (N. S.) 441, Parke, B., told the jury that "if there was fraud or negligence on the part of defendant, they might give, as damages under the count in trover, the value of the coals at the time they first became chattels, on the principle laid down in Martin v. Porter; but if they thought the defendant not guilty of fraud or negligence, but acted fairly and honestly, in the full belief that he had the right to do what he did, they might give the fair value of the coals, as if the coal-fields had been purchased from the plaintiff."

In Hilton v. Woods, L. R., 4 Eq. 432, the head-note is: "In assessing com- pensation for coal already gotten by defendant, the court being of opinion that he had worked it inadvertently, and not fraudulently, held that he was to pay only the fair value of such coal, as if he had purchased the mine from defendant."

Malius, V. C., says: "There is much diAEculty as to the mode of assessing the compensation to an owner of coal which has been improperly worked by the owner of an adjoining mine. It is clear upon the authorities that a different principle is applicable when the coal is taken inadvertently, or, as in the present case, under a bona fide belief of title, and when it is taken fraudulently, with a full knowledge on the part of the taker that he is doing wrong, or, in other words, committing a robbery."

In these English cases, the right of plaintiff to recover the increased value of the coal--that is, the value occasioned by the expense of mining, is made to depend on the animus of the party committing the trespass. If he stole, he loses his labor and money. If he made an honest mistake, he does not incur that loss, and the owner only recovers the value of the coal without its accession. There would seem to be a very short way out of these diAEculties, if the question

September 11, 2000

1.13. THE INNOCENT CONVERTER 113 of identity was the only one. There was no trouble in the owner identifying his coal, but this does not entitle him to recover its value, increased by being mined, except in case of bad faith. It should be noted that Jegon v. Vivian, L. R., 6 Ch. App. 742, seems disposed to limit this rule of damage to cases at law, not applying it in equity. There are a number of coal cases in Pennsylvania. In Forsyth v. Wells, 41 Penn. St. 291, Lowrie, C. J., after discussing the conflict in the cases, says: "We prefer the rule in Wood v. Morewood, where Parke, B., decided, in a case of trover for taking coals, that if the defendant acted fairly and honestly, in the full belief of his right, then the measure of damages is the fair value of the coals, as if the coal-field had been purchased from the plaintiffs."

"Where the defendant's conduct, measured by the ordinary standard of morality and care, which is the standard of the law, is not chargeable with fraud, violence, or willful negligence, or wrong, the value of the property taken and converted is the just measure of compensation. If raw material has, after appropriation and without such using, been changed by manufacture into a new species of property, as grain into whisky, grapes into wine, fur into hats, hides into leather, or trees into lumber, the law either refuses the action of trover for the new article, or limits the recovery to the value of the original article.

"Where there is no wrongful purpose or wrongful negligence in the defendant, compensation for the real injury done is the purpose of all remedies; and so long as we bear this in mind, we shall have but little diAEculty in managing the forms of action, so as to secure a fair result. It the defendant in this case was guilty of no intentional wrong, he ought not to have been charged with the value of the coal, after he had been at the expense of mining it, but only with its value in place, and with such other damage to the land as its mining may have caused."

This case also holds that no change in the form of action can vary the rule of damages.

In Herdie v. Young, 55 Penn. St. 176, the defendant had been cutting timber on his own tract, and by mistake cut some upon an adjoining tract of plaintiff. The trespass was not willful or wanton, but was in a bona fide belief of title. The logs had been driven to the boom, and plaintiff sought to recover their value at that place, which was of course enhanced by the labor and expense defendant had put upon them. But it was held that the rule of damages was the value of the timber in the stump when the trees were cut.

Agnew, C. J., says: If defendant "denies that his trespass was willful or wanton, and claims a right to the additional value given to the chattel by his labor and money in converting and transporting it to the place where it is replevied, he has it in his power to bring the damages of the plaintiff to their true standard. In a case of inadvertent trespass, or one done under a bona fide, but mistaken, belief of right, this would generally be the value of the logs at the boom, less the cost of cutting, hauling, and driving to the boom. Such a standard of damages, growing out of the nature of the act and of the form of action, is reasonable, and does justice to both parties. It saves to the otherwise innocent defendant his labor and money, and gives to the owner the enhancement of the value of his property, growing out of other circumstances,

114 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW such as a rise in the market price, a difference in price between localities, or other adventitious causes." Coleman's Appeal, 62 Penn. St. 252-278.

In the case of Barton Coal Co. v. Walter Cox, 39 Md. 1, the question is much discussed and the authorities reviewed.

In Heard v. James, 49 Miss. 236, the rule of damages in case of conversion is said to be determined by the animus of the party trespassing. If the act was in good faith, upon some supposed right or claim, or error, the rule is the value of the property when taken; but if the taking be characterized by malice or oppression, damages may be punitive, and in an action no allowance will be made the defendant for any increased value bestowed on the property by his skill and labor.

In this case trees had been cut down on plaintiff's land and made into staves, and the question was whether plaintiff should recover as damages the value of the staves, or only of the trees as they stood on his ground. The plaintiff was allowed to recover the full value, allowing defendants nothing for their labor in working up the timber into staves, and upon the principle stated. The court says, "The conduct of defendant was willful, utterly regardless of the rights of the plaintiff."

That the intent of the defendant is material in regard to damages, has always been recognized in our law. Upon this is founded the whole idea of exemplary damages. We know it has been strenuously urged in what has been called "the speculative notions of fanciful writers" (McBride v. McLaughlin, 5 Watts, 375; Sedgw. 463), that punishment belongs only to the administration of criminal law, and has no proper place in that civil procedure which adjusts only the rights of parties; but the principle is too firmly settled to be controverted now. Pratt v. Pond, 42 Conn. 318; Walker v. Fuller, 29 Ark. 448; Grund v. Van Vleck, 69 Ill. 478. And yet the rule should be carefully applied, as it may leave to courts and juries to determine the extent of punishment unrestricted by the well-defined limits of statutory enactment. Therefore it is that there are authorities holding that even in cases of willful trespass, if the trespasser has made a large increase in the value of the property by his labor, it will not be allowed that it shall all go to the original owner, because it is said to be unjust.

The fact that the trespasser is to lose the labor and expense he has put upon property he has wrongfully taken, results as a punishment to him for what he has done; on this ground the original owner recovers the increased value, not because of any rights in him, but because the law gives this infliction, as a terror to offenders. Yet the punishment must be proportioned in some way to the circumstances of the case, and a proper inquiry is, in what manner and to what extent should the trespasser suffer, and conversely what should be the kind and measure of redress to the injured party.

Brown, J., puts this case (Silsbury v. McCoon, 4 Den. 337): A trespasser who takes iron ore and converts it into watch-springs, by which its value is increased a thousand fold, should not be hanged; nor should he lose the whole of the new product. Either punishment would be too great. Nor should the owner of the

September 11, 2000

1.13. THE INNOCENT CONVERTER 115 ore have the watch-springs, for it would be more than a just measure of redress.

The Supreme Court of Wisconsin adopts the same idea. The case of Single v. Schneider, 30 Wis. 570, is a case where logs were willfully cut from the premises of another, they say it is unnecessarily severe that defendant should lose the value of all their labor. s. c. 24 Wis. 299; Weymouth v. C. & N.W. R.R., 17 Wis. 550; Hungerford v. Redford, 29 Wis. 345. An interesting discussion of the question of damages by Judge Cooly is to be found in Wetherbee v. Green, 22 Mich. 311, the syllabus of which is: "No test which satisfies the reason of the law can be applied in the adjustment of questions of title to chattels, by accession, unless it keeps in view the circumstances of relative values. The purpose of the law will not be gained by establishing arbitrary distinctions based upon physical reasons; but its object must be to adjust the redress afforded to one party and the penalty inflicted on the other, as near as the circumstances will permit, to rules of substantial justice, if very great increase in value in the change of property from one form to another, is of more importance in determining the rights of parties in it, than any inexpensive chemical change of mechanical transformation, however radical. And where timber of the value of $ 25 had been, in the exercise of what was supposed to be proper authority, converted into hoops, of the value of $ 700, the title to the property, in its converted form, passed to the party by whose labor, in good faith, the change had been wrought." In this case it was a conceded fact that the taking of the timber was in good faith, defendant supposing that he had a license so to do from the owner of the land. In this, however, it appears he was mistaken. Judge Cooley discusses very fully the distinction between cases where property is taken innocently, and where it is taken dishonestly, and recognizes the proposition that the rule of damages is varied accordingly. He also discusses the rule already so frequently spoken of, that when the owner can trace the identity of his property, he may reclaim it however it may be increased in value. But this he seems to think an unsatisfactory test, the purpose of the law being to adjust the redress afforded to the one party, and the penalty inflicted upon the other, as near as the circumstances will permit, to the rules of substantial justice. If one had a stick of timber stolen, and could distinctly trace it into a house being newly built, the identification might be beyond peradventure, yet no one would claim that the owner of the stick could recover the whole house, either in ejectment or its value in damages. Or a particular piece of wood might be followed into an organ, but the owner of the wood could not replevy the organ. Where the right to the improved article is the point in issue, certainly the question should be considered, how much the property or labor of each has contributed to make it what it is, at least in those cases where no bad faith exists.

It can not therefore be true, in every instance, that because a man can trace his property, he can always recover it, regardless of the circumstances under which it has come into the hands of the present holder, regardless of its improved condition, and regardless of the injury an absolute and unconditional recaption may occasion. The law as Judge Cooley says, endeavors to do what is right and just between the parties, and while it will seek to compensate the

116 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW real owner, will not occasion outrage to one who has been innocent.

It may be that if these owners had found their wood in the hands of the trespassers, it might have been retaken, or its value as cord wood recovered; but if so it would be upon the principle "in odium spoliatoris;" the thief could gain nothing by his own wrong, and therefore the results of his labor go to the owner of the property. But this principle can not apply where an innocent purchaser, comes into the case, for the simple reason that he has done no wrong.

It is very true that the willful trespasser or thief can convey no title to one to whom he sells, however innocent the purchaser may be. But the question right here is, what does "title" in this connection mean? The original owner has the "title" to his timber, and, as against the thief, the title to the results of the thief's labor. The wrong-doer, as it were, being estopped from setting up any claim by virtue of the wrong he has done. Against the innocent purchaser from the thief, the original owner still has the "title" to his timber, but by virtue of what does he now have "title" to the thief's labor? The estoppel, so to call it, being created by fraud or wrong, exists only against the one guilty of that fraud or wrong, which the purchaser is not, and while it is effectual against the wrong-doer, the reason of it does not exist as against the innocent man, as to whom it therefore fails. As Judge Cooley says, it does not comport with notions of justice and equity, that against those who have done no wrong, these owners should recover three times the value of what they have lost. They have never spent one cent of money, nor one hour of labor, in changing this timber worth one dollar, into cord wood worth three. All this was done by some one else, and why should the owners recover for it? If they are compensated for what they have lost, and all they have lost, they are certainly fully paid. Woolsey v. Seeley, Wright, 360. And this is all they should be allowed to recover.

For this error, in the charge on the subject of damages, the judgment is reversed.

1.13.2 Notes to Railway Co. v. Hutchins

1. Issues of tracing lie at the core of much of the law of restitution. Thus,

for example, one way to look at Railway Company v. Hutchins, where the plaintiffs sought restitution of the value of certain cord-wood and ties that had been innocently purchased by the Railway Company from persons who had originally trespassed on the plaintiffs' land, cut down their trees, and converted this `stolen' lumber into the cord-wood and ties, is to treat the issue as being whether the plaintiffs could trace their trees into the cord-wood and ties.

We have already seen at least one other case where tracing was the issue: in Williams Management Enterprises, Inc. v. Buonauro

the plaintiff

was trying to trace the $ 125,000 that R. Bruce Williams withdrew from

Supra Section 1.7.1.

September 11, 2000

1.13. THE INNOCENT CONVERTER 117

the plaintiff's checking account and that ultimately was deposited into Buonauro's trust account. And in Johnson v. Covey, the case where the plaintiff brought "an action for accounting of pipe", the action can be seen as an one in which the plaintiff successfully sought to trace his investment first into pipe which was later commingled with pipe of the defendant and then into a pro rata share of the sales price of that commingled pipe after it had been sold by the driller.

In Railway Company v. Hutchins the tracing issue can be seen as the metaphysical issue of whether the `stolen' trees were, i.e., whether the lumber was, identically the same as the cord-wood and ties that were ultimately purchased by the railway company.

That sort of metaphysical issue turns up not only in tracing cases, but also in cases where a vendor intends to sell the vendee an X with attributes A, but instead delivers an X with attributes B. The most famous case of this sort is undoubtedly Sherwood v. Walker,

where a buyer brought

replevin to recover a cow named Rose 2d of Aberlone, who was supposedly barren, and it was then discovered that Rose was with calf; as you will undoubtedly recall, the court held that a pregnant cow was something that differed in kind from a barren cow, even though there actually was just the one cow named Rose,

and that this mistake relieved the seller--

Hiram Walker--of the obligation to deliver actual (and pregnant) cow to the buyer.

A somewhat similar problem, involving the identity of the buyer rather than that of the goods sold, arose in Phelps v. McQuade,

where a confi-

dence-man, named Walter J. Gwynne, falsely pretending to be Baldwin J. Gwynne of Cleveland, purchased on credit a quantity of jewelry from the plaintiff and then sold it to the defendant, who was a bona fide purchaser. The question was whether the plaintiff had intended to sell the goods to Walter, in which case the buyer got good title,

or to Baldwin, in which

case Walter could not have passed any title to the defendant. It was decided that the plaintiff intended to sell the jewelry to the person with whom he dealt, and that therefore the defendant had good title to the jewels.

2. Assuming that the cord-wood and ties were still in the defendant's pos-

session, would the plaintiff have been able to recover them in a replevin action? Does the doctrine of accession have anything to do with this issue?

66 Mich. 568, 33 N.W. 919 (1887).

The court did not focus on the fact that the cow in either possible world--in either the

world where she was with calf or the one where she wasn't--had the same name, a fact that would probably lead some philosophers--Saul Kripke for example--to conclude that she was the same cow, not a different cow, in both worlds.

220 N.Y. 232; 115 N.E. 441 (1917).

Why?

118 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

3. Note that Railway Company v. Hutchins is a case in which the restitution

of the goods--the cord-wood and ties--in the defendant's possession would have been a more valuable remedy than damages. Compare this case with Welch v. Kosasky, supra at 1.9.1, where damages turned out to be the more valuable remedy.

1.14 Conversion versus Goods Sold 1.14.1 Jones v. Hoar

Theodore Jones v. Timothy Hoar Supreme Judicial Court of Massachusetts

5 Pick. (22 Mass.) 285

1827

Assumpsit upon a promissory note, for goods sold and delivered, and for money had and received.

The case came before the Court upon an agreed

statement of facts.

. . . . The cause of action upon which the count for goods sold was founded, was, that the defendant had entered upon the plaintiff's land and cut and carried away a quantity of white oak timber. And the question was argued (in writing) whether the plaintiff could waive the tort and sue in assumpsit, it not appearing that the timber had been sold by the defendant. . . .

. . . . The opinion of the Court was delivered, at this term, by Parker, C.J. The plaintiff declares in assumpsit, and one count is for goods sold and delivered. By the agreement it appears, that the only ground for supporting this count is, that the defendant cut and took away certain trees from land claimed by the plaintiff, and for the purpose of this argument, actually owned by him. The proper action would undoubtedly be trespass for injury to the land, or trover for the trees. But the plaintiff contends that he has a right to waive the tort, and charge the defendant with the trees as sold to him. Upon examination of the authorities cited . . . , we are satisfied that the plaintiff cannot maintain this position. There is no contract express or implied between the parties, and therefore an action ex contractu will not lie. The whole extent of the doctrine, as gathered from the books, seems to be, that one whose goods have been taken from him or detained unlawfully, whereby he has a right to an action of trespass or trover, may, if the wrongdoer sell the goods and receive the money, waive the tort, aAErm the sale, and have an action for money had and received for the proceeds. No case can be shown where assumpsit as for goods

I can find no discussion in the court's opinion of the count for money had and received.

[pdj]

September 11, 2000

1.14. CONVERSION VERSUS GOODS SOLD 119 sold lay in such a case, except it be against the executor of the wrongdoer, the tort being extinguished by death, and no other remedy but assumpsit against the executor remaining. Such was the case of Hambly v. Trott . . . .

1.14.2 Notes on Jones v. Hoar

1. You will recall that the Massachusetts Appeals Court in Welch v. Kosasky

said: "In Jones v. Hoar . . . it was held that, when the converter sold the converted goods, the owner, at his election, could waive the conversion and sue in contract for the purchase price (assumpsit for money had and received to plaintiff's use) and could in this manner recover the value of any appreciation after the conversion." But did Jones v. Hoar actually hold that?

2. The courts of some other states besides Massachusetts still follow Jones

v. Hoar and refuse to allow a plaintiff to waive the tort of conversion and sue in general assumpsit for goods sold and delivered. But, as was said by Judge Peckham in Terry v. Munger 121 N.Y. 161, 24 N.E. 272 (1890):

In some of the states it [i.e., the right to bring and action for goods sold and delivered against the converter] has been denied and such denial placed upon the ground that the property re- mained in the hands of the wrong doer, and, therefore, no money having been received by him in fact, an implied promise to pay over money had and received by defendant to the plaintiffs' use, did not and could not arise. Such was the case of Jones v. Hoar (5 Pick. 285). But the great weight of authority in this country is in favor of the right to waive the tort even in such case. If the wrong doer has not sold the property, but still retains it, the plaintiff has the right to waive the tort and proceed upon an implied contract of sale to the wrong doer himself, and, in such event, he is not charged as for money had and received by him to the use of the plaintiff. The contract implied is one to pay the value of the property, as if it had been sold to the wrong doer by the owner. If the transaction is thus held by the plaintiff as a sale, of course the title to the property passes to the wrong doer when the plaintiff elects to so treat it."

Which, as I trust you recall, appears supra at Section 1.12.1. [pdj]

Terry v. Munger is an interesting case involving the election of remedies. There had been

an earlier action reported at 88 N.Y. 629 in which the plaintiff had sued other defendants for goods sold and delivered--the goods in question being the same goods that were involved in this action. They key passage reads as follows:

The plaintiffs having treated the title to the property as having passed to the defen- dants in that suit by such a sale, can the plaintiffs now maintain an action against another person, who was not a party to that action, to recover damages from him for his alleged conversion of the same property, which conversion is founded upon his

120 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW 1.15 Limitation Period for Conversion Janiszewski v. Behrmann

Janiszewski v. Behrmann

Supreme Court of Michigan

345 Mich. 8, 75 N.W.2d 77

1955

Carr, J.

This action was brought in circuit court on June 30, 1954, recovery

being sought on the basis of conversion of personal property more than 3 years previously. The question presented is whether the prosecution of said action was barred by the statute of limitations relating to actions to recover damages for injury to person or property. By the provisions of said statute (CLS 1954, x609.13, subdivision 2 [Stat Ann 1953 Cum Supp x27.605]) an action of this character must be brought within 3 years from the time it accrues. In con- sidering the issue presented, well-pleaded material facts set forth in plaintiff's declaration must be accepted as true.

Plaintiff's amended declaration contains 3 counts. The first is in trespass on the case and alleges that on the 28th of March, 1951, defendant Tallman obtained a judgment against plaintiff in the common pleas court of the city of Detroit in the sum of $ 1,500 and costs. Thereafter a writ of execution was issued on the judgment and levied on certain personal property in plaintiff's store or meat shop. It is further averred that a purported sale of the property seized was held, but not in accordance with statutory requirements. In substance, plaintiff asserts in his declaration that defendants wrongfully converted the property taken under the writ. The right of action is predicated on such conversion. There is no showing that the judgment was not valid, or that the writ of execution was not properly issued. Plaintiff asserts in the first count his right to recover damages, including those suffered because of incidental injury to his business resulting from the conversion of said property.

The second count of the declaration repeats the averments as to the tortious conduct of the defendants, and likewise asserts the right to recover damages because of the losses sustained by plaintiff. The caption of the count indicates that it was intended to be in trespass on the case upon promises, and the claim is made therein that following the conversion a sale was made for the sum of $ 600. However, the count is not based on any claim of right to recover that sum, but on the theory of damages sustained as a result of the alleged tort.

participation in the same acts which plaintiffs in the old suit have already treated as constituting a sale of the property? We think not.

121 N.Y. 161, 165, 24 N.E. 272. It appears that the plaintiffs' earlier judgment had not been satisfied.

In the oAEcial reports the dissent of Smith, J. is printed before the majority and concurring

opinions. In these materials I have elected to print the dissent after the other two opinions, even though it is to my mind by far the most persuasive of the three opinions. [pdj]

September 11, 2000

1.15. LIMITATION PERIOD FOR CONVERSION 121

Count three of the amended declaration refers to the "several premises" set forth in the preceding count as its basis, and alleges indebtedness on the part of defendants to the plaintiff in the sum of $ 50,000. Incorporated therein are 5 common counts in assumpsit, namely, for work done by plaintiff for defendants, for money loaned by plaintiff to them, for money paid out by plaintiff for the use of defendants, for money had and received, and on account stated. A further claim is made indicating that plaintiff's declaration was based especially on fraud, deceit and conspiracy as in the second count of the declaration set forth, and damages in the same sum as mentioned in the first and second counts are claimed. It clearly appears from the averments of the declaration that recovery was sought, under each count, on the basis of the tortious conversion of plaintiff's property and not because of any contractual relation, express or implied.

Annexed to the declaration is a bill of particulars setting forth the items, 4 in number, for the recovery of which the action was brought. The first 3 items assert the right of recovery because of specific personal property wrong- fully converted by the defendants. A fourth item refers to the loss of profits in his business suffered by plaintiff by reason of the tortious conduct charged. The bill of particulars emphasizes the fact that plaintiff's alleged cause of action was based on the conversion of his property and the incidental damage result- ing therefrom. The incorporation of the common counts in the declaration, together with the reference to the averments of tortious conduct as the basis thereof, added nothing to the special count. The rule is well settled in Michigan that a bill of particulars may limit the scope of permissible recovery under the declaration, but may not enlarge it. Applebaum v. Goldman, 155 Mich 369; Cook v. Dade, 191 Mich 561.

Motions by defendants to dismiss the declaration were denied, and the there- upon answers were filed denying the material averments of plaintiff's alleged cause of action. On leave granted by the court, said answers were amended by adding thereto pleas of the statute of limitations, above cited. This was followed by motions to dismiss based thereon, and the trial court, concluding that the action was one to recover damages for injury to property, granted the motions. Plaintiff has appealed.

On behalf of plaintiff it is urged that his right to prosecute his cause of ac- tion was not barred by the statute for the reason that material facts constituting the basis of said right were wrongfully and fraudulently concealed from him by defendants. The facts well pleaded by plaintiff do not support such claim. Obvi- ously plaintiff knew what had occurred, and if uncertain as to any of the details of defendants' wrongful conduct he was placed on inquiry with reference thereto. Defendants owed him no duty to advise him as to his legal rights. The statute of limitations was not tolled by fraudulent concealment of the cause of action. We are in accord with the conclusion of the trial judge that the statute barred the prosecution of the cause of action set forth in the declaration. As before stated, plaintiff's declaration, read in conjunction with the bill of particulars, must be construed as based on tortious conversion of personal property. The judicature act of the State, applicable to civil actions, provides in chapter 11,

122 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW x1, thereof (CL 1948, x611.1 [Stat Ann x27.651]), that in certain cases, including the conversion of personal property into money, the plaintiff may sue either in assumpsit or in trespass on the case. In accordance therewith the aggrieved party, as was the situation prior to the adoption of the judicature act in 1915, has an election to sue in tort to recover the damages sustained by him as a result of the wrongful conversion of his property or, if such property has been sold by the wrongdoer, he may waive his right to proceed in trespass on the case and declare in assumpsit. In such event he is deemed to have elected to regard the tort-feasor as having made such sale for the owner's use and benefit and is entitled to recover the amount received. By following such procedure the one guilty of the conversion may be prevented from profiting by his transaction as a result of a sale for an amount in excess of the actual value. In the instant case plaintiff has expressly declared in tort and sought recovery for the damages sustained by him. By so doing he elected his remedy. In Rutan v. Straehly, 289 Mich 341, 348, in commenting on the statute, it was said:

"Plaintiff did not waive the tort, therefore her counts in assumpsit became surplusage."

In support of such statement the prior case of Kirker v. Larson, 254 Mich 648, was cited.

As before indicated, plaintiff's declaration, read in the light of the bill of particulars, is based on the alleged tortious conversion of personal property by defendants. No contractual relation between the parties, either express or implied, is asserted. I cannot agree with the conclusion of Mr. Justice SMITH that the case should be remanded for trial on the theory of a contract implied by law, that is, on the basis of quasi contract. Such conclusion apparently rests on the theory that when defendants converted plaintiff's property after it had been seized under the writ of execution the law implied a promise on their part to return it or pay its value, and that the right to maintain an action in assumpsit based either on a special count or on an appropriate common count is not related, as a matter of law, to the tortious conversion. That the value of property wrongfully converted may be recovered in an action of trespass on the case, if seasonably brought, is not open to question. The remedy in tort is more favorable to the aggrieved party in some respects than is the asserted right of action in assumpsit, although as a general rule the measure of damages is the value at time of conversion. Hudson v. Enichen, 308 Mich 79, and prior decisions there cited.

Without discussing the matter at length, it must be said that the plaintiff in the instant case was not entitled to proceed on the quasi-contract theory to recover the value of the property, nor may he now do so, notwithstanding that his action in tort is barred by the statute of limitations. As before emphasized, plaintiff's cause of action, as set out in his pleading, rests on the claim of a tortious conversion and the right to recover damages therefor. He sought to pursue his remedy in tort, claiming that the running of the applicable statute of limitations had been tolled by fraudulent concealment. Until barred by the statute he had an adequate remedy in tort for the alleged injury sustained by

September 11, 2000

1.15. LIMITATION PERIOD FOR CONVERSION 123 him. His declaration was framed on that theory.

Furthermore, a right of action for the value of the property on the theory of quasi contract in cases of tortious conversion is not recognized by the judicature act, above cited, by any other legislative enactment in this State, or by decisions of this Court. The right to maintain an action in assumpsit where contractual relations exist between the parties is not involved here. Prior to the adoption of the judicature act of 1915 it was repeatedly recognized by this Court that damages for the conversion of property could not be recovered in an action of assumpsit, subject to the exception that if the wrongdoer had sold the property the aggrieved party might sue to recover the amount received. In Watson v. Stever, 25 Mich 386, 387, 388, Justice Cooley, speaking for the Court, said:

"If one has taken possession of property, and sold or disposed of it, and received money or money's worth therefor, the owner is not compellable to treat him as a wrongdoer, but may aAErm the sale as made on his behalf, and demand in this form of action the benefit of the transaction. But we can not safely say the law will go very much further than this in implying a promise, where the circumstances repel all implication of a promise in fact. Damages for a trespass are not in general recoverable in assumpsit; and in the case of the taking of personal property, it is generally held essential that a sale by the defendant should be shown: Jones v. Hoar, 5 Pick (22 Mass) 285; Berkshire Glass Co. v. Wolcott, 2 Allen (84 Mass) 227 (79 Am Dec 781); Stearns v. Dillingham, 22 Vt 624, 627 (54 Am Dec 88); Mann v. Locke, 11 NH 246, 248; Smith v. Smith, 43 NH 536; Willet v. Willet, 3 Watts (Pa) 277; Pearsoll v. Chapin, 44 Pa 9; Guthrie v. Wickliffe, 1 AK Marsh (8 Ky) 83; Fuller v. Duren, 36 Ala 73 (76 Am Dec 318; Sanders v. Hamilton, 3 Dana (33 Ky) 550, 552; Barlow v. Stalworth, 27 Ga 517; Pike v. Bright, 29 Ala 332; Tucker v. Jewett, 32 Conn 563; Emerson v. McNamara, 41 Me 565; Morrison v. Rogers, 2 Scam (3 Ill) 317; O'Reer v. Strong, 13 Ill 688; Elliott v. Jackson, 3 Wis 649. The case of Fiquet v. Allison, 12 Mich 328 (86 Am Dec 54), on which reliance was placed by defendant in error, is clearly distinguishable from this. There the parties stood in contract relations as tenants in common in respect to the property in question; and when the defendant appropriated his right therein, he was, as the court pointed out, guilty of breach of a duty which the law implied from his express contract. This case presents no corresponding feature, and to sustain an action as upon an implied contract here, would be to disregard the primary distinctions in the forms of action."

Citing Watson v. Stever, it was declared in St. John v. Antrim Iron Co., 122 Mich 68, 69, that:

"When the defendant has converted property of the plaintiff into money or money's worth, the plaintiff may waive the tort, and sue in assumpsit, treat- ing the sale as made on his behalf. So, where defendant holds possession of property by virtue of contract relations with plaintiff, and converts such prop- erty, the plaintiff may, at his election, proceed in assumpsit. These are the only cases in which the plaintiff has election, under the common law." (Citing prior decisions.)

124 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

In accord with the foregoing is Lyon v. Clark, 129 Mich 381, where, in denying the right of the plaintiff to recover in assumpsit, it was said:

"But the present action is assumpsit, and it is further urged that, even though trover might have been proper, assumpsit will not lie to recover the value of property wrongfully converted, and which the tort-feasor still retains in his possession. The rule in this State is well settled that, to entitle one to maintain assumpsit against a tort-feasor who converts personal property to his own use, it must appear that the property has been converted into money or money's worth. This is upon the ground that the owner of the property has the right, at his election, to treat the tort-feasor as his agent in making the sale, and to aAErm the contract as made on his behalf, and sue for the proceeds as money had and received for the plaintiff's use. See Watson v. Stever, 25 Mich 386. The only class of cases in which the remedy has been extended is where the remedy has been extended by statute, as in case of trespasses on real property (CL 1897, x11207), and in cases where the property of plaintiff has passed into possession of defendant by virtue of some contract relation between plaintiff and defendant. This case does not come within either of the last-named classes, and it would follow that, as to the property not transferred, the action of assumpsit is not the proper remedy."

See, also, Nelson v. Kilbride, 113 Mich 637; Plefka v. Detroit United Railway, 147 Mich 641; Nelson & Witt v. Texas Co., 256 Mich 65.

Such was the situation when the judicature act of 1915 was enacted, codifying the law with respect to civil actions. It is a fair inference that the framers of the act, and the legislature in adopting it, intended a continuance of the principles applicable to a case presenting the questions involved in the instant controversy. Accordingly specific authority to sue in tort was granted in cases of the wrongful conversion of property, with a privilege of election to waive such right in cases where the wrongdoer had sold the property and received value therefor. Beyond this the act does not go. There is nothing in it indicating a recognition of a right to sue the tort-feasor, for the value of property converted, on the theory of quasi contract. The provisions of the judicature act cannot be reconciled with such theory. While the action of assumpsit was broadened to some extent by substituting it for the common-law actions of debt and covenant, and in other respects not material here, the right to recover damages in such form of action for the conversion of personal property was not specified, except when the wrongdoer has sold the property and received value therefor.

Attention has been directed to certain provisions in CL 1948, x611.1 (Stat Ann x27.651), which provides, in part, as follows:

"Provided, however, That in case of trespass on lands, and in cases where an action on the case for fraud or deceit may by law be brought, and in cases of the conversion of personal property into money, the plaintiff may bring and maintain either an action of assumpsit, or an action of trespass on the case. In all cases not otherwise specifically provided for by law, where a pecuniary penalty or forfeiture shall be incurred by any person, and the act or omission for which the same is imposed, shall not also be a misdemeanor, such penalty or

September 11, 2000

1.15. LIMITATION PERIOD FOR CONVERSION 125 forfeiture may be recovered in an action of assumpsit. In all such cases where assumpsit is brought, a promise shall be implied by law to pay all just damages sustained by plaintiff and may be so declared upon."

It is obvious that the term "such cases" as used in the last sentence has reference to "cases not otherwise specially provided for by law." As before pointed out, the rights of the aggrieved party in any case where property is converted tortiously are specifically covered. It is apparent that the remedy in trespass on the case was deemed adequate. The provision made with reference to as assumpsit action in the event of a sale of the converted property by the wrongdoer was intended to give to the owner of the property a privilege that he might exercise if he deemed it to his advantage to do so.

In the instant case plaintiff sought to pursue his remedy in tort but failed to institute action within the period fixed by the statute of limitations. Under the declaration and accompanying bill of particulars, and under applicable pro- visions of the judicature act and controlling principles of law as pointed out in prior decisions of this Court, plaintiff is not entitled to a trial in an action of assumpsit on the theory of a contract implied by law. The rule followed in cases determined prior to the judicature act did not recognize such right of action and the rule was not changed by the statute.

The order of the trial court dismissing the case is aAErmed. Dethmers, C.J., and Sharpe, Reid, and Kelly, JJ., concurred with Carr, J.

Boyles, J. (concurring in aAErmance). In this case, I choose to shear away all the arguments and citations in support of opposing viewpoints, which rely on statutory and common-law precedents and decisions. The relatively unim- portant but only real issue in the case is this:

Under the material facts and circumstances as alleged by the plaintiff in his declaration (which must be taken as true), should the plaintiff be allowed to pursue his suit, started more than 3 years after his cause of action accrued?

If, by fairly construing the averments in plaintiff's amended declaration, his action is one to recover damages for injury to property, it is barred by the statute. See subdivision 2, CLS 1954, x609.13 (Stat Ann 1953 Cum Supp x27.605).

The declaration, in full, is in the record. The first of the 3 counts, cap- tioned "Trespass on the case for damages," sets up, in 13-1/2 pages in the printed record, in quite minute detail, the facts and circumstances on which the plaintiff relies to recover damages, by alleging wrongful acts and false, fraudu- lent, willful and intentional concealment thereof by the defendants. Said count concludes with a prayer for damages by reason thereof. The second count, cap- tioned "Trespass on the case upon promises," in approximately 14 printed pages reiterates the allegations set up in the first count, and concludes that by rea- son thereof the plaintiff not only did "lose and was deprived of certain moneys to him belonging and his certain goods, wares and merchandise and the value thereof to him belonging, but in addition thereto * * * did lose great gains and

126 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW profits that otherwise would have come to him * * * by reason whereof your plaintiff did sustain and was damaged in this regard in a large and substantial sum * * * for the recovery of which this action under count 2 of this declaration is brought."

In count 3, captioned "Common counts,"

the declaration alleges:

"That by reason of the said several premises in preceding count 2 described, the within named defendants * * * are indebted unto your plaintiff in the sum of $ 50,000 * * * in a like sum of money for the price and value of work done by the plaintiff for the defendants * * * in a like sum of money then and there lent by the plaintiff to the defendants * * * in a like sum of money then and there paid by the plaintiff for the use of the defendants * * * in a like sum of money then and there received by the defendants for the use of the plaintiff * * * and in a like sum of money then and there found to be due from the defendants to the plaintiff on an account stated between them.

"And your plaintiff herewith declares in an action of assumpsit on all the common counts and especially on fraud, and fraud and deceit and fraud and conspiracy all in preceding count of this declaration described * * * and for the recovery of which this suit is brought."

Apparently the declaration, in its entirety, seeks to avoid the impact of the 3-year statutory limitation against plaintiff's suit, and also to rely on the "fraudulent concealment" exception to the 3-year limitation found in paragraph 20 of the same act (CL 1948, x609.20 [Stat Ann x27.612]).

Both in his answer to defendants' motion to dismiss, as well as here, plain- tiff relies on his amended declaration as a whole. He does not elect as between counts. His suit still remains as a suit for damages "for injury to * * * prop- erty," relied upon in the declaration as a whole. It is barred by the statute of limitations.

For the above reasons I concur in aAErming the order of the trial court dis- missing the case.

Kelly, J., concurred with Boyles, J. Black, J., took no part in the decision of this case. Smith, J. (dissenting). This case arises out of an allegedly irregular exe- cution sale. The amended declaration was framed in 3 counts. The first was captioned "Trespass on the Case for Damages" and the second "Trespass on the Case Upon Promises." The third set up the "Common Counts." Upon motion, the trial court dismissed the amended declaration on the ground that the suit had been barred by the statute of limitations. Plaintiff-appellant took a general appeal. We will, hereinafter, upon this appeal so arising, presume to be true all of plaintiff-appellant's well-pleaded allegations.

This is what happened: Defendant-appellee Tallman obtained a judgment against plaintiff-appellant in the common pleas court for the city of Detroit in

Meaning, of course, common counts in assumpsit. See 3 Mich Law & Practice, Assumpsit,

p 100. There are no "common counts" in tort. [footnote by Boyles, J., renumbered]

September 11, 2000

1.15. LIMITATION PERIOD FOR CONVERSION 127 the sum of $ 1,500 with costs. Execution was issued out of such court on April 12, 1951, on direction of defendant-appellee Friedman, and delivered to defendant- appellee Behrmann, a bailiff of the court. It is further alleged, in essence, that on April 30, 1951, Friedman and Behrmann visited plaintiff-appellant Janiszewski's place of business, purporting "to levy execution," removed certain moneys from the cash register, and held then and there "a purported sale," such sale being held without publication of notice of the holding thereof, and without making an inventory or setting aside the statutory exemption. As a result thereof, it is alleged, plaintiff-appellant's business was closed, the doors locked, plaintiff evicted, and merchandise of the value of $ 500, together with fixtures valued at $ 5,000, were "converted by the said defendants herein, acting both jointly and severally, in fraud and conspiracy of the rights of your plaintiff, to their own use." It is also alleged that "in further fraud and conspiracy" the defendants caused a bill of sale to be executed by Behrmann to Tallman, reciting a consid- eration of $ 300, that "in further effort to conceal and cover up the fraudulent actions and the conspiracy engaged in" the defendant sold the same articles to one Gus ZaAEni for $ 600, subject to liens, and that thereafter, on June 25, 1951, defendant-appellee Behrmann filed a return upon the execution issued, representing that no satisfaction had been had. So the matter rested until on or about May 18, 1954, at which time, plaintiff-appellant asserts, he learned for the first time of his statutory exemptions, that the return on the execution had been filed wholly unsatisfied and without mention of the sale above described, and of the other irregularities described. Subsequent to such date, and on May 24, 1954, "following notice of the alleged irregularities in said execution sale aforesaid," it is alleged that defendant-appellee Friedman filed a purported par- tial satisfaction of the judgment in the sum of $ 300, and defendant-appellee Behrmann, at about the same time, filed an amended return evidencing the sale for $ 300. Plaintiff-appellant commenced his action on June 30, 1954.

It is plaintiff-appellant's theory that the first count of his amended declara- tion "was predicated in trespass on the case for damages," and that, as he puts it, "questions of fraud and misrepresentation were involved without physical or mental injury or without damage to specific property." He asserts that, under the statute relating to fraudulent concealments (CL 1948, x609.20 [Stat Ann x27.612]), he had 2 years from the discovery of the fraud within which to bring his action.

The diAEculty with plaintiff-appellant's theory as to his first count is that the gist of it, clearly set forth, is a conversion. It is not necessary for conversion that there be physical injury to tangible property; it is suAEcient that there be, as here, an invasion of one's property rights by actionable wrong. The date of the conversion was the date of the purported sale, April 30, 1951, and the action for damages for the tort had been barred by the 3-year statute on June 30, 1954, the date of the filing of the suit. We find no fraudulent concealment of the alleged wrong. The actions of the defendants, who stood in no confidential or fiduciary relationship to plaintiff, were open and notorious. We approved, in Weast v. DuAEe, 272 Mich 534, 539, the following statement of law respecting

128 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW fraudulent concealment:

" `The fraudulent concealment which will postpone the operation of the statute must be the concealment of the fact that plaintiff has a cause of action. If there is a known cause of action there can be no fraudulent concealment which will interfere with the operation of the statute, and in this behalf a party will be held to know what he ought to know, pursuant to the rule hereinbefore stated (i.e., by the exercise of ordinary diligence). * * *

" `It is not necessary that a party should know the details of the evidence by which to establish his cause of action. It is enough that he knows that a cause of action exists in his favor, and when he has this knowledge, it is his own fault if he does not avail himself of those means which the law provides for prosecuting or preserving his claim.' "

The exercise of reasonable diligence by plaintiff would have disclosed to him shortly after the conversion all of the facts and circumstances attendant thereon and the law applicable thereto. The first count is barred by the statute.

The second and third counts proceed upon a different theory. The second seeks recovery of damages for trespass in an action on the case on promises, and the third is framed in the common counts. Since it is abundantly clear that defendants actually made no verbal promises whatever to plaintiff as they (allegedly) took his shop, his money, and his fixtures, it is equally clear that the promise comes from without the parties. The fact of the matter is that the promise is implied by the law itself, arising out of the equities of the situation. "If," said the great Lord Mansfield, "the defendant be under an obligation, from the ties of natural justice, to refund; the law implies a debt, and gives this action, founded in the equity of the plaintiff's case, as it were upon a contract." Moses v. Macferlan, 2 Burr 1005, 1008 (97 Eng Rep 676).

With the press of cases awaiting decision, we cannot trace here the develop- ment of this benign growth, the promise on the part of the wrongdoer, implied by the law itself, to make restitution of the fruits of his wrong. It would be hard to find, according to Ames, "a better illustration of the flexibility and power of self-development of the common law."

Those interested will profit by a study

of Ames, supra, 3 Street, The Foundations of Legal Liability, p 182 et seq., and the great English landmark cases, Slade's Case, Cokes Reports, pt 4, 92-b (76 Eng Rep 1074), and Moses v. Macferlan, supra. Also of interest is Manwood and Burston's Case, 2 Leon 203, 204 (74 Eng Rep 479 [1588]).

So it is, by now, ancient learning that the law implies the promise and that the breadth of the obligation is measured by the breadth of the wrong, not the mutual assent of the parties. As we held in Moore v. Mandlebaum, 8 Mich 433, 448:

"We understand the law to be well settled, that the action of assumpsit for money had and received is essentially an equitable action, founded upon all the

The History of Assumpsit, 3 Select Essays in Anglo-American Legal History (1909), 259,

297, 298. [footnote by Smith J., renumbered]

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1.15. LIMITATION PERIOD FOR CONVERSION 129 equitable circumstances of the case between the parties; and if it appear, from the whole case, that the defendant has in his hands money which, according to the rules of equity and good conscience, belongs, or ought to be paid, to the plaintiff, he is entitled to recover."

That phase of the problem before us, however, has no ancient solution. Like many complex inquiries it may be very simply stated: What is the applicable statute of limitations upon waiver of tort and suit in assumpsit?

The form of the question, as it is thus traditionally put, introduces confu- sion. What is actually involved is an election as to remedies, not a waiver of anything. Analogous is the action for specific performance of a land contract. It would be offensive to most lawyers to describe such action as a "waiver" of the breach of contract. (Woodward, The Law of Quasi Contracts, x271.) Similarly, Restatement, Restitution, p 525, points out:

"A person upon whom a tort has been committed and who brings an action for the benefits received by the tort-feasor is sometimes said to `waive the tort.' The election to bring an action of assumpsit is not, however, a waiver of a tort but is the choice of 1 of 2 alternative remedies."

Woodward, in his treatise "The Law of Quasi Contracts," supra (x271, p 438), puts the matter in these terms:

"The phrase `waiver of tort,' commonly used to denote the election of as- sumpsit, is unfortunate. It implies that the wrong is waived, which is both inaccurate and misleading." And continuing ( x271, p 439):

"As is pointed out in the preceding section there is in reality an election between alternative obligations resulting from the commission of a tort--an obligation to pay such damages as the plaintiff has suffered, and an obligation to pay for such benefits as the defendant has received. Whichever obligation is chosen to be enforced, there can be no recovery without proof of the commission of a tort."

Our Court, in an early opinion written by Mr. Justice Cooley, Watson v. Stever, 25 Mich 386, 387, speaks of the same election:

Thus under the common law it is clear that the owner of the property con- verted has an election: he may bring an action in assumpsit, based on the wrongdoer's "promise" (implied by law) to restore to him the value of the ar- ticle, or he may bring an action for damages for the trespass. The latter is an action sounding in tort, the former in contract, 2 separate and distinct causes

130 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW of action arising out of the single wrong. As pointed out by Lehman, J., in Schmidt v. Merchants Dispatch Transportation Co., 270 NY 287 (200 NE 824, 104 ALR 450):

"The single wrongful act which is asserted as the basis of recovery may constitute the breach of a number of obligations of diverse nature and origin. Then it may rest with the plaintiff whether he will assert as the basis of his right to damages the breach of one or more of such obligations; and the single right to recover such damages may then be alleged in different forms, each asserting as a basis of liability the breach of some duty or obligation. Each so-called `separate and distinct cause of action' becomes in effect a `count' in the allegation of a single wrong; and whether the statute bars recovery under any count depends upon the nature and origin of the liability asserted in that count."

With this background we approach the statutes to be considered. First, as to the action and the recovery thereunder. In the judicature act of 1915 (PA 1915, No 314) it is provided (CL 1948, x611.1 [Stat Ann x27.651]), that although assumpsit, as an action at law, "shall be retained," it shall include as well the actions of covenant and debt, actions on the case for fraud and deceit, for trespass upon lands, for certain pecuniary penalties or forfeitures, and for cases involving the conversion of personal property into money. The last sentence of this section, as quoted by Mr. Justice Carr, provides: "In all such cases where assumpsit is brought, a promise shall be implied by law to pay all just damages sustained by plaintiff and may be so declared upon." The assumpsit thus described, with its broad inclusions of various common-law forms of action, and its full scope of damage recovery, differs radically from the assumpsit known to the common law. By its employment an injured person may recover his full damages upon what is termed his "waiver" of the tort. In the case of conversion of goods, we do not restrict the owner to the price obtained by the tort-feasor upon sale, thus making the owner's recovery dependent upon the tort-feasor's shrewdness or stupidity, or the state of the market for converted goods. Bowen v. Detroit United Railway, 212 Mich 432. See, also, Felder v. Reeth (CCA), 34 F2d 744 (97 ALR 244), and cases therein cited. In such event it is not unreasonable to say that the owner waives the tortious taking and the subsequent sale and recovers the reasonable value of the property taken as if for goods sold and delivered.

Now for the statute of limitations. Our statute, unlike others, is not (gener- ally speaking) framed in terms of specific transactions, or even forms of action. The policy expressed is very simple: All actions shall be commenced within 6 years after the cause of action accrues. (CLS 1954, x609.13 [Stat Ann 1953 Cum Supp x27.605].) There then follows a series of exceptions, with 1 of which we are concerned. Actions to recover damages, for injuries to person or property, it is provided, shall be brought within 3 years from the time the actions ac- crue. With these guides, and in the light of what has been said, we return to plaintiff-appellant's declaration. It is apparent that it combines both the ele- ments of restitution and claims for "damages." Insofar as the latter elements are concerned, they are outlawed, clearly, by the 3-year statute, which runs, as

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1.15. LIMITATION PERIOD FOR CONVERSION 131 we pointed out in Hurst v. Charron, 267 Mich 210, 214, "from the time the cause of action accrues."

But, as we have seen, 2 alternative remedies exist for the wrongdoer. To the extent that plaintiff-appellant relies upon the promise implied by law for restitution merely, the promise historically framed under a common count, and not for damages, it is our conclusion that the limitation of actions applicable to promissory obligations shall apply. No reason readily suggests itself why this particular promise, having its origins in equitable considerations, arising out of our solicitude that those who have suffered a wrong shall not lack for remedy, should, in comparison with other promissory obligations, suffer a shortened life. All of the considerations of equity which give rise to its birth should, on the contrary, assure it a normal life. When an owner abandons his damage claim and comes before us seeking only the return of what was wrongfully taken from him, we hear his plea with as much tolerance as the statute permits.

There is much to commend the statement of the Arizona court in Andersen v. Thude, 42 Ariz 271, 274 (25 P2d 272), that:

"It is the rule that if the complaint may be construed either as one in tort or one in contract, that it will be presumed to be the latter. Consolidated Flour Mills Co. v. Muegge, 127 Okla 295 (260 P 745); Nathan v. Locke, 108 Cal App 158 (287 P 550, 291 P 286). And while a defense raising the statute of limitation is recognized, it is never favored by the courts, and if there is doubt as to which of 2 statutes applies, the longest period is generally used. St. Lou's, I.M. & S.R. Co. v. Sweet, 63 Ark 563 (40 SW 463); Hughes v. Reed (CCA), 46 F2d 435; Matthys v. Donelson, 179 Iowa 1111 (160 NW 944); Trousdale v. Amerman, 124 Kan 614 (261 P 826); 1 CJ, p 1015."

The court of appeals for the ninth circuit squarely ruled upon the issue in the case of Lipman, Wolfe & Co. v. Phoenix Assurance Co. (CCA), 258 F 544, 547, 548, in a carefully reasoned case citing many authorities. It held, in part, as follows:

"The second question here is which of the 2 following provisions of the statute of limitations of Oregon applies to the cause of action.

" `Sec. 6. Within 6 years: An action upon a contract or liability express or implied. * * *

" `Sec. 8. Within 2 years: An action for assault, battery, false imprisonment, for criminal conversation, or for any injury to the person or rights of another, not arising on contract, and not herein especially enumerated.'

"The action for money had and received has always been regarded as an action in assumpsit, based upon a promise to repay which the law implies, where one has possession of money which in equity and good conscience belongs to another. `Having money that rightfully belongs to another, creates a debt; and whenever a debt exists without any express promise to pay, the law implies a promise, and the action always sounds in contract.' Byxbie v. Wood, 24 NY 607, 610. In that case it was held, that where one person fraudulently procures money of another, the law will imply a promise to repay it, and the injured party

132 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW need not sue in tort, but may sue in assumpsit for money had and received. In Brewer v. Dyer, 7 Cush (61 Mass) 337, 340, the court said:

" `The law, operating on the act of the parties, creates the duty, establishes the privity, and implies the promise and obligation, on which the action is founded.'

"That there is in such a case an implied promise to pay is generally recognized in the authorities, and it is so held in the State of Oregon. First National Bank v. Hovey, 34 Or 162 (55 P 535); Hornefius v. Wilkinson, 51 Or 45 (93 P 474). In 1 Wood, Limitations (4th ed), pp 95, 96, it is said:

" `Without multiplying instances, generally assumpsit lies for the breach of any simple contract, and in all cases where a contract or promise exists by express act of the parties, or where the circumstances are such that the law will imply a promise; and it may be said that under this head a recovery may be had for tortious acts properly embraced under the head of actions ex delicto in all those cases where, from the circumstances of the case, the law will imply a promise on the part of the wrongdoer to reimburse the party injured by his act.' * * *

" `In cases where a tort may be waived, and assumpsit brought therefor, the latter action will lie, even though an action for the tort is barred by the statute.'

"Among the cases cited are Ivey's Administrator v. Owens, 28 Ala 641; Lamb v. Clark, 5 Pick (22 Mass) 193; Kirkman v. Phillips' Heirs, 7 Heisk (54 Tenn) 222; Miller v. Miller, 7 Pick (24 Mass) 133 (19 Am Dec 264); Whitaker v. Poston, 120 Tenn 207, (110 SW 1019); Fanson v. Linsley, 20 Kan 235; Norden v. Jones , 33 Wis 600 (14 Am Rep 782)."

See, also, House, Unjust Enrichment: The Applicable Statute of Limitations, 35 Cornell LQ 797; Corbin, Waiver of Tort and Suit in Assumpsit, 19 Yale LJ 221.

Essential to the above reasoning is the proposition that prior to the statutory enactments described, including the judicature act, and subsequent thereto, our law distinguished between (a) the remedy of return and (b) the remedy of damages. It is at this point that the thrust of Mr. Justice Carr's careful opinion becomes most acute. If, in fact, our law does not make this distinction, the plaintiff's position is imperilled, if not destroyed. The words of the statute are that "in all such cases," a promise shall be implied by law to pay "all just damages." At this point we have a damage remedy. But what are the "all such cases" to which it is applicable? It is our position that the words cover the entire specified field of statutory assumpsit. Justice Carr's position is best stated in his own words: "It is obvious that the term `such cases' as used in the last [quoted] sentence has reference to `cases not otherwise specially provided for by law.' " (The cases to which he refers, "the cases not otherwise specially provided for by law," are the cases "where a pecuniary penalty or forfeiture shall be incurred by any person.") The issue as to the proper reading of the statute seems clearly drawn. Do the words "all such cases" (as to which the law implies a promise to pay "all just damages") refer solely to the penalty and forfeiture

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1.15. LIMITATION PERIOD FOR CONVERSION 133 cases in the sentence preceding, or to the entire field of statutory assumpsit?

The importance of the remedy of general assumpsit, the common counts, that remedy which so strikingly illustrates the genius of the common law, its vitality, its "flexibility and power of self-development" (Ames, supra) is so great that we deem it advisable to subject this portion of the judicature act to critical examination. The real importance of the issue stems from the fact that the remedy of general assumpsit, the common counts, has been for centuries the expression on the law side of the conscience of equity. "This action, while legal in form, is equitable to the core." (McAllister, J., in Herrmann v. Gleason (CCA 6th), 126 F2d 936, 939. It is important to our people that such a remedy should never, by the eroding process of exception, or the misinterpretation of ancient cases, or statutory provisions, be reduced to importance or encrusted with vitiating formalities. It is for that reason that we undertake a detailed comparison of the common counts with statutory assumpsit which, in the clauses here under consideration, had its origin, not with the judicature act of 1915, but with the Revised Statutes of 1846. That particular provision will not long delay us. In the law of the period there had been much confusion about the collection of penalties and forfeitures. With respect to penalties alone, was the proper form of action, debt, assumpsit, trespass or case? Did covenant have an application? In the enforcement of forfeiture equally diAEcult questions arose. Our legislature cut through these diAEculties as to forms of action by providing (RS 1846, chap 128, x1) that:

"In all cases not otherwise specially provided for by law, where a pecuniary penalty or forfeiture shall be incurred by any person, and the act or omission for which the same is imposed, shall not be also a misdemeanor, such penalty or forfeiture may be recovered in an action of debt, or in action of assumpsit."

The same language has been carried forward to the present time. Chapter 11, x1, of the judicature act (CL 1948, x611.1 [Stat Ann x27.651]) provides, with respect to penalties and forfeitures, as follows:

"In all cases not otherwise specially provided for by law, where a pecuniary penalty or forfeiture shall be incurred by any person, and the act or omission for which the same is imposed, shall not also be a misdemeanor, such penalty or forfeiture may be recovered in action of assumpsit."

This action by the legislature was the first significant broadening of the action of assumpsit. Others followed. Prior to the turn of the century the matter of trespass on lands, with the cutting of timber thereon, had presented a problem of considerable magnitude in this State. It had come before the Court in Watson v. Stever, supra, a case in which the plaintiff had sued the defendant in assumpsit to recover the value of logs which defendant had converted but not sold. Assumpsit was held to be an improper remedy, the holding resulting in the statute of 1875 which was passed shortly thereafter to remedy the situation. It provided (PA 1875, No 165) that:

"Sec. 1. In all cases where a party has a right of action for the taking of timber or other trespass on lands, it shall be lawful for the party having such

134 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW right of action to waive the tort and bring assumpsit.

"Sec. 2. When tort is waived, as provided in the preceding section, the plaintiff may commence his suit by attachment against the property of the defendant, as in other cases, and his aAEdavit for such attachment shall state the amount due him as near as may be, and the fact that the damages are unliquidated shall not prevent the bringing and maintaining of such writ."

There was, in addition, still another legislative broadening of assumpsit pre- ceding the passage of the judicature act. The common-law remedies for fraud and deceit were highly technical. The opinion in Hallett v. Gordon, 122 Mich 567, 572, points out some of the diAEculties encountered under the common law.

"When the action is brought against the contracting party, there may be cases where the action may be in tort for the fraud, or, by treating the fraudu- lent representations as warranties (when that can be done), assumpsit may be sustained. It is said that the distinction between actions in assumpsit and on the case has, however, been largely done away with, and the present doctrine is that the buyer may have his remedy by an action on the warranty, sounding either in tort or in contract."

There were other procedural and substantive impediments, but we need not burden this opinion with a recital thereof. Again the legislature acted. PA 1897, No 195 (contemporaneously described in Hallett v. Gordon, supra, 573, by our Court, as "illogical and paradoxical" which, in truth, it was, though highly eAEcacious as a remedy), provided:

"Sec. 1. That in all cases where, by the fraudulent representations or con- duct of any person, an injury has been or shall be produced, either to the person, property or rights of another, for which an action on the case for fraud or deceit may be law be brought, an action of assumpsit may be brought to recover dam- ages for such injury, and in all such cases a promise shall be implied by law to pay all just damages arising from such fraud or deceit, and may be so declared upon.

"Sec. 2. The causes of action specified in section 1 of this act shall, upon the death of the person injured, survive to his personal representatives."

Such, in brief, was the situation with respect to statutory assumpsit prior to the passage of the judicature act of 1915. The assumpsit remedy had been extended by the legislature to a number of diverse situations in which, primarily for historical reasons, the remedy of common-law assumpsit had been denied. (Thus the traditional denial of quasi-contractual recovery for the value of the use and occupation of land turned in part on the fact that wager of law was not allowed defendants in actions of debt for rent. See Ames, Assumpsit for Use and Occupation, Lectures on Legal History, p 165; 2 Durfee and Dawson, Restitution at Law and in Equity, p 13.)

A fundamental distinction must here be observed, and stressed: by the use of the common counts the plaintiff may have a restitutionary remedy rather than a damage remedy. As Street points out in his Foundations of Legal Liability, Vol 3, p 196, the assumpsit remedy, in fact, was superior to trover in some

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1.15. LIMITATION PERIOD FOR CONVERSION 135 respects, since the latter was delictual in form and could not be maintained against a personal representative after the death of the tort-feasor. Hambley v. Trott, 1 Cowp 371 (98 Eng Rep 1136). If we have a tortious conversion and the article has been sold, the victim may sue in assumpsit, in which event he recovers "the benefit of the transaction." (Cooley, J., in Watson v. Stever, supra, 387.) On the other hand, he may treat the convertor as a wrongdoer and sue for damages, in which case the employment of the damage remedy results in the application of all elements of damage suffered by the plaintiff and is thus, from the standpoint of money recovery, a more comprehensive remedy. The distinction described is ancient in the law and has been recognized for many years in our jurisprudence. Justice Cooley pointed it out with clarity and in detail in Watson v. Stever, supra, 387. "Damages for a trespass," he observed, "are not in general recoverable in assumpsit." And in Nelson v. Kilbridge, 113 Mich 637, 639, the Court spoke thus in ruling in an action in assumpsit, for money had and received:

"The diAEculty with the defendant's contention is that he insists on assuming that this is an action brought to recover damages for a trespass, which it is not, but is an action brought to recover money which the law regards as received for the use and benefit of the plaintiff, because it is the purchase price of his property."

Prior to the passage of the judicature act, then, we had, among other reme- dies, general assumpsit (the common counts by means of which restitution might be obtained) and we had (with respect to certain offenses) a statutory assumpsit by means of which full damages were recovered. The judicature act, in chapter 11, x1 (CL 1948, x611.1 [Stat Ann x27.651]), entitled: "Forms of Action," gath- ered the aforedescribed statutes into one comprehensive section. It included the assumpsit for forfeiture and penalties authorized in 1846, the assumpsit for trespass on lands authorized in 1875, and the assumpsit for fraud and deceit authorized in 1897. In addition it specifically covered the case of the conversion of personal property into money. "In all such cases where assumpsit is brought," it then provided, "a promise shall be implied by law to pay all just damages sustained." Thus the earlier statutory solution of the problem of the money recovery in the statutory assumpsit actions was retained by the judicature act.

We return now to the question posed: When the judicature act of 1915 says that "in all such cases where assumpsit is brought, a promise shall be implied by law to pay all such damages sustained by plaintiff and may be so declared upon," do the words "all such cases" comprehend the whole described filed of statutory assumpsit? To Justice Carr it is obvious that the term has reference to "cases not otherwise specially provided for by law," i.e., those where a pecuniary penalty or forfeiture has been incurred.

To us it is not obvious. Just why the legislature should in 1915 restrict the statutory assumpsit remedy of "all just damages" to penalties and forfeitures alone, and abandon it with respect to the other statutory assumpsits, partic- ularly the fraud remedy, is not clear to us. It seems particularly puzzling in view of the fact that, for reasons apparently involving the nature of penalties

136 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW and forfeitures, the statutory extension of assumpsit to that field was the only similar legislative enactment which did not originally embody some language respecting "damages." To us it seems clear that what the legislature was doing here (with respect to these remedies) was merely gathering them together in one section. The damage remedy of statutory assumpsit was retained. If it were availed of, one might obtain by its use, his full damages. It continued to run hand in hand with the common counts, which might be used for restitution. Each had its function.

The language of the cases admits of no other conclusion. Both forms of assumpsit were pleaded and employed subsequent to the enactment of the several statutory assumpsit remedies, and the same situation obtained subsequent to the passage of the judicature act. The distinction is clearly made in numerous cases. See Barbour v. Hurlburt, 137 Mich 534, 539, 540 ("The plaintiffs also had a right of action to recover damages for the fraud or deceit either through an action on the case or an action of assumpsit, under CL 1897, x10421. In neither of these cases would the common counts be a proper declaration. * * * The third remedy rests on the theory of an aAErmation of the purchase at the price actually paid, and the recovery back from the defendant of the money not used in accordance with the contract. We see no reason why such recovery could not be had upon the common counts"); Burchy v. Carpenter, 181 Mich 78, 82 (declaration upon common counts in assumpsit "[2] * * * under the declaration as framed he cannot recover damages for fraud and deceit, but for that purpose must employ a special count"); Billig v. Goodrich, 199 Mich 423, 429 ("the statute referred to [permitting waiver of tort and suit in assumpsit] permits an action of assumpsit to be brought in certain cases, but it does not permit a recovery upon the common counts. Quite the contrary. * * * The statute does not change the rules of pleading. * * * Recovery may be had on the common counts for money paid on a contract into which plaintiff was induced to enter by fraudulent representations of the defendant"); Kirker v. Larson, 254 Mich 648, 651 ("it was not improper to add the common counts to the special count in assumpsit arising out of implied promises of repayment on account of fraud").

We conclude, then, that the extension of the assumpsit remedy by statute to wrongs as to which the remedy was not theretofore available did not destroy either the use or the function of the historical common counts.

With much of what Mr. Justice Carr observes respecting the necessity for sale, in event of conversion of personal property, we are in complete accord. We long required a sale as a prerequisite to a plaintiff's waiver of tort and suit in assumpsit at the common law. (Statutory assumpsit under the judicature act retains this requirement.) Just how much vigor is left in the ancient requirement (which, again, had its origin in historical considerations, with much emphasis on the common-law concept of "debt") is doubtful after our decision in Nelson & Witt v. Texas Co., 256 Mich 65, a case in which recovery was had under the common counts, for money had and received, the decision not being grounded upon contract relations and no sale by defendant appearing in the record. We need not, however, vex the question, for in the case before us a sale by defendants

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1.15. LIMITATION PERIOD FOR CONVERSION 137 is well pleaded.

Nor can we conclude that in event of sale the Michigan law restricted the aggrieved party, in his action in assumpsit, merely to the amount received. He is entitled, of course, to such amount, and we have so held. But we have never squarely held that this amount is his ceiling of recovery. The issue is important in this case because it is pleaded, in effect, that the sale was at a give-away price. Our heretofore expressed conviction that we do not restrict the victim of the tort to whatever meager proceeds the sale may have brought is clear from Justice Cooley's careful analysis in Watson v. Stever, supra, in which it is pointed out that, should there have been a sale, the assumpsit action is for the "benefit of the transaction." Thus we get into the quasi-contractual action for benefits received. In such an action, "equitable to the core," is the wrongdoer to be permitted to set up his own wrong as a defense? Will he be allowed to say that he is not liable for the favor value because of his tort? That he willfully sold for a dime instead of a dollar and, hence, the "benefit of the transaction" is a dime only? That the injured party's recovery, in an action born of the conscience of equity, will be limited, regardless of fair value, by a figure imposed by the wrongdoer? It is our conviction that this is not the law of this State. Our Court had heretofore considered an analogous case, the conversion of personal property obtained, not by tortious act but through contract. In this case, if one contracting party waives the tort of the other party and sues him in assumpsit, the injured party's recovery is not the value to the wrongdoer but "the value of the property converted in the open market at the time and place of conversion." Bowen v. Detroit United Railway, 212 Mich 432, 437 (assumpsit on all the common counts). It does not commend itself to us that we should be more tender with a wrongdoer whose initial acquisition of the property was tortious than with one who, at least, came into original possession of the property with consent. If the latter converts, he must pay the fair market value of the property. Will we permit the tortious taker to escape by paying only the give-away price at which he sold, regardless of fair value? The Restatement, Restitution, we note (section 151), is in agreement with our view. "The measure of recovery for the benefit received (see Cooley, supra) by the other," it says, "is the value of the property at the time of its improper acquisition, retention, or disposition."

A question remains as to the proper construction of plaintiff's pleadings. To Justice Carr it is apparently clear that plaintiff is seeking damages for a tort, and that he has elected his remedy. "In the instant case," he says: "plaintiff has expressly declared in tort and sought recovery for the damages sustained by him. By so doing he elected his remedy."

If this is correct, if the plaintiff has merely brought here an action in tort for damages, we have wasted much time. The action is outlawed. But the form of the statement assumes the very answer we have so diligently sought. Has plaintiff, in truth, expressly declared in tort? Assuredly he has in his first count. If that stood alone we would have no problem. But his second count is at least captioned in the historical language of special assumpsit, while the

138 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW third is the common counts. Is it correct, as to these latter, to say that because the plaintiff relates in detail the series of wrongs done him that he has declared in tort? We cannot so hold. The facts constituting the tort are set out to show why the law should (and does) imply a promise. There is no contract in fact between the parties. Unless plaintiff can show that the defendants are guilty of some wrong, plaintiff has no cause of action against them. As Keener put it, in his historic Treatise on the Law of Quasi-Contracts, p 160, "when the assumpsit is brought, it is only by showing that the defendant did a tortious act that the plaintiff is able to recover." We so held, long ago. "It is no ground of objection that the facts constituting the wrong are stated in the count wherein the tort is waived; they must be proved to entitle the plaintiff to recover and therefore must be stated in the declaration." Tregent v. Maybee, 54 Mich 226, 227.

Nor is it necessary that plaintiff, to make use of the historic general assump- sit, must utter the magic incantation, "I waive the tort." For many years we have cared not for the verbal talisman. A declaration in assumpsit for the value of personalty, where the tort was waived, we held in Aldine Manufacturing Co. v. Barnard, 84 Mich 632, 641, need not "set forth the waiver of the tort."

We do agree with Justice Carr that "no contractual relation between the parties, either express or implied, is asserted." But need such assertion be made? To what end? After all, it did not exist. It is the law which is quick to fasten the yoke of contract on the wrongdoer. It is law which makes the implication of the promise. The wrongdoer is asserting to all who will listen that he made no contract, that the idea of contract never entered his head, that what he was doing was strong-arming this plaintiff, reducing his goods and chattels to possession, converting his property. We nod. That, we say, is precisely why we imply the promise.

In essence our problem is a very simple one: To what extent do the common counts retain their ancient vitality in the modern law of this State? When a citizen comes before us with a recital of wrongs as grievous as those here presented, which we must at this point assume to be true, will we, with Lord Mansfield, imply the debt and give the action in assumpsit, "founded in the equity of the plaintiff's case, as it were upon a contract"?

We say we do. Such action, and restitution under it, has been in accordance with the law of this State from the earliest times (see Justice Cooley, supra) to the present. The common counts were not watered down by the judicature act, or the prior statutory enactments. They retain their full vigor, a threat to the wicked, a promise of restitution to those despoiled. When will we close our doors to the victim? The legislature has given its answer. Actions "to recover damages" shall be brought in 3 years. But is this an action for damages? Or for restitution?

In answer to that, the ultimate criterion is not what the action is entitled. Hurst v. Charron, supra. We have left in the far distant past the doctrine that relief in our courts depends upon any form of words. We now look to the substance of the action here, whether it be for damages or for restitution. To the extent that plaintiff seeks damages the 3-year statute applies. But to the

September 11, 2000

1.16. GENETIC MATERIAL AND INFORMATION 139 extent that he seeks merely restitution he is subject to no such limitation. The wrongdoer thus cannot, to defeat his obligation to return the value or benefit of the goods, set up and rely on his own tort in order to obtain a shorter statute of limitations.

The order should be reversed in part and remanded for further proceedings not inconsistent herewith. Costs to appellant.

1.16 Genetic Material and Information 1.16.1 Moore v. Regents

John Moore v. Regents of the University of California

Supreme Court of California 51 Cal. 3d 120; 793 P.2d 479; 271 Cal. Rptr. 146

1990

I. INTRODUCTION

We granted review in this case to determine whether plaintiff has stated a cause of action against his physician and other defendants for using his cells in potentially lucrative medical research without his permission. Plaintiff alleges that his physician failed to disclose preexisting research and economic interests in the cells before obtaining consent to the medical procedures by which they were extracted. The superior court sustained all defendants' demurrers to the third amended complaint, and the Court of Appeal reversed. We hold that the complaint states a cause of action for breach of the physician's disclosure obligations, but not for conversion.

II. FACTS Our only task in reviewing a ruling on a demurrer is to determine whether the complaint states a cause of action. Accordingly, we assume that the com- plaint's properly pleaded material allegations are true and give the complaint a reasonable interpretation by reading it as a whole and all its parts in their context. We do not, however, assume the truth of contentions, deductions, or conclusions of fact or law. For these purposes we briefly summarize the pertinent factual allegations of the 50-page complaint.

The plaintiff is John Moore (Moore), who underwent treatment for hairy-cell leukemia at the Medical Center of the University of California at Los Angeles (UCLA Medical Center). The five defendants are: (1) Dr. David W. Golde (Golde), a physician who attended Moore at UCLA Medical Center; (2) the Regents of the University of California (Regents), who own and operate the university; (3) Shirley W. Juan, a researcher employed by the Regents; (4) Genetics Institute, Inc. (Genetics Institute); and (5) Sandoz Pharmaceuticals Corporation and related entities (collectively Sandoz).

140 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

Moore first visited UCLA Medical Center on October 5, 1976, shortly af- ter he learned that he had hairy-cell leukemia. After hospitalizing Moore and "withdr[awing] extensive amounts of blood, bone marrow aspirate, and other bodily substances," Golde

confirmed that diagnosis. At this time all defen-

dants, including Golde, were aware that "certain blood products and blood components were of great value in a number of commercial and scientific ef- forts" and that access to a patient whose blood contained these substances would provide "competitive, commercial, and scientific advantages."

On October 8, 1976, Golde recommended that Moore's spleen be removed. Golde informed Moore "that he had reason to fear for his life, and that the proposed splenectomy operation . . . was necessary to slow down the progress of his disease." Based upon Golde's representations, Moore signed a written consent form authorizing the splenectomy.

Before the operation, Golde and Quan "formed the intent and made arrange- ments to obtain portions of [Moore's] spleen following its removal" and to take them to a separate research unit. Golde gave written instructions to this effect on October 18 and 19, 1976. These research activities "were not intended to have . . . any relation to [Moore's] medical . . . care." However, neither Golde nor Quan informed Moore of their plans to conduct this research or requested his permission. Surgeons at UCLA Medical Center, whom the complaint does not name as defendants, removed Moore's spleen on October 20, 1976.

Moore returned to the UCLA Medical Center several times between Novem- ber 1976 and September 1983. He did so at Golde's direction and based upon representations "that such visits were necessary and required for his health and well-being, and based upon the trust inherent in and by virtue of the physician- patient relationship . . . ." On each of these visits Golde withdrew additional samples of "blood, blood serum, skin, bone marrow aspirate, and sperm." On each occasion Moore travelled to the UCLA Medical Center from his home in Seattle because he had been told that the procedures were to be performed only there and only under Golde's direction.

"In fact, [however,] throughout the period of time that [Moore] was under [Golde's] care and treatment, . . . the defendants were actively involved in a number of activities which they concealed from [Moore] . . . ." Specifically, defendants were conducting research on Moore's cells and planned to "benefit

The complaint often uses the plural "defendants" instead of referring to particular de-

fendants. This practice sometimes results in obvious errors, such as the allegation that "de- fendants saw and examined [Moore] on or about October 5, 1976 and then hospitalized [him] . . . ." (Emphasis added.) Genetics Institute and Sandoz, for example, are not physicians, and the complaint specifically alleges that neither entity became involved until years later.

To avoid absurdity in summarizing the complaint's allegations, we have relied on the context in attempting to discern which defendants Moore actually means.

[Footnote by court, renumbered] [Is it possible that the irritation that the court seems to be expressing here toward the plaintiff's lawyers could have affected the outcome of the case? Even it that did not happen, are you sure that the plaintiff's lawyers did not overlook facts (or arguments) that might have been helpful to their client's case? --pdj]

September 11, 2000

1.16. GENETIC MATERIAL AND INFORMATION 141 financially and competitively . . . [by exploiting the cells] and [their] exclusive access to [the cells] by virtue of [Golde's] on-going physician-patient relationship . . . ."

Sometime before August 1979, Golde established a cell line from Moore's T-lymphocytes.

On January 30, 1981, the Regents applied for a patent on

the cell-line, listing Golde and Quan as inventors. "[B]y virtue of an established policy . . . , [the] Regents, Golde, and Quan would share in any royalties or profits . . . arising out of [the] patent." The patent issued on March 20, 1984, naming Golde and Quan as the inventors of the cell-line and the Regents as the assignee of the patent. (U.S. Patent No. 4,438,032 (Mar. 20, 1984).)

The Regent's patent also covers various methods for using the cell-line to produce lymphokines. Moore admits in his complaint that "the true clinical po- tential of each of the lymphokines . . . [is] diAEcult to predict, [but] . . . competing commercial firms in these relevant fields have published reports in biotechnol- ogy industry periodicals predicting a potential market of approximately $ 3.01 Billion Dollars by the year 1990 for a whole range of [such lymphokines] . . . ."

With the Regents' assistance, Golde negotiated agreements for commercial development of the cell line and products to be derived from it. Under an agree- ment with Genetics Institute, Golde "became a paid consultant" and "acquired the rights to 75,000 shares of common stock." Genetics Institute also agreed to pay Golde and the Regents "at least $ 330,000 over three years, including a pro- rata share of [Golde's] salary and fringe benefits, in exchange for . . . exclusive access to the materials and research performed" on the cell line and products derived from it. On June 4, 1982, Sandoz "was added to the agreement," and compensation payable to Golde and the Regents was increased by $ 110,000. "[T]hroughout this period, . . . Quan spent as much as 70 [percent] of her time working for [the] Regents on research" related to the cell line.

A T-lymphocyte is a type of white blood cell. T-lymphocytes produce lymphokines, or

proteins that regulate the immune system. Some lymphokines have potential therapeutic value. If the genetic material responsible for producing a particular lymphokine can be iden- tified, it can sometimes be used to manufacture large quantities of the lymphokine through the techniques of recombinant DNA.

While the genetic code for lymphokines does not vary from individual to individual, it can nevertheless be quite diAEcult to locate the gene responsible for a particular lymphokine. Because T-lymphocytes produce many different lymphokines, the relevant gene is often like a needle in a haystack. Moore's T-lymphocytes were interesting to the defendants because they overproduced certain lymphokines, thus making the corresponding genetic material easier to identify. (In published research papers, defendants and other researchers have shown that the overproduction was caused by a virus, and that normal T-lymphocytes infected by the virus will also overproduce.)

Cells taken directly from the body ("primary cells") are not very useful for these purposes. Primary cells typically reproduce a few times and then die. One can, however, sometimes continue to use cells for an extended period of time by developing them into a "cell line," a culture capable of reproducing indefinitely. This is not, however, always an easy task. "Long-term growth of human cells and tissues is diAEcult, often an art," and the probability of succeeding with any given cell sample is low, except for a few types of cells not involved in this case.

142 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

Based upon these allegations, Moore attempted to state 13 causes of action.

Each defendant demurred to each purported cause of action. The superior court, however, expressly considered the validity of only the first cause of action, conversion.

Reasoning that the remaining causes of action incorporated the

earlier, defective allegations, the superior court sustained a general demurrer to the entire complaint with leave to amend. In a subsequent proceeding, the superior court sustained Genetics Institute's and Sandoz's demurrers without leave to amend on the grounds that Moore had not stated a cause of action for conversion and that the complaint's allegations about the entities' secondary liability were too conclusory. In accordance with its earlier ruling that the defective allegations about conversion rendered the entire complaint insuAEcient, the superior court took the remaining demurrers off its calendar.

With one justice dissenting, the Court of Appeal reversed, holding that the complaint did state a cause of action for conversion. The Court of Appeal agreed with the superior court that the allegations against Genetics Institute and Sandoz were insuAEcient, but directed the superior court to give Moore leave to amend. The Court of Appeal also directed the superior court to decide "the remaining causes of action, which [had] never been expressly ruled upon."

III. DISCUSSION A. Breach of Fiduciary Duty and Lack of Informed Consent Moore repeatedly alleges that Golde failed to disclose the extent of his re- search and economic interests in Moore's cells before obtaining consent to the medical procedures by which the cells were extracted. These allegations, in our view, state a cause of action against Golde for invading a legally protected inter- est of his patient. This cause of action can properly be characterized either as the breach of a fiduciary duty to disclose facts material to the patient's consent or, alternatively, as the performance of medical procedures without first having obtained the patient's informed consent.

Our analysis begins with three well-established principles. First, "a person of adult years and in sound mind has the right, in the exercise of control over his own body, to determine whether or not to submit to lawful medical treatment." . . . Second, "the patient's consent to treatment, to be effective, must be an informed consent." . . . Third, in soliciting the patient's consent, a physician has a fiduciary duty to disclose all information material to the patient's decision. . . .

(1) "Conversion"; (2) "lack of informed consent"; (3) "breach of fiduciary duty"; (4) "fraud

and deceit"; (5) "unjust enrichment"; (6) "quasi-contract"; (7) "bad faith breach of the im- plied covenant of good faith and fair dealing"; (8) "intentional infliction of emotional distress"; (9) "negligent misrepresentation"; (10) "intentional interference with prospective advanta- geous economic relationships"; (11) "slander of title"; (12) "accounting"; and (13) "declara- tory relief."

The superior court did not reach (a) any defendant's general demurrer to the causes of

action numbered 2 through 13; (b) any defendant's demurrer on the ground of the statute of limitations; (c) Golde's, Quan's, and the Regents' demurrers on the grounds of governmental immunity; or (d) Genetics Institute's and Sandoz's numerous demurrers for uncertainty.

September 11, 2000

1.16. GENETIC MATERIAL AND INFORMATION 143

These principles lead to the following conclusions: (1) a physician must disclose personal interests unrelated to the patient's health, whether research or economic, that may affect the physician's professional judgment; and (2) a physician's failure to disclose such interests may give rise to a cause of action for performing medical procedures without informed consent or breach of fiduciary duty.

To be sure, questions about the validity of a patient's consent to a procedure typically arise when the patient alleges that the physician failed to disclose medical risks, as in malpractice cases, and not when the patient alleges that the physician had a personal interest, as in this case. The concept of informed consent, however, is broad enough to encompass the latter. "The scope of the physician's communication to the patient . . . must be measured by the patient's need, and that need is whatever information is material to the decision." . . .

Indeed, the law already recognizes that a reasonable patient would want to know whether a physician has an economic interest that might affect the physician's professional judgment. As the Court of Appeal has said, "[c]ertainly a sick patient deserves to be free of any reasonable suspicion that his doctor's judgment is influenced by a profit motive." (Magan Medical Clinic v. Cal. State Bd. of Medical Examiners (1967) 249 Cal.App.2d 124, 132.) The desire to protect patients from possible conflicts of interest has also motivated legislative enactments. . . .

It is important to note that no law prohibits a physician from conducting research in the same area in which he practices. Progress in medicine often depends upon physicians, such as those practicing at the university hospital where Moore received treatment, who conduct research while caring for their patients.

Yet a physician who treats a patient in whom he also has a research interest has potentially conflicting loyalties. This is because medical treatment decisions are made on the basis of proportionality--weighing the benefits to the patient against the risks to the patient. As another court has said, "the determination as to whether the burdens of treatment are worth enduring for any individual patient depends upon the facts unique in each case," and "the patient's interests and desires are the key ingredients of the decision-making process." (Barber v. Superior Court (1983) 147 Cal.App.3d 1006, 1018-1019.) A physician who adds his own research interests to this balance may be tempted to order a scientifically useful procedure or test that offers marginal, or no, benefits to the patient.

The

possibility that an interest extraneous to the patient's health has affected the physician's judgment is something that a reasonable patient would want to know in deciding whether to consent to a proposed course of treatment. It is material to the patient's decision and, thus, a prerequisite to informed consent. . . .

Golde argues that the scientific use of cells that have already been removed cannot possibly affect the patient's medical interests. The argument is correct in

This is, in fact, precisely what Moore has alleged with respect to the postoperative with-

drawals of blood and other substances.

144 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW one instance but not in another. If a physician has no plans to conduct research on a patient's cells at the time he recommends the medical procedure by which they are taken, then the patient's medical interests have not been impaired. In that instance the argument is correct. On the other hand, a physician who does have a preexisting research interest might, consciously or unconsciously, take that into consideration in recommending the procedure. In that instance the argument is incorrect: the physician's extraneous motivation may affect his judgment and is, thus, material to the patient's consent.

We acknowledge that there is a competing consideration. To require disclo- sure of research and economic interests may corrupt the patient's own judgment by distracting him from the requirements of his health. But California law does not grant physicians unlimited discretion to decide what to disclose. Instead, "it is the prerogative of the patient, not the physician, to determine for himself the direction in which he believes his interests lie." . . . "Unlimited discretion in the physician is irreconcilable with the basic right of the patient to make the ultimate informed decision . . . ."

Accordingly, we hold that a physician who is seeking a patient's consent for a medical procedure must, in order to satisfy his fiduciary duty

and to obtain the

patient's informed consent, disclose personal interests unrelated to the patient's health, whether research or economic, that may affect his medical judgment.

1. Dr. Golde We turn now to the allegations of Moore's third amended complaint to de- termine whether he has stated such a cause of action. We first discuss the adequacy of Moore's allegations against Golde, based upon the physician's dis- closures prior to the splenectomy.

Moore alleges that, prior to the surgical removal of his spleen, Golde "formed the intent and made arrangements to obtain portions of his spleen following its removal from [Moore] in connection with [his] desire to have regular and continuous access to, and possession of, [Moore's] unique and rare Blood and Bodily Substances." Moore was never informed prior to the splenectomy of Golde's "prior formed intent" to obtain a portion of his spleen. In our view, these allegations adequately show that Golde had an undisclosed research interest in Moore's cells at the time he sought Moore's consent to the splenectomy. Accordingly, Moore has stated a cause of action for breach of fiduciary duty, or lack of informed consent, based upon the disclosures accompanying that medical procedure.

We next discuss the adequacy of Golde's alleged disclosures regarding the postoperative takings of blood and other samples. In this context, Moore al- leges that Golde "expressly, aAErmatively and impliedly represented . . . that

In some respects the term "fiduciary" is too broad. In this context the term "fiduciary"

signifies only that a physician must disclose all facts material to the patient's decision. A physician is not the patient's financial adviser. As we have already discussed, the reason why a physician must disclose possible conflicts is not because he has a duty to protect his patient's financial interests, but because certain personal interests may affect professional judgment.

September 11, 2000

1.16. GENETIC MATERIAL AND INFORMATION 145 these withdrawals of his Blood and Bodily Substances were necessary and re- quired for his health and well-being." However, Moore also alleges that Golde actively concealed his economic interest in Moore's cells during this time period. "[D]uring each of these visits . . . , and even when [Moore] inquired as to whether there was any possible or potential commercial or financial value or significance of his Blood and Bodily Substances, or whether the defendants had discovered anything . . . which was or might be . . . related to any scientific activity re- sulting in commercial or financial benefits . . . , the defendants repeatedly and aAErmatively represented to [Moore] that there was no commercial or financial value to his Blood and Bodily Substances . . . and in fact actively discouraged such inquiries."

Moore admits in his complaint that defendants disclosed they "were engaged in strictly academic and purely scientific medical research . . . ." However, Golde's representation that he had no financial interest in this research became false, based upon the allegations, at least by May 1979, when he "began to investigate and initiate the procedures . . . for [obtaining] a patent" on the cell line developed from Moore's cells.

In these allegations, Moore plainly asserts that Golde concealed an economic interest in the postoperative procedures. Therefore, applying the principles already discussed, the allegations state a cause of action for breach of fiduciary duty or lack of informed consent.

We thus disagree with the superior court's ruling that Moore had not stated a cause of action because essential allegations were lacking. We discuss each such allegation. First, in the superior court's view, Moore needed but failed to allege that defendants knew his cells had potential commercial value on October 5, 1976 (the time blood tests were first performed at UCLA Medical Center) and had at that time already formed the intent to exploit the cells. We agree with the superior court that the absence of such allegations precludes Moore from stating a cause of action based upon the procedures undertaken on October 5, 1976. But, as already discussed, Moore clearly alleges that Golde had developed a research interest in his cells by October 20, 1976, when the splenectomy was performed. Thus, Moore can state a cause of action based upon Golde's alleged failure to disclose that interest before the splenectomy.

The superior court also held that the lack of essential allegations prevented Moore from stating a cause of action based on the splenectomy. According to the superior court, Moore failed to allege that the operation lacked a therapeutic purpose or that the procedure was totally unrelated to therapeutic purposes. In our view, however, neither allegation is essential. Even if the splenectomy had a therapeutic purpose,

it does not follow that Golde had no duty to disclose

his additional research and economic interests. As we have already discussed, the existence of a motivation for a medical procedure unrelated to the patient's

The record shows that the splenectomy did have a therapeutic purpose. The Regents'

patent application, which the superior court and the Court of Appeal both accepted as part of the record, shows that Moore had a grossly enlarged spleen and that its excision improved his condition.

146 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW health is a potential conflict of interest and a fact material to the patient's decision.

2. The Remaining Defendants The Regents, Quan, Genetics Institute, and Sandoz are not physicians. In contrast to Golde, none of these defendants stood in a fiduciary relationship with Moore or had the duty to obtain Moore's informed consent to medical procedures. If any of these defendants is to be liable for breach of fiduciary duty or performing medical procedures without informed consent, it can only be on account of Golde's acts and on the basis of a recognized theory of sec- ondary liability, such as respondeat superior. The procedural posture of this case, however, makes it unnecessary for us to address the suAEciency of Moore's secondary-liability allegations. . . .

. . . .

B. Conversion Moore also attempts to characterize the invasion of his rights as a conver- sion--a tort that protects against interference with possessory and ownership interests in personal property. He theorizes that he continued to own his cells following their removal from his body, at least for the purpose of directing their use, and that he never consented to their use in potentially lucrative medical research. Thus, to complete Moore's argument, defendants' unauthorized use of his cells constitutes a conversion. As a result of the alleged conversion, Moore claims a proprietary interest in each of the products that any of the defendants might ever create from his cells or the patented cell line.

No court, however, has ever in a reported decision imposed conversion liabil- ity for the use of human cells in medical research. While that fact does not end our inquiry, it raises a flag of caution. In effect, what Moore is asking us to do is to impose a tort duty on scientists to investigate the consensual pedigree of each human cell sample used in research.

To impose such a duty, which would affect

medical research of importance to all of society, implicates policy concerns far removed from the traditional, two-party ownership disputes in which the law of

Imposing liability for conversion is equivalent to the imposition of such a duty, since

only through investigation would users of cells be able to avoid liability. " `A tort, whether intentional or negligent, involves a violation of a legal duty, imposed by statute, contract or otherwise, owed by the defendant to the person injured. Without such a duty, any injury is "damnum absque injuria"--injury without wrong. [Citations.]' " (Nally v. Grace Community Church (1988) 47 Cal.3d 278, 292, quoting 5 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, 6, p. 61, italics in original.) [Footnote by court, renumbered.]

[It is analytically--and therefore trivially--true that a person who commits a tort violates a duty. Conversion cases are, however, filled with innocent persons who have purchased stolen goods (without any notice that the goods were stolen) or performed other seemingly innocuous actions and have as a consequence been held to be converters. Is it not somehow questionable that the court should go out of its way to protect `scientists,' but not the rest of us, from the perverse consequences of a rule of law that treats the innocent as wrong-doers? --pdj]

September 11, 2000

1.16. GENETIC MATERIAL AND INFORMATION 147 conversion arose.

Invoking a tort theory originally used to determine whether

the loser or the finder of a horse had the better title, Moore claims ownership of the results of socially important medical research, including the genetic code for chemicals that regulate the functions of every human being's immune system.

We have recognized that, when the proposed application of a very general theory of liability in a new context raises important policy concerns, it is espe- cially important to face those concerns and address them openly. . . . Moreover, we should be hesitant to "impose [new tort duties] when to do so would involve complex policy decisions" (Nally v. Grace Community Church, supra, 47 Cal.3d at p. 299), especially when such decisions are more appropriately the subject of legislative deliberation and resolution. . . . This certainly is not to say that the applicability of common law torts is limited to the historical or factual contexts of existing cases. But on occasions when we have opened or sanctioned new ar- eas of tort liability, we "have noted that the `wrongs and injuries involved were both comprehensible and assessable within the existing judicial framework.' " . . . .

Accordingly, we first consider whether the tort of conversion clearly gives Moore a cause of action under existing law. We do not believe it does. Because of the novelty of Moore's claim to own the biological materials at issue, to apply the theory of conversion in this context would frankly have to be recognized as an extension of the theory. Therefore, we consider next whether it is advisable to extend the tort to this context.

1. Moore's Claim Under Existing Law "To establish a conversion, plaintiff must establish an actual interference with his ownership or right of possession. . . . Where plaintiff neither has title to the property alleged to have been converted, nor possession thereof, he cannot maintain an action for conversion."

. . . .

Since Moore clearly did not expect to retain possession of his cells following

Conversion arose out of the common law action of trover. "We probably do not have the

earliest examples of its use, but they were almost certainly cases in which the finder of lost goods did not return them, but used them himself, or disposed of them to someone else. . . . By 1554 the allegations of the complaint had become more or less standardized: that the plaintiff was possessed of certain goods, that he casually lost them, that the defendant found them, and that the defendant did not return them, but instead `converted them to his own use.' From that phrase in the pleading came the name of the tort." (Prosser & Keeton, Torts (5th ed. 1984) 15, p. 89.) [Footnote by court, renumbered.]

[How did the law of conversion ever arise if it did not implicate policy concerns--public policy concerns? Were the courts and "all of society" not concerned with important issues of policy when they took the time and effort to develop the complex body of law that is used to settle "traditional, two-party ownership disputes"? --pdj]

While it ordinarily suAEces to allege ownership generally (5 Witkin, Cal. Procedure (3d

ed. 1985) Pleading, 654, p. 103), it is well established that a complaint's contentions or conclusions of law do not bind us. . . . Moore's novel allegation that he "owns" the biological materials involved in this case is both a contention and a conclusion of law. [Footnote by court, renumbered.]

148 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW their removal,

to sue for their conversion he must have retained an ownership

interest in them. But there are several reasons to doubt that he did retain any such interest. First, no reported judicial decision supports Moore's claim, either directly or by close analogy. Second, California statutory law drastically limits any continuing interest of a patient in excised cells. Third, the subject matters of the Regents' patent--the patented cell line and the products derived from it--cannot be Moore's property.

Neither the Court of Appeal's opinion, the parties' briefs, nor our research discloses a case holding that a person retains a suAEcient interest in excised cells to support a cause of action for conversion. We do not find this surprising, since the laws governing such things as human tissues, transplantable organs,

blood,

fetuses,

pituitary glands,

corneal tissue,

and dead bodies

deal

In his complaint, Moore does not seek possession of his cells or claim the right to possess

them. This is consistent with Health and Safety Code section 7054.4, which provides that "human tissues . . . following conclusion of scientific use shall be disposed of by interment, incineration, or any other method determined by the state department [of health services] to protect the public health and safety."

See the Uniform Anatomical Gift Act, Health and Safety Code section 7150 et seq. The act

permits a competent adult to "give all or part of [his] body" for certain designated purposes, including "transplantation, therapy, medical or dental education, research, or advancement of medical or dental science." (Health & Saf. Code, xx 7151, 7153.) The act does not, however, permit the donor to receive "valuable consideration" for the transfer. (Health & Saf. Code, x 7155.) [Footnote by court, renumbered.]

See Health & Safety Code section 1601 et seq., which regulates the procurement, pro-

cessing, and distribution of human blood. Health and Safety Code section 1606 declares that "[t]he procurement, processing, distribution, or use of whole blood, plasma, blood products, and blood derivatives for the purpose of injecting or transfusing the same . . . is declared to be, for all purposes whatsoever, the rendition of a service . . . and shall not be construed to be, and is declared not to be, a sale . . . for any purpose or purposes whatsoever." [Footnote by court, renumbered.]

See Health and Safety Code section 7054.3: "Notwithstanding any other provision of law,

a recognizable dead human fetus of less than 20 weeks uterogestation not disposed of by interment shall be disposed of by incineration." [Footnote by court, renumbered.]

See Government Code section 27491.46: "The coroner [following an autopsy] shall have

the right to retain pituitary glands solely for transmission to a university, for use in research or the advancement of medical science" (id., subd. (a)) or "for use in manufacturing a hormone necessary for the physical growth of persons who are, or may become, hypopituitary dwarfs . . . " (id., subd. (b)). [Footnote by court, renumbered.]

See Government Code section 27491.47: "The coroner may, in the course of an autopsy

[and subject to specified conditions], remove . . . corneal eye tissue from a body . . . " (id., subd. (a)) for "transplant, therapeutic, or scientific purposes" (id., subd. (a)(5)). [Footnote by court, renumbered.]

See Health and Safety Code section 7000 et seq. While the code does not purport to grant

property rights in dead bodies, it does give the surviving spouse, or other relatives, "[t]he right to control the disposition of the remains of a deceased person, unless other directions have been given by the decedent . . . ." (Health & Saf. Code, 7100.) [Footnote by court, renumbered.]

[This claim is a little off the mark, for the code does not exactly give the right to control the disposition of the remains to the spouse or other relative; it merely codifies the common law, which always recognized that the spouse or other relative had the right of sepulcher in the remains. --pdj]

September 11, 2000

1.16. GENETIC MATERIAL AND INFORMATION 149 with human biological materials as objects sui generis, regulating their disposi- tion to achieve policy goals rather than abandoning them to the general law of personal property. It is these specialized statutes, not the law of conversion, to which courts ordinarily should and do look for guidance on the disposition of human biological materials.

Lacking direct authority for importing the law of conversion into this con- text, Moore relies, as did the Court of Appeal, primarily on decisions addressing privacy rights.

One line of cases involves unwanted publicity. (Lugosi v. Uni-

versal Pictures (1979) 25 Cal.3d 813; Motschenbacher v. R.J. Reynolds Tobacco Company (9th Cir. 1974) 498 F.2d 821 [interpreting Cal. law].) These opin- ions hold that every person has a proprietary interest in his own likeness and that unauthorized, business use of a likeness is redressible as a tort. But in neither opinion did the authoring court expressly base its holding on property law . . . . Each court stated, following Prosser, that it was "pointless" to debate the proper characterization of the proprietary interest in a likeness. . . . . For purposes of determining whether the tort of conversion lies, however, the char- acterization of the right in question is far from pointless. Only property can be converted.

Not only are the wrongful-publicity cases irrelevant to the issue of conver- sion, but the analogy to them seriously misconceives the nature of the genetic materials and research involved in this case. Moore, adopting the analogy orig- inally advanced by the Court of Appeal, argues that "[i]f the courts have found a suAEcient proprietary interest in one's persona, how could one not have a right in one's own genetic material, something far more profoundly the essence of one's human uniqueness than a name or a face?" However, as the defendants' patent makes clear--and the complaint, too, if read with an understanding of the scientific terms which it has borrowed from the patent the goal and result of de- fendants' efforts has been to manufacture lymphokines. Lymphokines, unlike a name or a face, have the same molecular structure in every human being and the same, important functions in every human being's immune system. Moreover,

No party has cited a decision supporting Moore's argument that excised cells are "a species

of tangible personal property capable of being converted." On this point the Court of Appeal cited only Venner v. State (Md. Ct. Spec. App. 1976) 354 A.2d 483 (hereafter Venner), which dealt with the seizure of a criminal defendant's feces from a hospital bedpan by police oAEcers searching for narcotics. The court held that the defendant had abandoned his excrement for purposes of the Fourth Amendment. (354 A.2d at pp. 498-499.)

In dictum, the Venner court observed that "[i]t is not unknown for a person to assert a continuing right of ownership, dominion, or control, for good reason or for no reason, over such things as excrement, fluid waste, secretions, hair, fingernails, toenails, blood, and organs or other parts of the body . . . ." (354 A.2d at p. 498.) This slender reed, alone, supported the Court of Appeal's conclusion in the case before us that "it cannot be said that a person has no property right in materials which were once part of his body." However, because Venner involved a criminal-procedure dispute over the suppression of evidence, and not a civil dispute over who was entitled to the economic benefit of property, the opinion is grounded in markedly different polices and has little relevance to the case before us.

[Footnote by court, renumbered.]

[Isn't this beginning to sound an awful lot like the defendant's argument in Livengood v.

Markusson? --pdj]

150 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW the particular genetic material which is responsible for the natural production of lymphokines, and which defendants use to manufacture lymphokines in the laboratory, is also the same in every person; it is no more unique to Moore than the number of vertebrae in the spine or the chemical formula of hemoglobin.By definition, a gene responsible for producing a protein found in more than one individual will be the same in each. It is precisely because everyone needs the same basic proteins that proteins produced by one person's cells may have ther- apeutic value for another person. . . . Thus, the proteins that defendants hope to manufacture--lymphokines such as interferon--are in no way a "likeness" of Moore.

. . . . [Footnote by court, renumbered]. [But does Moore claim that the proteins are his or just that the cells that make the proteins are his? --pdj]

Another privacy case offered by analogy to support Moore's claim establishes only that patients have a right to refuse medical treatment. (Bouvia v. Supe- rior Court (1986) 179 Cal.App.3d 1127.) In this context the court in Bouvia wrote that " `[e]very human being of adult years and sound mind has a right to determine what shall be done with his own body . . . .' " Relying on this language to support the proposition that a patient has a continuing right to control the use of excised cells, the Court of Appeal in this case concluded that "[a] patient must have the ultimate power to control what becomes of his or her tissues. To hold otherwise would open the door to a massive invasion of human privacy and dignity in the name of medical progress." Yet one may earnestly wish to protect privacy and dignity without accepting the extremely problem- atic conclusion that interference with those interests amounts to a conversion of personal property. Nor is it necessary to force the round pegs of "privacy" and "dignity" into the square hole of "property" in order to protect the patient, since the fiduciary-duty and informed-consent theories protect these interests directly by requiring full disclosure.

The next consideration that makes Moore's claim of ownership problematic is California statutory law, which drastically limits a patient's control over excised cells. Pursuant to Health and Safety Code section 7054.4, "[n]otwithstanding any other provision of law, recognizable anatomical parts, human tissues, anatomical human remains, or infectious waste following conclusion of scien- tific use shall be disposed of by interment, incineration, or any other method determined by the state department [of health services] to protect the pub- lic health and safety." Clearly the Legislature did not specifically intend this statute to resolve the question of whether a patient is entitled to compensation for the nonconsensual use of excised cells. A primary object of the statute is to ensure the safe handling of potentially hazardous biological waste materials. Yet one cannot escape the conclusion that the statute's practical effect is to limit, drastically, a patient's control over excised cells. By restricting how excised cells may be used and requiring their eventual destruction, the statute eliminates so many of the rights ordinarily attached to property that one cannot simply as-

September 11, 2000

1.16. GENETIC MATERIAL AND INFORMATION 151 sume that what is left amounts to "property" or "ownership" for purposes of conversion law.

It may be that some limited right to control the use of excised cells does survive the operation of this statute. There is, for example, no need to read the statute to permit "scientific use" contrary to the patient's expressed wish. A fully-informed patient may always withhold consent to treatment by a physi- cian whose research plans the patient does not approve. That right, however, as already discussed, is protected by the fiduciary-duty and informed-consent theories.

Finally, the subject matter of the Regents' patent--the patented cell line and the products derived from it--cannot be Moore's property. This is because the patented cell line is both factually and legally distinct from the cells taken from Moore's body. Federal law permits the patenting of organisms that represent the product of "human ingenuity," but not naturally occurring organisms. . . . It is this inventive effort that patent law rewards, not the discovery of naturally occurring raw materials. Thus, Moore's allegations that he owns the cell line and the products derived from it are inconsistent with the patent, which constitutes an authoritative determination that the cell line is the product of invention. Since such allegations are nothing more than arguments or conclusions of law, they of course do not bind us. . . .

2. Should Conversion Liability Be Extended? As we have discussed, Moore's novel claim to own the biological materials at issue in this case is problematic, at best. Accordingly, his attempt to apply the theory of conversion within this context must frankly be recognized as a request to extend that theory. While we do not purport to hold that excised cells never can be property for any purpose whatsoever, the novelty of Moore's claim demands express consideration of the policies to be served by extending liability . . . rather than blind deference to a complaint alleging as a legal conclusion the existence of a cause of action.

There are three reasons why it is inappropriate to impose liability for con- version based upon the allegations of Moore's complaint. First, a fair balancing of the relevant policy considerations counsels against extending the tort. Sec- ond, problems in this area are better suited to legislative resolution. Third, the tort of conversion is not necessary to protect patients' rights. For these reasons, we conclude that the use of excised human cells in medical research does not amount to a conversion.

Of the relevant policy considerations, two are of overriding importance. The first is protection of a competent patient's right to make autonomous medical decisions. That right, as already discussed, is grounded in well-recognized and long-standing principles of fiduciary duty and informed consent. . . . This pol- icy weighs in favor of providing a remedy to patients when physicians act with undisclosed motives that may affect their professional judgment. The second important policy consideration is that we not threaten with disabling civil li- ability innocent parties who are engaged in socially useful activities, such as

152 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW researchers who have no reason to believe that their use of a particular cell sample is, or may be, against a donor's wishes.

To reach an appropriate balance of these policy considerations is extremely important. In its report to Congress, the OAEce of Technology Assessment em- phasized that "[u]ncertainty about how courts will resolve disputes between specimen sources and specimen users could be detrimental to both academic researchers and the infant biotechnology industry, particularly when the rights are asserted long after the specimen was obtained. The assertion of rights by sources would affect not only the researcher who obtained the original specimen, but perhaps other researchers as well.

"Biological materials are routinely distributed to other researchers for exper- imental purposes, and scientists who obtain cell lines or other specimen-derived products, such as gene clones, from the original researcher could also be sued under certain legal theories [such as conversion]. Furthermore, the uncertainty could affect product developments as well as research. Since inventions con- taining human tissues and cells may be patented and licensed for commercial use, companies are unlikely to invest heavily in developing, manufacturing, or marketing a product when uncertainty about clear title exists."

Indeed, so significant is the potential obstacle to research stemming from uncertainty about legal title to biological materials that the OAEce of Technology Assessment reached this striking conclusion: "[R]egardless of the merit of claims by the different interested parties, resolving the current uncertainty may be more important to the future of biotechnology than resolving it in any particular way."

We need not, however, make an arbitrary choice between liability and non- liability. Instead, an examination of the relevant policy considerations suggests an appropriate balance: Liability based upon existing disclosure obligations, rather than an unprecedented extension of the conversion theory, protects pa- tients' rights of privacy and autonomy without unnecessarily hindering research.

To be sure, the threat of liability for conversion might help to enforce pa- tients' rights indirectly. This is because physicians might be able to avoid li- ability by obtaining patients' consent, in the broadest possible terms, to any conceivable subsequent research use of excised cells. Unfortunately, to extend the conversion theory would utterly sacrifice the other goal of protecting in- nocent parties. Since conversion is a strict liability tort,

it would impose

[This would seem to be an argument for deciding the case in a clear-cut fashion, not an

argument for deciding that Moore can win on a `fiduciary' theory, but not on a `conversion' theory. --pdj]

" `The foundation for the action for conversion rests neither in the knowledge nor the

intent of the defendant. . . . [Instead,] "the tort consists in the breach of what may be called an absolute duty; the act itself . . . is unlawful and redressible as a tort." ' [Citation.]" (Byer v. Canadian Bank of Commerce (1937) 8 Cal.2d 297, 300, quoting Poggi v. Scott (1914) 167 Cal. 372, 375. See also City of Los Angeles v. Superior Court (1978) 85 Cal.App.3d 143, 149 ["[c]onversion is a species of strict liability in which questions of good faith, lack of knowledge and motive are ordinarily immaterial"].) [Footnote by court, renumbered.]

September 11, 2000

1.16. GENETIC MATERIAL AND INFORMATION 153 liability on all those into whose hands the cells come, whether or not the par- ticular defendant participated in, or knew of, the inadequate disclosures that violated the patient's right to make an informed decision. In contrast to the conversion theory, the fiduciary-duty and informed-consent theories protect the patient directly, without punishing innocent parties or creating disincentives to the conduct of socially beneficial research.

Research on human cells plays a critical role in medical research. This is so because researchers are increasingly able to isolate naturally occurring, medi- cally useful biological substances and to produce useful quantities of such sub- stances through genetic engineering. These efforts are beginning to bear fruit. Products developed through biotechnology that have already been approved for marketing in this country include treatments and tests for leukemia, cancer, diabetes, dwarfism, hepatitis-B, kidney transplant rejection, emphysema, os- teoporosis, ulcers, anemia, infertility, and gynecological tumors, to name but a few. . . .

The extension of conversion law into this area will hinder research by re- stricting access to the necessary raw materials. . . .

To expand liability by extending conversion law into this area would have a broad impact. . . .

In deciding whether to create new tort duties we have in the past considered the impact that expanded liability would have on activities that are important to society, such as research. For example, in Brown v. Superior Court, supra, 44 Cal.3d 1049, the fear that strict product liability would frustrate pharmaceutical research led us to hold that a drug manufacturer's liability should not be mea- sured by those standards. We wrote that, "[i]f drug manufacturers were subject to strict liability, they might be reluctant to undertake research programs to de- velop some pharmaceuticals that would prove beneficial or to distribute others that are available to be marketed, because of the fear of large adverse monetary judgments." (Id., at p. 1063.)

As in Brown, the theory of liability that Moore urges us to endorse threatens to destroy the economic incentive to conduct important medical research. If the use of cells in research is a conversion, then with every cell sample a researcher purchases a ticket in a litigation lottery. Because liability for conversion is predicated on a continuing ownership interest, "companies are unlikely to invest heavily in developing, manufacturing, or marketing a product when uncertainty about clear title exists." . . . . In our view, borrowing again from Brown, "[i]t is not unreasonable to conclude in these circumstances that the imposition of a harsher test for liability would not further the public interest in the development and availability of these important products." (Brown v. Superior Court, supra, 44 Cal.3d at p. 1065.)

Indeed, this is a far more compelling case for limiting the expansion of tort

[This is extremely important! By why should the court show so much concern for scientific researchers and so little for all the rest of us who run the risk of being `innocent' converters everytime we buy something at the store? --pdj]

154 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW liability than Brown. In Brown, eliminating strict liability made it more diAEcult for plaintiffs to recover actual damages for serious physical injuries resulting from their mothers' prenatal use of the drug diethylstilbestrol (DES). . . . In this case, by comparison, limiting the expansion of liability under a conversion theory will only make it more diAEcult for Moore to recover a highly theoretical windfall.

Any injury to his right to make an informed decision remains actionable through the fiduciary-duty and informed-consent theories.

If the scientific users of human cells are to be held liable for failing to inves- tigate the consensual pedigree of their raw materials, we believe the Legislature should make that decision. Complex policy choices affecting all society are involved, and "[l]egislatures, in making such policy decisions, have the ability to gather empirical evidence, solicit the advice of experts, and hold hearings at which all interested parties present evidence and express their views . . . ." (Foley v. Interactive Data Corp., 47 Cal.3d at p. 694, fn. 31.) Legislative competence to act in this area is demonstrated by the existing statutes governing the use and disposition of human biological materials. Legislative interest is demonstrated by the extensive study recently commissioned by the United States Congress. . . . Commentators are also recommending legislative solutions. . . .

Finally, there is no pressing need to impose a judicially created rule of strict liability, since enforcement of physicians' disclosure obligations will protect pa- tients against the very type of harm with which Moore was threatened. So long as a physician discloses research and economic interests that may affect his judgment, the patient is protected from conflicts of interest. Aware of any conflicts, the patient can make an informed decision to consent to treatment, or to withhold consent and look elsewhere for medical assistance. As already discussed, enforcement of physicians' disclosure obligations protects patients directly, without hindering the socially useful activities of innocent researchers.

For these reasons, we hold that the allegations of Moore's third amended complaint state a cause of action for breach of fiduciary duty or lack of informed consent, but not conversion.

IV. DISPOSITION The decision of the Court of Appeal is aAErmed in part and reversed in part. The case is remanded to the Court of Appeal, which shall direct the

[If Moore's cancerous cells turn out to be valuable, there will be nothing theoretical about

the windfall. The only question then would be: who will get the windfall? Poor old Moore, who had the bad luck to get cancer? Or the scientific researchers who had the good luck to be born with the brains and the socio-economic position that enabled them to earn a pretty good living in a high-status occupation even before they found themselves in the position to make a--so far still highly theoretical--fortune out of Moore's misfortune?

Note that the court answers this question in favor of the researchers on what appears to be economic-eAEciency grounds: Give the researchers the windfall and it will encourage research; give Moore the windfall and it will encourage cancer.

But surely no one could believe that giving Moore the windfall would actually encourage people to get cancer. On the other hand, if the researchers get rich, they are likely to spend all the money on booze and fast living and get very little research done.

Economic analysis, I fear, is a more complex subject than Justice Panelli imagines. --pdj]

September 11, 2000

1.16. GENETIC MATERIAL AND INFORMATION 155 superior court to: (1) overrule Golde's demurrers to the causes of action for breach of fiduciary duty and lack of informed consent; (2) sustain, with leave to amend, the demurrers of the Regents, Quan, Sandoz, and Genetics Institute to the purported causes of action for breach of fiduciary duty and lack of in- formed consent; (3) sustain, without leave to amend, all defendants' demurrers to the purported cause of action for conversion; and (4) hear and determine all defendants' remaining demurrers.

Lucas C.J. and Eagleson and Kennard, JJ., concur. Arabian, Justice, concurring. I join in the views cogently expounded by the majority. I write separately to give voice to a concern that I believe informs much of that opinion but finds little or no expression therein. I speak of the moral issue.

Plaintiff has asked us to recognize and enforce a right to sell one's own body tissue for profit. He entreats us to regard the human vessel--the single most venerated and protected subject in any civilized society--as equal with the basest commercial commodity. He urges us to commingle the sacred with the profane.

He asks much.

My learned colleague, Justice Mosk, in an impressive if ultimately unper- suasive dissent, recognizes the moral dimension of the matter. "Our society," he writes, "acknowledges a profound ethical imperative to respect the human body as the physical and temporal expression of the unique human persona." He concludes, however, that morality militates in favor of recognizing plaintiff's claim for conversion of his body tissue. Why? Essentially, he answers, because of these defendants' moral shortcomings, duplicity and greed. Let them be compelled, he argues, to disgorge a portion of their ill-gotten gains to the un- informed individual whose body was invaded and exploited and without whom such profits would not have been possible.

I share Justice Mosk's sense of outrage, but I cannot follow its path. His eloquent paean to the human spirit illuminates the problem, not the solution. Does it uplift or degrade the "unique human persona" to treat human tissue as a fungible article of commerce? Would it advance or impede the human condition, spiritually or scientifically, by delivering the majestic force of the law behind plaintiff's claim? I do not know the answers to these troubling questions, nor am I willing--like Justice Mosk--to treat them simply as issues of "tort" law, susceptible of judicial resolution.

It is true, that this court has not often been deterred from deciding diAEcult legal issues simply because they require a choice between competing social or economic policies. . . . The difference here, however, lies in the nature of the conflicting moral, philosophical and even religious values at stake, and in the profound implications of the position urged. The ramifications of recognizing and enforcing a property interest in body tissues are not known, but are greatly

[Is not the rhetoric of Justice Arabian an egregious violation of the constitutional principle

of the separation of church and state? --pdj]

156 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW feared--the effect on human dignity of a marketplace in human body parts, the impact on research and development of competitive bidding for such materi- als, and the exposure of researchers to potentially limitless and uncharted tort liability. . . .

Whether, as plaintiff urges, his cells should be treated as property susceptible to conversion is not, in my view, ours to decide. The question implicates choices which not only reflect, but which ultimately define our essence. A mark of wisdom for us as expositors of the law is the recognition that we cannot cure every ill, mediate every dispute, resolve every conundrum. Sometimes, as Justice Brandeis said, "the most important thing we do, is not doing."

Where then shall a complete resolution be found? Clearly the Legislature, as the majority opinion suggests, is the proper deliberative forum. Indeed, a legislative response creating a licensing scheme, which establishes a fixed rate of profit sharing between researcher and subject, has already been suggested. . . . Such an arrangement would not only avoid the moral and philosophical objec- tions to a free market operation in body tissue, but would also address stated concerns by eliminating the inherently coercive effect of a waiver system and by compensating donors regardless of temporal circumstances.

The majority view is not unmindful of the seeming injustice in a result that denies plaintiff a claim for conversion of his body tissue, yet permits defendants to retain the fruits thereof. As we have explained, the reason for our holding is essentially two fold: First, plaintiff in this matter is not without a remedy; he remains free to pursue defendants on a breach-of-fiduciary-duty theory, as well as, perhaps, other tort claims not before us. Second, a judicial pronouncement, while supple, is not without its limitations. Courts cannot and should not seek to fashion a remedy for every "heartache and the thousand natural shocks that flesh is heir to."

Sometimes, the discretion of forbearance is the better part of

responsive valor. This is such an occasion.

Broussard, Justice, concurring and dissenting. Given the novel scientific setting in which this case arises and the consider- able interest this litigation has engendered within the medical research commu- nity and the public generally, it is easy to lose sight of the fact that the specific allegations on which the complaint in this case rests are quite unusual, setting this matter apart from the great majority of instances in which donated organs or cells provide the raw materials for the advancement of medical science and the development of new and beneficial medical products. Ordinarily, when a patient consents to the use of a body part for scientific purposes, the potential value of the excised organ or cell is discovered only through subsequent experi- mentation or research, often months or years after the removal of the organ. In this case, however, the complaint alleges that plaintiff's doctor recognized the peculiar research and commercial value of plaintiff's cells before their removal

Bickel, The Least Dangerous Branch (1962) page 71. [Footnote by Mr. Justice Arabian,

renumbered.]

Shakespeare, Hamlet, Act III, Scene 1. [Footnote by Mr. Justice Arabian, renumbered.]

September 11, 2000

1.16. GENETIC MATERIAL AND INFORMATION 157 from plaintiff's body. Despite this knowledge, the doctor allegedly failed to dis- close these facts or his interest in the cells to plaintiff, either before plaintiff's initial surgery or throughout the ensuing seven-year period during which the doctor continued to obtain additional cells from plaintiff's body in the course of periodic medical examinations.

The majority opinion, of course, is not oblivious to the significance of these unusual allegations. It relies on those allegations in concluding that the com- plaint states a cause of action for breach of fiduciary duty. I concur fully in that holding.

When it turns to the conversion cause of action, however, the majority opin- ion fails to maintain its focus on the specific allegations before us. Concerned that the imposition of liability for conversion will impede medical research by innocent scientists who use the resources of existing cell repositories--a factual setting not presented here--the majority opinion rests its holding, that a con- version action cannot be maintained, largely on the proposition that a patient generally possesses no right in a body part that has already been removed from his body. Here, however, plaintiff has alleged that defendants interfered with his legal rights before his body part was removed. Although a patient may not retain any legal interest in a body part after its removal when he has properly consented to its removal and use for scientific purposes, it is clear under Cali- fornia law that before a body part is removed it is the patient, rather than his doctor or hospital, who possesses the right to determine the use to which the body part will be put after removal. If, as alleged in this case, plaintiff's doctor improperly interfered with plaintiff's right to control the use of a body part by wrongfully withholding material information from him before its removal, under traditional common law principles plaintiff may maintain a conversion action to recover the economic value of the right to control the use of his body part.

Accordingly, I dissent from the majority opinion insofar as it rejects plaintiff's conversion cause of action.

I To begin with, I concur fully in the majority's conclusion that the facts alleged in the complaint state a cause of action for breach of fiduciary duty against Dr. Golde. As the majority persuasively explains, because a physician's research activities and related commercial ventures may potentially affect his or her professional judgment, a physician has an obligation to disclose such personal interests to his patient. In this case, the complaint clearly alleges that Dr. Golde failed to fulfill this duty.

With respect to the additional defendants--the Regents of the University of California (hereafter Regents), Shirley G. Quan, Genetics Institute, Inc. (here- after Genetics Institute) and Sandoz Pharmaceuticals Corporation (hereafter Sandoz)--I cannot fully join in the majority's conclusion. Although I agree that

[One may sympathize with this position and still wonder whether the right to control the

use of a body part has any economic value on the facts of this--or of any other--case. --pdj]

158 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW the trial court erred in sustaining these defendants' demurrers to the breach of fiduciary duty cause of action without leave to amend, in my view the majority's ruling with respect to these defendants is more equivocal than is warranted. . . .

. . . . . . . . The majority does not attempt to identify in advance of trial the var- ious kinds of damage or injury for which plaintiff may properly recover in his breach-of-fiduciary-duty action, and that may be understandable. Nonetheless, it is worth noting that, in appropriate circumstances, punitive as well as com- pensatory damages would clearly be recoverable in such an action. Accordingly, the dissent underestimates the potential eAEcacy of the breach-of-fiduciary-duty cause of action in dismissing the action as a "paper tiger."

II With respect to the conversion cause of action, I dissent from the majority's conclusion that the facts alleged in this case do not state a cause of action for conversion.

If this were a typical case in which a patient consented to the use of his removed organ for general research purposes and the patient's doctor had no prior knowledge of the scientific or commercial value of the patient's organ or cells, I would agree that the patient could not maintain a conversion action. In that common scenario, the patient has abandoned any interest in the removed organ and is not entitled to demand compensation if it should later be discovered that the organ or cells have some unanticipated value. I cannot agree, however, with the majority that a patient may never maintain a conversion action for the unauthorized use of his excised organ or cells, even against a party who knew of the value of the organ or cells before they were removed and breached a duty to disclose that value to the patient. Because plaintiff alleges that defendants wrongfully interfered with his right to determine, prior to the removal of his body parts, how those parts would be used after removal, I conclude that the complaint states a cause of action under traditional, common law conversion principles.

In analyzing the conversion issue, the majority properly begins with the established requirements of a common law conversion action, explaining that a plaintiff is required to demonstrate an actual interference with his "ownership or right of possession" in the property in question. Although the majority opinion, at several points, appears to suggest that a removed body part, by its nature, may never constitute "property" for purposes of a conversion action, there is no reason to think that the majority opinion actually intends to embrace such a broad or dubious proposition. If, for example, another medical center or drug company had stolen all of the cells in question from the UCLA Medical Center laboratory and had used them for its own benefit, there would be no question but that a cause of action for conversion would properly lie against the thief, and the majority opinion does not suggest otherwise. Thus, the majority's analysis cannot rest on the broad proposition that a removed body part is not property,

September 11, 2000

1.16. GENETIC MATERIAL AND INFORMATION 159 but rather rests on the proposition that a patient retains no ownership interest in a body part once the body part has been removed from his or her body.

The majority opinion fails to recognize, however, that, in light of the alle- gations of the present complaint, the pertinent inquiry is not whether a patient generally retains an ownership interest in a body part after its removal from his body, but rather whether a patient has a right to determine, before a body part is removed, the use to which the part will be put after removal. Although the majority opinion suggests that there are "reasons to doubt" that a patient retains "any" ownership interest in his organs or cells after removal, the opinion fails to identify any statutory provision or common law authority that indi- cates that a patient does not generally have the right, before a body part is removed, to choose among the permissible uses to which the part may be put after removal. On the contrary, the most closely related statutory scheme--the Uniform Anatomical Gift Act--makes it quite clear that a patient does have this right.

The Uniform Anatomical Gift Act is a comprehensive statutory scheme that was initially adopted in California in 1970 and most recently revised in 1988. Although that legislation, by its terms, applies only to a donation of all or part of a human body "which is to take effect upon or after [the] death [of the donor]"--and thus is not directly applicable to the present case which involves a living donor--the act is nonetheless instructive with regard to this state's gen- eral policy concerning an individual's authority to control the use of a donated body part. . . . [T]he act clearly recognizes that it is the donor of the body part, rather than the hospital or physician who receives the part, who has the authority to designate, within the parameters of the statutorily authorized uses, the particular use to which the part may be put.

Although, as noted, the Uniform Anatomical Gift Act applies only to anatomical gifts that take effect on or after the death of the donor, the gen- eral principle of "donor control" which the act embodies is clearly not limited to that setting. In the transplantation context, for example, it is common for a living donor to designate the specific donee--often a relative--who is to receive a donated organ. If a hospital, after removing an organ from such a donor, decided on its own to give the organ to a different donee, no one would deny that the hospital had violated the legal right of the donor by its unauthorized use of the donated organ. Accordingly, it is clear under California law that a patient has the right, prior to the removal of an organ, to control the use to which the organ will be put after removal.

It is also clear, under traditional common law principles, that this right of a patient to control the future use of his organ is protected by the law of conver- sion. As a general matter, the tort of conversion protects an individual not only against improper interference with the right of possession of his property but also against unauthorized use of his property or improper interference with his right to control the use of his property. Sections 227 and 228 of the Restatement Second of Torts specifically provide in this regard that "[o]ne who uses a chattel in a manner which is a serious violation of the right of another to control its use

160 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW is subject to liability to the other for conversion" and that "[o]ne who is autho- rized to make a particular use of a chattel, and uses it in a manner exceeding the authorization, is subject to liability for conversion to another whose right to control the use of the chattel is thereby seriously violated." California cases have also long recognized that "unauthorized use" of property can give rise to a conversion action. . . .

The application of these principles to the present case is evident. If defen- dants had informed plaintiff, prior to removal, of the possible uses to which his body part could be put and plaintiff had authorized one particular use, it is clear under the foregoing authorities that defendants would be liable for con- version if they disregarded plaintiff's decision and used the body part in an unauthorized manner for their own economic benefit. Although in this case de- fendants did not disregard a specific directive from plaintiff with regard to the future use of his body part, the complaint alleges that, before the body part was removed, defendants intentionally withheld material information that they were under an obligation to disclose to plaintiff and that was necessary for his exercise of control over the body part; the complaint also alleges that defendants withheld such information in order to appropriate the control over the future use of such body part for their own economic benefit. If these allegations are true, defendants clearly improperly interfered with plaintiff's right in his body part at a time when he had the authority to determine the future use of such part, thereby misappropriating plaintiff's right of control for their own advan- tage. Under these circumstances, the complaint fully satisfies the established requirements of conversion cause of action.

As already noted, the majority maintains that there are a number of "reasons to doubt" that a patient retains any legally protectible interest in his organs after removal, but none of these reasons withstands scrutiny. The majority first relies on the fact that "no reported judicial decision supports Moore's claim, either directly or by close analogy." By the same token, however, there is no reported judicial decision that rejects such a claim. This is simply a case of first impression. And while the majority goes on to emphasize that it is the "specialized statutes" dealing with human biological materials to which the court should look for guidance in determining whether a patient has any legal rights with respect to an organ after removal, the majority fails to recognize that the Uniform Anatomical Gift Act, as we have seen, expressly confirms a patient's right to designate, prior to removal, the use to which a body part will be put.

. . . . Finally, the majority maintains that plaintiff's conversion action is not viable because "the subject matter of the Regent's patent--the patented cell line and the products derived from it--cannot be Moore's property." Even if this is an accurate statement of federal patent law, it does not explain why plaintiff may not maintain a conversion action for defendants' unauthorized use of his own body parts, blood, blood serum, bone marrow, and sperm. Although the damages which plaintiff may recover in a conversion action may not include the

September 11, 2000

1.16. GENETIC MATERIAL AND INFORMATION 161 value of the patent and the derivative products, the fact that plaintiff may not be entitled to all of the damages which his complaint seeks does not justify denying his right to maintain any conversion action at all. Similarly, although the question whether plaintiff's cells are "unique" may well affect the amount of damages plaintiff will be able to recover in a conversion action, the question of uniqueness has no proper bearing on plaintiff's basic right to maintain a conversion action; ordinary property, as well as unique property, is, of course, protected against conversion.

Thus, unlike the majority, I conclude that under established common law principles the facts alleged in the complaint state a cause of action for conver- sion.

III Although the majority opinion does not acknowledge that plaintiff's con- version action is supported by existing common law principles, its reasoning suggests that the majority would, in any event, conclude that considerations of public policy support a judicially crafted limitation on a patient's right to sue anyone involved in medical research activities for conversion of a patient's excised organs or cells. For a number of reasons, I cannot agree that this court should carve out such a broad immunity from general conversion principles.

One of the majority's principal policy concerns is that "[t]he extension of conversion law into this area will hinder research by restricting access to the necessary raw materials"--the thousands of cell lines and tissues already in cell and tissue repositories. The majority suggests that the "exchange of scientific materials, which still is relatively free and eAEcient, will surely be compromised if each cell sample becomes the potential subject matter of a lawsuit."

This policy argument is flawed in a number of respects. First, the majority's stated concern does not provide any justification for barring plaintiff from bring- ing a conversion action against a party who does not obtain organs or cells from a cell bank but who directly interferes with or misappropriates a patient's right to control the use of his organs or cells. Although the majority opinion suggests that the availability of a breach-of-fiduciary-duty cause of action obviates any need for a conversion action against this category of defendants, the existence of a breach-of-fiduciary-duty cause of action does not provide a complete answer. Even if in this case plaintiff may obtain the same remedy against such defendants

The majority opinion inaccurately characterizes this opinion as proposing the creation of

"a new cause of action" that would "extend conversion liability" by requiring the allegation of a new element of fraud in addition to the traditional elements of a conversion cause of action. As explained above, my position is that the facts alleged in the present complaint state a cause of action for conversion under traditional, well-established common law principles. Contrary to the implication of the majority's assertion, it requires no extension of existing common law principles to recognize that a conversion action will lie where the facts alleged in a complaint demonstrate that the defendant obtained the plaintiff's consent by fraud. In reality, it is the majority opinion that departs from established common law principles by fashioning a novel exception that shields the defendants in this case from the ordinary reach of conversion liability. [Footnote by Justice Broussard, renumbered.]

162 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW under a breach-of-fiduciary-duty theory as he could under a conversion cause of action, in other factual settings an unlawful interference with a patient's right to control the use of his body part may occur in the absence of a breach of fiduciary duty. For example, if a patient donated his removed cells to a medical center, reserving the right to approve or disapprove the research projects for which the cells would be used, and if another medical center or a drug manufacturer stole the cells after removal and used them in an unauthorized manner for its own economic gain, no breach-of-fiduciary-duty cause of action would be available and a conversion action would be necessary to vindicate the patient's rights. Under the majority's holding, however, the patient would have no right to bring a conversion action, even against such a thief. As this hypothetical illustrates, even if there were compelling policy reasons to limit the potential liability of innocent researchers who use cells obtained from an existing cell bank, those policy considerations would not justify the majority's broad abrogation of all conversion liability for the unauthorized use of body parts.

Second, even with respect to those persons who are not involved in the initial conversion, the majority's policy arguments are less than compelling. To begin with, the majority's fear that the availability of a conversion remedy will restrict access to existing cell lines is unrealistic. In the vast majority of instances the tissues and cells in existing repositories will not represent a potential source of liability because they will have come from patients who consented to their organ's use for scientific purposes under circumstances in which such consent was not tainted by a failure to disclose the known valuable nature of the cells. Because potential liability under a conversion theory will exist in only the exceedingly rare instance in which a doctor knowingly concealed from the patient the value of his body part or the patient's specific directive with regard to the use of the body part was disregarded, there is no reason to think that application of settled conversion law will have any negative effect on the primary conduct of medical researchers who use tissue and cell banks.

Furthermore, even in the rare instance--like the present case--in which a conversion action might be successfully pursued, the potential liability is not likely "to destroy the economic incentive to conduct important medical re- search," as the majority asserts. If, as the majority suggests, the great bulk of the value of a cell line patent and derivative products is attributable to the efforts of medical researchers and drug companies, rather than to the "raw ma- terials" taken from a patient, the patient's damages will be correspondingly limited, and innocent medical researchers and drug manufacturers will retain the considerable economic benefits resulting from their own work. Under es- tablished conversion law, a "subsequent innocent converter" does not forfeit the proceeds of his own creative efforts, but rather "is entitled to the benefit of any work or labor that he has expended on the [property] . . . ." (1 Harper et al., The Law of Torts (2d ed. 1986) 2.34, p. 234. See generally Rest.2d Torts, 927, coms. f, g.)

Finally, the majority's analysis of the relevant policy considerations tellingly omits a most pertinent consideration. In identifying the interests of the patient

September 11, 2000

1.16. GENETIC MATERIAL AND INFORMATION 163 that are implicated by the decision whether to recognize a conversion cause of action, the opinion speaks only of the "patient's right to make autonomous medical decisions" and fails even to mention the patient's interest in obtaining the economic value, if any, that may adhere in the subsequent use of his own body parts. Although such economic value may constitute a fortuitous "wind- fall" to the patient, the fortuitous nature of the economic value does not justify the creation of a novel exception from conversion liability which sanctions the intentional misappropriation of that value from the patient.

This last point reveals perhaps the most serious flaw in the majority's public policy analysis in this case. It is certainly arguable that, as a matter of policy or morality, it would be wiser to prohibit any private individual or entity from profiting from the fortuitous value that adheres in a part of a human body, and instead to require all valuable excised body parts to be deposited in a public repository which would make such materials freely available to all scientists for the betterment of society as a whole. The Legislature, if it wished, could create such a system, as it has done with respect to organs that are donated for trans- plantation.

To date, however, the Legislature has not adopted such a system

for organs that are to be used for research or commercial purposes, and the majority opinion, despite some oblique suggestions to the contrary, emphati- cally does not do so by its holding in this case. Justice Arabian's concurring opinion suggests that the majority's conclusion is informed by the precept that it is immoral to sell human body parts for profit. But the majority's rejection of plaintiff's conversion cause of action does not mean that body parts may not be bought or sold for research or commercial purposes or that no private indi- vidual or entity may benefit economically from the fortuitous value of plaintiff's diseased cells. Far from elevating these biological materials above the market- place, the majority's holding simply bars plaintiff, the source of the cells, from obtaining the benefit of the cells' value, but permits defendants, who allegedly obtained the cells from plaintiff by improper means, to retain and exploit the full economic value of their ill-gotten gains free of their ordinary common law liability for conversion.

Because I conclude that plaintiff's complaint states a cause of action for conversion under traditional common law principles, I dissent from the majority opinion insofar as it rejects such a claim.

Mosk, J. I dissent. Contrary to the principal holding of the Court of Appeal, the majority con- clude that the complaint does not--in fact cannot--state a cause of action for conversion. I disagree with this conclusion for all the reasons stated by the Court of Appeal, and for additional reasons that I shall explain. For conve- nience I shall discuss the six premises of the majority's conclusion in the order

[Could not such legislation run afoul of the constitutional prohibition on taking private

property for public use without just compensation? And would not Justice Broussard's ap- proach increase the likelihood of such legislation being treated as unconstitutional? --pdj]

164 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW in which they appear.

1. The majority first take the position that Moore has no cause of action for conversion under existing law because he retained no "ownership interest" in his cells after they were removed from his body. To state a conversion cause of action a plaintiff must allege his "ownership or right to possession of the property at the time of the conversion" (Baldwin v. Marina City Properties, Inc. (1978) 79 Cal.App.3d 393, 410). Here the complaint defines Moore's "Blood and Bodily Substances" to include inter alia his blood, his bodily tissues, his cells, and the cell Lines derived therefrom.

Moore thereafter alleges that "he is the owner of

his Blood and Bodily Substances and of the by-products produced therefrom . . . ." And he further alleges that such blood and bodily substances "are his tangible personal property, and the activities of the defendants as set forth herein constitute a substantial interference with plaintiff's possession or right thereto, as well as defendants' wrongful exercise of dominion over plaintiff's personal property rights in his Blood and Bodily Substances."

The majority impliedly hold these allegations insuAEcient as a matter of law, finding three "reasons to doubt" that Moore retained a suAEcient ownership interest in his cells, after their excision, to support a conversion cause of action. In my view the majority's three reasons, taken singly or together, are inadequate to the task.

The majority's first reason is that "no reported judicial decision supports Moore's claim, either directly or by close analogy." Neither, however, is there any reported decision rejecting such a claim. The issue is as new as its source-- the recent explosive growth in the commercialization of biotechnology.

The majority next cite several statutes regulating aspects of the commerce in or disposition of certain parts of the human body, and conclude in effect that in the present case we should also "look for guidance" to the Legislature rather than to the law of conversion. Surely this argument is out of place in an opinion of the highest court of this state. As the majority acknowledge, the law of conversion is a creature of the common law. " `The inherent capacity of the common law for growth and change is its most significant feature. Its development has been determined by the social needs of the community which it serves. It is constantly expanding and developing in keeping with advancing civilization and the new conditions and progress of society, and adapting itself to the gradual change of trade, commerce, arts, inventions, and the needs of the country.' [Citation.] In short, as the United States Supreme Court has aptly said, `This flexibility and capacity for growth and adaptation is the peculiar boast and excellence of the common law.' [Citation.] . . . Although the Legislature may of course

A cell line is a cell culture that is capable of continuous and indefinite growth in vitro. (U.S.

Congress, OAEce of Technology Assessment, New Developments in biotechnology: Ownership of Human Tissues and Cells (1987) p. 33 (hereafter OTA Report).) [Footnote by Mosk, J., renumbered.]

September 11, 2000

1.16. GENETIC MATERIAL AND INFORMATION 165 speak to the subject, in the common law system the primary instruments of this evolution are the courts, adjudicating on a regular basis the rich variety of individual cases brought before them." (Rodriguez v. Bethlehem Steel Corp. (1974) 12 Cal.3d 382, 394.)

Especially is this true in the field of torts. I need not review the many instances in which this court has broken fresh ground by announcing new rules of tort law: time and again when a new rule was needed we did not stay our hand merely because the matter was one of first impression. . . .

. . . .

2. The majority's second reason for doubting that Moore retained an ownership interest in his cells after their excision is that "California statutory law . . . drastically limits a patient's control over excised cells." For this proposition the majority rely on Health and Safety Code section 7054.4 (hereafter section 7054.4) . . . . The majority concede that the statute was not meant to directly resolve the question whether a person in Moore's position has a cause of action for conversion, but reason that it indirectly resolves the question by limiting the patient's control over the fate of his excised cells: "By restricting how excised cells may be used and requiring their eventual destruction, the statute eliminates so many of the rights ordinarily attached to property that one cannot simply assume that what is left amounts to `property' or `ownership' for purposes of conversion law." As will appear, I do not believe section 7054.4 supports the just quoted conclusion of the majority.

First, in my view the statute does not authorize the principal use that de- fendants claim the right to make of Moore's tissue, i.e., its commercial exploita- tion. . . .

By its terms, section 7054.4 permits only "scientific use" of excised body parts and tissue before they must be destroyed. We must therefore determine the usual and ordinary meaning of that phrase. . . .

The majority dismiss this diAEculty by asserting that I read the statute to define "scientific use" as "not-for-profit scientific use," and by finding "no rea- son to believe that the Legislature intended to make such a distinction." The objection misses my point. I do not stress the concept of profit, but the concept of science: the distinction I draw is not between nonprofit scientific use and scientific use that happens to lead to a marketable by-product; it is between a truly scientific use and the blatant commercial exploitation of Moore's tis- sue that the present complaint alleges. Under those allegations, defendants Dr. David W. Golde and Shirley G. Quan were not only scientists, they were also full-fledged entrepreneurs: the complaint repeatedly declares that they appro- priated Moore's tissue in order "to further defendants' independent research and commercial activities and promote their economic, financial and competitive in- terests." The complaint also alleges that defendant Regents of the University of California (hereafter Regents) actively assisted the individual defendants in

166 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW applying for patent rights and in negotiating with bioengineering and phar- maceutical companies to exploit the commercial potential of Moore's tissue. Finally, the complaint alleges in detail the contractual arrangements between the foregoing defendants and defendants Genetics Institute, Inc., and Sandoz Pharmaceuticals Corporation, giving the latter companies exclusive rights to exploit that commercial potential while providing substantial financial benefits to the individual defendants in the form of cash, stock options, consulting fees, and fringe benefits. To exclude such traditionally commercial activities from the phrase "scientific use," as I do here, does not give it a restrictive defini- tion; rather, it gives the phrase its usual and ordinary meaning, as settled law requires.

Secondly, even if section 7054.4 does permit defendants' commercial exploita- tion of Moore's tissue under the guise of "scientific use," it does not follow that--as the majority conclude--the statute "eliminates so many of the rights ordinarily attached to property" that what remains does not amount to "prop- erty" or "ownership" for purposes of the law of conversion.

The concepts of property and ownership in our law are extremely broad. A leading decision of this court approved the following definition: " `The term "property" is suAEciently comprehensive to include every species of estate, real and personal, and everything which one person can own and transfer to another. It extends to every species of right and interest capable of being enjoyed as such upon which it is practicable to place a money value."' (Yuba River Power Co. v. Nevada Irr. Dist. (1929) 207 Cal. 521, 523.)

Being broad, the concept of property is also abstract: rather than referring directly to a material object such as a parcel of land or the tractor that cultivates it, the concept of property is often said to refer to a "bundle of rights" that may be exercised with respect to that object--principally the rights to possess the property, to use the property, to exclude others from the property, and to dispose of the property by sale or by gift. "Ownership is not a single concrete entity but a bundle of rights and privileges as well as of obligations." (Union Oil Co. v. State Bd. of Equal. (1963) 60 Cal.2d 441, 447.) But the same bundle of rights does not attach to all forms of property. For a variety of policy reasons, the law limits or even forbids the exercise of certain rights over certain forms of property. For example, both law and contract may limit the right of an owner of real property to use his parcel as he sees fit.

Owners of various forms of

personal property may likewise be subject to restrictions on the time, place,

Zoning or nuisance laws, or covenants running with the land or equitable servitudes, or

condominium declarations, may prohibit certain uses of the parcel or regulate the number, size, location, etc., of buildings an owner may erect on it. Even if rental of the property is a permitted use, rent control laws may limit the benefits of that use. Other uses may, on the contrary, be compelled: e.g., if the property is a lease to extract minerals, the lease may be forfeited by law or contract if the lessee does not exploit the resource. Historic preservation laws may prohibit an owner from demolishing a building on the property, or even from altering its appearance. And endangered species laws may limit an owner's right to develop the land from its natural state. [Footnote by Mosk, J., renumbered.]

September 11, 2000

1.16. GENETIC MATERIAL AND INFORMATION 167 and manner of their use.

Limitations on the disposition of real property, while

less common, may also be imposed.

Finally, some types of personal property

may be sold but not given away,

while others may be given away but not sold,

and still others may neither be given away nor sold.

In each of the foregoing instances, the limitation or prohibition diminishes the bundle of rights that would otherwise attach to the property, yet what remains is still deemed in law to be a protectible property interest. "Since property or title is a complex bundle of rights, duties, powers and immunities, the pruning away of some or a great many of these elements does not entirely destroy the title . . . ." (People v. Walker (1939) 33 Cal.App.2d 18, 20 [even the possessor of contraband has certain property rights in it against anyone other than the state].) The same rule applies to Moore's interest in his own body tissue: even if we assume that section 7054.4 limited the use and disposition of his excised tissue in the manner claimed by the majority, Moore nevertheless retained valuable rights in that tissue. Above all, at the time of its excision he at least had the right to do with his own tissue whatever the defendants did with it: i.e., he could have contracted with researchers and pharmaceutical companies to develop and exploit the vast commercial potential of his tissue and its products. Defendants certainly believe that their right to do the foregoing is not barred by section 7054.4 and is a significant property right, as they have demonstrated by their deliberate concealment from Moore of the true value of his tissue, their efforts to obtain a patent on the Mo cell line, their contractual agreements to exploit this material, their exclusion of Moore from any participation in the profits, and their vigorous defense of this lawsuit. The Court of Appeal summed up the point by observing that "Defendants' position that plaintiff cannot own his tissue, but that they can, is fraught with irony." It is also legally untenable. As noted above, the majority cite no case holding that an individual's right to develop and exploit the commercial potential of his own tissue is not a right of suAEcient worth or dignity to be deemed a protectible property interest. In the absence of such authority--or of legislation to the same effect--the right falls

Public health and safety laws restrict in various ways the manufacture, distribution, pur-

chase, sale, and use of such property as food, drugs, cosmetics, tobacco, alcoholic beverages, firearms, flammable or explosive materials, and waste products. Other laws regulate the op- eration of private and commercial motor vehicles, aircraft, and vessels. [Footnote by Mosk, J., renumbered.]

Provisions in a condominium declaration may give the homeowners association a right of

first refusal over a proposed sale by a member. Provisions in a commercial lease may require the lessor's consent to an assignment of the lease. [Footnote by Mosk, J., renumbered.]

A person contemplating bankruptcy may sell his property at its "reasonably equivalent

value," but he may not make a gift of the same property. (See 11 U.S.C. 548(a).) [Footnote by Mosk, J., renumbered.]

A sportsman may give away wild fish or game that he has caught or killed pursuant to

his license, but he may not sell it. (Fish & Game Code, 3039, 7121.)

The transfer of human organs and blood is a special case that I discuss below. [Footnote by Mosk, J., renumbered.]

E.g., a license to practice a profession, or a prescription drug in the hands of the person

for whom it is prescribed. [Footnote by Mosk, J., renumbered.]

168 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW within the traditionally broad concept of property in our law.

3. The majority's third and last reason for their conclusion that Moore has no cause of action for conversion under existing law is that "the subject matter of the Regents' patent--the patented cell line and the products derived from it--cannot be Moore's property." The majority then offer a dual explanation: "This is because the patented cell line is factually and legally distinct from the cells taken from Moore's body." Neither branch of the explanation withstands analysis.

First, in support of their statement that the Mo cell line is "factually dis- tinct" from Moore's cells, the majority assert that "Cells change while being developed into a cell line and continue to change over time," and in particular may acquire an abnormal number of chromosomes. No one disputes these asser- tions, but they are nonetheless irrelevant. For present purposes no distinction can be drawn between Moore's cells and the Mo cell line. It appears that the principal reason for establishing a cell line is not to "improve" the quality of the parent cells but simply to extend their life indefinitely, in order to permit long-term study and/or exploitation of the qualities already present in such cells. . . .

Second, the majority assert in effect that Moore cannot have an ownership interest in the Mo cell line because defendants patented it.

The majority's

point wholly fails to meet Moore's claim that he is entitled to compensation for defendants' unauthorized use of his bodily tissues before defendants patented the Mo cell line: defendants undertook such use immediately after the splenectomy on October 20, 1976, and continued to extract and use Moore's cells and tissue at least until September 20, 1983; the patent, however, did not issue until March 20, 1984, more than seven years after the unauthorized use began. Whatever the legal consequences of that event, it did not operate retroactively to immunize defendants from accountability for conduct occurring long before the patent was granted.

Nor did the issuance of the patent in 1984 necessarily have the drastic effect that the majority contend. To be sure, the patent granted defendants the exclu- sive right to make, use, or sell the invention for a period of 17 years. (35 U.S.C. 154.) But Moore does not assert any such right for himself. Rather, he seeks to show that he is entitled, in fairness and equity,

to some share in the profits

The majority also assert that the patent constitutes an "authoritative" determination

that the Mo cell line is a patentable invention. But to the extent that "authoritative" implies "conclusive," it is a misstatement of patent law. When granted by the United States Patent OAEce, a patent has only "prima facie validity": it is presumed valid, but the defendant in an infringement action may undertake to "establish that the patent is invalid on any one of a number of possible grounds, such as lack of novelty, lack of invention, lack of utility, etc." (Amdur, Patent Fundamentals (1959) p. 86, fn. 7.) [Footnote by Mosk, J., renumbered.]

[But this is not the language of conversion. The appeal to "fairness and equity" is often

used to support a `quasi-contractual' action for unjust enrichment in indebitatus assumpsit,

September 11, 2000

1.16. GENETIC MATERIAL AND INFORMATION 169 that defendants have made and will make from their commercial exploitation of the Mo cell line. I do not question that the cell line is primarily the product of defendants' inventive effort. Yet likewise no one can question Moore's crucial contribution to the invention--an invention named, ironically, after him: but for the cells of Moore's body taken by defendants, there would have been no Mo cell line. Thus the complaint alleges that Moore's "Blood and Bodily Substances were absolutely essential to defendants' research and commercial activities with regard to his cells, cell lines, [and] the Mo cell-line, . . . and that defendants could not have applied for and had issued to them the Mo cell-line patent and other patents described herein without obtaining and culturing specimens of plaintiff's Blood and Bodily Substances." Defendants admit this allegation by their demurrers, as well they should: for all their expertise, defendants do not claim they could have extracted the Mo cell line out of thin air.

Nevertheless the majority conclude that the patent somehow cut off all Moore's rights--past, present, and future--to share in the proceeds of defen- dants' commercial exploitation of the cell line derived from his own body tissue. The majority cite no authority for this unfair result, and I cannot believe it is compelled by the general law of patents: a patent is not a license to defraud. . . .

. . . .

4. Having concluded--mistakenly, in my view--that Moore has no cause of action for conversion under existing law, the majority next consider whether to "extend" the conversion cause of action to this context. Again the majority find three reasons not to do so, and again I respectfully disagree with each.

The majority's first reason is that a balancing of the "relevant policy con- siderations" counsels against recognizing a conversion cause of action in these circumstances. The memo identifies two such policies, but concedes that one of them--"protection of a competent patient's right to make autonomous medical decisions"--would in fact be promoted, even though "indirectly," by recognizing a conversion cause of action.

The majority focus instead on a second policy consideration, i.e., their con- cern "that we not threaten with disabling civil liability innocent parties who are engaged in socially useful activities, such as researchers who have no reason to believe that their use of a particular cell sample is, or may be, against a donor's wishes." As will appear, in my view this concern is both overstated and outweighed by contrary considerations.

for indebitatus assumpsit is equitable in nature, even though it is administered by the law courts. The appeal to "fairness and equity" is often used to support the granting of equitable relief by courts of equity. But such an appeal is simply not appropriate when one is trying to justify an action in conversion. Conversion is often unfair and inequitable: that is why the majority did not want conversion to be available in this case. --pdj]

On this record the majority's solicitude for the protection of "innocent parties" seems

ironic. The complaint is replete with factual allegations--which we must accept as true on

170 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

The majority begin their analysis by stressing the obvious facts that research on human cells plays an increasingly important role in the progress of medicine, and that the manipulation of those cells by the methods of biotechnology has resulted in numerous beneficial products and treatments. Yet it does not neces- sarily follow that, as the majority claim, application of the law of conversion to this area "will hinder research by restricting access to the necessary raw mate- rials," i.e., to cells, cell cultures, and cell lines. The majority observe that many researchers obtain their tissue samples, routinely and at little or no cost, from cell-culture repositories. The majority then speculate that "This exchange of scientific materials, which is still relatively free and eAEcient, will surely be com- promised if each cell sample becomes the potential subject matter of a lawsuit." There are two grounds to doubt that this prophecy will be fulfilled.

To begin with, if the relevant exchange of scientific materials was ever "free and eAEcient," it is much less so today. Since biological products of genetic engineering became patentable in 1980 (Diamond v. Chakrabarty (1980) 447 U.S. 303), human cell lines have been amenable to patent protection and, as the Court of Appeal observed in its opinion below, "The rush to patent for exclusive use has been rampant." Among those who have taken advantage of this development, of course, are the defendants herein: as we have seen, defendants Golde and Quan obtained a patent on the Mo cell line in 1984 and assigned it to defendant Regents. With such patentability has come a drastic reduction in the formerly free access of researchers to new cell lines and their products: the "novelty" requirement for patentability prohibits public disclosure of the invention at all times up to one year before the filing of the patent application. (35 U.S.C. 102(b).) Thus defendants herein recited in their patent specification, "At no time has the Mo cell line been available to other than the investigators involved with its initial discovery and only the conditioned medium from the cell line has been made available to a limited number of investigators for collaborative work with the original discoverers of the Mo cell line."

An even greater force for restricting the free exchange of new cell lines and their products has been the rise of the biotechnology industry and the increasing involvement of academic researchers in that industry. . . .

. . . . Secondly, to the extent that cell cultures and cell lines may still be "freely

this appeal--to the effect that defendants repeatedly lied to Moore about their commercial exploitation of his tissue. For example, the complaint contains detailed allegations that de- fendants falsely told Moore that his numerous postoperative trips from his home in Seattle to the Medical Center of the University of California at Los Angeles between 1976 and 1983 were necessary because his blood and other bodily fluids could be extracted only by them at the latter facility; that defendants falsely told Moore that the purpose of such extractions was to promote his health, when in fact it was solely to promote defendants' ongoing research and commercial activities; and that even when Moore expressly asked if defendants had discov- ered anything about his blood that might have potential commercial value, defendants falsely told him "they had discovered nothing of any commercial or financial value in his Blood or Bodily Substances, and in fact actively discouraged such inquiries." These are not the acts of "innocent parties." [Footnote by Mosk, J., renumbered.]

September 11, 2000

1.16. GENETIC MATERIAL AND INFORMATION 171 exchanged," e.g., for purely research purposes, it does not follow that the re- searcher who obtains such material must necessarily remain ignorant of any limitations on its use: by means of appropriate recordkeeping, the researcher can be assured that the source of the material has consented to his proposed use of it, and hence that such use is not a conversion. . . .

. . . . In any event, in my view whatever merit the majority's single policy con- sideration may have is outweighed by two contrary considerations, i.e., policies that are promoted by recognizing that every individual has a legally protectible property interest in his own body and its products. First, our society acknowl- edges a profound ethical imperative to respect the human body as the physical and temporal expression of the unique human persona. One manifestation of that respect is our prohibition against direct abuse of the body by torture or other forms of cruel or unusual punishment. Another is our prohibition against indirect abuse of the body by its economic exploitation for the sole benefit of another person. The most abhorrent form of such exploitation, of course, was the institution of slavery. Lesser forms, such as indentured servitude or even debtor's prison, have also disappeared. Yet their specter haunts the labora- tories and boardrooms of today's biotechnological research-industrial complex. It arises wherever scientists or industrialists claim, as defendants claim here, the right to appropriate and exploit a patient's tissue for their sole economic benefit--the right, in other words, to freely mine or harvest valuable physical properties of the patient's body: "Research with human cells that results in significant economic gain for the researcher and no gain for the patient offends the traditional mores of our society in a manner impossible to quantify. Such research tends to treat the human body as a commodity--a means to a prof- itable end. The dignity and sanctity with which we regard the human whole, body as well as mind and soul, are absent when we allow researchers to further their own interests without the patient's participation by using a patient's cells as the basis for a marketable product."

A second policy consideration adds notions of equity to those of ethics. Our society values fundamental fairness in dealings between its members, and con- demns the unjust enrichment of any member at the expense of another. This is particularly true when, as here, the parties are not in equal bargaining positions. We are repeatedly told that the commercial products of the biotechnological rev- olution "hold the promise of tremendous profit." In the case at bar, for example, the complaint alleges that the market for the kinds of proteins produced by the Mo cell line was predicted to exceed $ 3 billion by 1990. These profits are currently shared exclusively between the biotechnology industry and the uni- versities that support that industry. The profits are shared in a wide variety of ways, including "direct entrepreneurial ties to genetic-engineering firms" and "an equity interest in fledgling biotechnology firms" Thus the complaint alleges that because of his development of the Mo cell line defendant Golde became a paid consultant of defendant Genetics Institute and acquired the rights to 75,000 shares of that firm's stock at a cost of 1 cent each; that Genetics Insti-

172 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW tute further contracted to pay Golde and the Regents at least $ 330,000 over 3 years, including a pro rata share of Golde's salary and fringe benefits; and that defendant Sandoz Pharmaceuticals Corporation subsequently contracted to increase that compensation by a further $ 110,000.

There is, however, a third party to the biotechnology enterprise--the pa- tient who is the source of the blood or tissue from which all these profits are derived. While he may be a silent partner, his contribution to the venture is absolutely crucial: as pointed out above, but for the cells of Moore's body taken by defendants there would have been no Mo cell line at all. Yet defendants deny that Moore is entitled to any share whatever in the proceeds of this cell line. This is both inequitable and immoral. As Dr. Thomas H. Murray, a respected professor of ethics and public policy, testified before Congress, "the person [who furnishes the tissue] should be justly compensated. . . . If biotechnologists fail to make provision for a just sharing of profits with the person whose gift made it possible, the public's sense of justice will be offended and no one will be the winner." (Murray, Who Owns the Body? On the Ethics of Using Human Tissue for Commercial Purposes (Jan.-Feb. 1986) IRB: A Review of Human Subjects Research, at p. 5.)

. . . .

5. The majority's second reason for declining to extend the conversion cause of action to the present context is that "the Legislature should make that de- cision." I do not doubt that the Legislature is competent to act on this topic. The fact that the Legislature may intervene if and when it chooses, however, does not in the meanwhile relieve the courts of their duty of enforcing--or if need be, fashioning--an effective judicial remedy for the wrong here alleged. As I observed above, if a conversion cause of action is otherwise an appropriate remedy on these facts we should not refrain from recognizing it merely because the Legislature has not yet addressed the question. To do so would be to abdi- cate pro tanto our responsibility over a body of law--torts--that is particularly a creature of the common law. And such reluctance to act would be especially unfortunate at the present time, when the rapid expansion of biotechnological science and industry makes resolution of these issues an increasingly pressing need.

. . . .

6. The majority's final reason for refusing to recognize a conversion cause of action on these facts is that "there is no pressing need" to do so because the complaint also states another cause of action that is assertedly adequate to the task; that cause of action is "the breach of a fiduciary duty to disclose facts material to the patient's consent or, alternatively, . . . the performance of med- ical procedures without first having obtained the patient's informed consent."

September 11, 2000

1.16. GENETIC MATERIAL AND INFORMATION 173 Although last, this reason is not the majority's least; in fact, it underlies much of the opinion's discussion of the conversion cause of action, recurring like a leitmotiv throughout that discussion.

The majority hold that a physician who intends to treat a patient in whom he has either a research interest or an economic interest is under a fiduciary duty to disclose such interest to the patient before treatment; that his failure to do so may give rise to a nondisclosure cause of action; and that the complaint herein states such a cause of action at least against defendant Golde. I agree with that holding as far as it goes.

I disagree, however, with the majority's further conclusion that in the present context a nondisclosure cause of action is an adequate--in fact, a superior-- substitute for a conversion cause of action. In my view the nondisclosure cause of action falls short on at least three grounds.

First, the majority reason that "enforcement of physicians' disclosure obli- gations" will ensure patients' freedom of choice. The majority do not spell out how those obligations will be "enforced"; but because they arise from judicial decision (the majority opinion herein) rather than from legislative or adminis- trative enactment, we may infer that the obligations will primarily be enforced by the traditional judicial remedy of an action for damages for their breach.

Thus the majority's theory apparently is that the threat of such an action will have a prophylactic effect: it will give physician-researchers incentive to disclose any conflicts of interest before treatment, and will thereby protect their patients' right to make an informed decision about what may be done with their body parts.

The remedy[Note that Justice Mosk refers here solely to the damage rem- edy, not to the proceeding to recover the defendants' unjust enrichment. The quotations are from cases where the patient was suing for the damages that he suffered when a medical procedure turned out badly. --pdj] is largely illusory. "[A]n action based on the physician's failure to disclose material information sounds in negligence. As a practical matter, however, it may be diAEcult to re- cover on this kind of negligence theory because the patient must prove a causal connection between his or her injury and the physician's failure to inform." (Martin & Lagod, Biotechnology and the Commercial Use of Human Cells: To- ward an Organic View of Life and Technology (1989) 5 Santa Clara Computer & High Tech L.J. 211, 222, fn. omitted, italics added.) There are two barriers to recovery. First, "the patient must show that if he or she had been informed of all pertinent information, he or she would have declined to consent to the procedure in question." (Ibid.) As we explained in the seminal case of Cobbs v. Grant (1972) 8 Cal.3d 229, 245, "There must be a causal relationship between the physician's failure to inform and the injury to the plaintiff. Such a causal

[At this point Justice Mosk totally overlooks the fact that a standard form of relief granted

to the victim of a "breach of fiduciary duty" is the imposition of a constructive trust on--or a quasi-contractual liability for the amount of--the profits (i.e., the unjust enrichment) received by the unfaithful fiduciary. Damages are not the sole judicial form of relief. --pdj]

174 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW connection arises only if it is established that had revelation been made consent to treatment would not have been given."

The second barrier to recovery is still higher, and is erected on the first: it is not even enough for the plaintiff to prove that he personally would have refused consent to the proposed treatment if he had been fully informed; he must also prove that in the same circumstances no reasonably prudent person would have given such consent. The purpose of this "objective" standard is evident: "Since at the time of trial the uncommunicated hazard

has materialized, it would be

surprising if the patient-plaintiff did not claim that he had been informed of the dangers he would have declined treatment. Subjectively he may believe so, with the 20/20 vision of hindsight, but we doubt that justice will be served by placing the physician in jeopardy of the patient's bitterness and disillusionment. Thus an objective test is preferable: i.e., what would a prudent person in the patient's position have decided if adequately informed of all significant perils." (Cobbs v. Grant, supra, 8 Cal.3d 229, 245.)

Even in an ordinary Cobbs-type action it may be diAEcult for a plaintiff to prove that no reasonably prudent person would have consented to the proposed treatment if the doctor had disclosed the particular risk of physical harm that ultimately caused the injury. . . . This is because in many cases the potential benefits of the treatment to the plaintiff clearly outweigh the undisclosed risk of harm. But that imbalance will be even greater in the kind of nondisclo- sure action that the majority now contemplate: here we deal not with a risk of physical injuries such as a stroke, but with the possibility that the doctor might later use some of the patient's cast-off tissue for scientific research or the development of commercial products. Few if any judges or juries are likely to believe that disclosure of such a possibility of research or development would dissuade a reasonably prudent person from consenting to the treatment. For example, in the case at bar no trier of fact is likely to believe that if defendants had disclosed their plans for using Moore's cells, no reasonably prudent person in Moore's position--i.e., a leukemia patient suffering from a grossly enlarged spleen--would have consented to the routine operation that saved or at least prolonged his life. Here . . . a motion for nonsuit for failure to prove proximate cause will end the matter. In this context, accordingly, the threat of suit on a nondisclosure cause of action is largely a paper tiger.

The second reason why the nondisclosure cause of action is inadequate for the task that the majority assign to it is that it fails to solve half the problem before us: it gives the patient only the right to refuse consent, i.e., the right to prohibit the commercialization of his tissue; it does not give him the right to grant consent to that commercialization on the condition that he share in its proceeds. . . .

Reversing the words of the old song, the nondisclosure cause of action thus 12

[Can you see how this discussion could have any bearing on the actual issues in Moore?

--pdj]

[What hazard? --pdj]

September 11, 2000

1.16. GENETIC MATERIAL AND INFORMATION 175 accentuates the negative and eliminates the positive: the patient can say no, but he cannot say yes and expect to share in the proceeds of his contribution. Yet as explained above, there are sound reasons of ethics and equity to recognize the patient's right to participate in such benefits. The nondisclosure cause of action does not protect that right; to that extent, it is therefore not an adequate substitute for the conversion remedy, which does protect the right.

Third, the nondisclosure cause of action fails to reach a major class of po- tential defendants: all those who are outside the strict physician-patient rela- tionship with the plaintiff. . . .

To the extent that a plaintiff such as Moore is unable to plead or prove a satisfactory theory of secondary liability, the nondisclosure cause of action will thus be inadequate to reach a number of parties to the commercial exploitation of his tissue. Such parties include, for example, any physician-researcher who is not personally treating the patient, any other researcher who is not a physician, any employer of the foregoing (or even of the treating physician), and any person or corporation thereafter participating in the commercial exploitation of the tissue. Yet some or all of those parties may well have participated more in, and profited more from, such exploitation than the particular physician with whom the plaintiff happened to have a formal doctor-patient relationship at the time.

In sum, the nondisclosure cause of action (1) is unlikely to be successful in most cases, (2) fails to protect patients' rights to share in the proceeds of the commercial exploitation of their tissue, and (3) may allow the true exploiters to escape liability. It is thus not an adequate substitute, in my view, for the conversion cause of action.

7. My respect for this court as an institution compels me to make one last point: I dissociate myself completely from the amateur biology lecture that the majority impose on us throughout their opinion. . . .

. . . . I would aAErm the decision of the Court of Appeal to direct the trial court to overrule the demurrers to the cause of action for conversion.

1.16.2 Notes on Moore v. Regents

1. One could argue that Moore does not belong in a book about restitution,

the members of the court seem, after all, to have believed that the two questions in the case were: (i) Whether the cells that had been taken from John Moore's surgically removed spleen were the property of John Moore?--whether he owned those cells (and the information that they contained)? and (ii) What damages, if any, could be recovered by Moore for the alleged wrongs done to him by Dr. Golde and the other defendants?

In defense of Moore's inclusion one can, on the other hand, point to (i) the fact that the question of whether the cells belonged to Moore was

176 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

discussed as if it were the same as the question of whether Moore had a good cause of action for conversion of the cells,

and (ii) the fact that (as

Lord Mansfield has told us in Hambly v. Trott) the action of conversion (or trover as Mansfield called it) is "in substance founded on property, for the equitable purpose of recovering the value of the plaintiff's specific property, used and enjoyed by the defendant," that is, that it is in substance a restitutionary action.

Since our courts have forgotten--if they ever knew--the vocabulary of restitution, they often talk around the issue as if it involved a peculiar melange of property concepts and tort remedies--and particularly the remedy of damages.

2. Forgetting about restitution for a moment, doesn't Moore remind you of

a "bad-news, good-news" joke?

"I've got some bad news and some good news," says Dr. Golde. "The bad news is that you've got hairy-cell leukemia and that I'm going to have to cut out your spleen. The good news is that that's going to make me a billionaire."

Now let's start thinking about restitution again. Doesn't Dr. Golde's enrichment seem, in these circumstances, a mite unjust?

Unjust enrichment is the traditional subject of a restitution course--this one is a little different in that we spend so much time on cases where the plaintiff seeks restitution because he owns the goods rather than because the defendant has been unjustly enriched.

As we will see in the next Note, Moore cannot profitably be analyzed as a damage case. It thus seems to me that it must be viewed from the point of view of restitution. But it also seems that Moore cannot profitably be analyzed as a case in which the plaintiff seeks to get his property back: I'm sure that John Moore does not want the return of his squishy old spleen, or even of the cultured, if perhaps still rather hairy, cells that grew from it.

And thus I conclude that if Moore has any chance of recovery, it is

going to be upon a theory of restitution based on unjust enrichment.

Restitution for unjust enrichment is a little more complicated than `propri- etary' restitution where the plaintiff merely has to persuade a court that

The justices seem to me to have all been persuaded that Moore would have had a good

cause of action for conversion if the cells were his property. But does that conclusion necessarily follow?

Of course, Dr. Golde did not say this. If he had, the majority would have had no basis for

holding that he might be liable for "the breach of a fiduciary duty to disclose facts material to the patient's consent or, alternatively, as the performance of medical procedures without first having obtained the patient's informed consent."

We have, however, already studied one unjust enrichment case: Moses v. Macferlan.

Nor is John Moore likely to want restitution of the value of his spleen or the cells at the

time of their conversion; that remedy is no more attractive than damages.

September 11, 2000

1.16. GENETIC MATERIAL AND INFORMATION 177

the defendant has the plaintiff's property (and refuses to return it). In unjust enrichment cases the plaintiff has to persuade a court that in equity and good conscience the plaintiff is entitled to something that belongs to the defendant, or at least is in the defendant's possession. In proprietary restitution the plaintiff merely has to establish the fact that the defendant has something that belongs to the plaintiff. In unjust enrichment restitu- tion the plaintiff has the considerably harder task of persuading a court that the defendant has something that should--but doesn't

--belong to

the plaintiff.

Proprietary restitution is the sort of thing that law courts do well. Tradi- tionally law courts were good at determining facts, but unskilled in settling moral disputes--were good at is's, bad at ought's. Courts of equity, on the other hand, were so happy at reaching moral conclusions that they were--and sometimes still are--called courts of `conscience'; they might not be able to make something a fact--they did not operate in rem--but they were experts on what ought to be done. Thus one of the most famous maxims of equity is: Equity considers that to be done which ought to be done.

This does not mean that courts of law do not entertain actions based on unjust enrichment. But it does mean that the actions at law that sound in unjust enrichment are, as Lord Mansfield repeatedly said, equitable in nature. The legal actions sounding in unjust enrichment are the unfortu- nately named `quasi-contractual' actions, actions that sound in indebitatus assumpsit. It also means that in all but the simplest unjust enrichment cases, the plaintiff is likely to be better off in an equity court than at law.

3. If Moore's action in conversion had been upheld, what would his damages

have been?

The usual rule is that the damages in a conversion action are the fair market value of the converted goods at the time and place of conversion.

Now it would seem that the conversion took place when John Moore's enlarged spleen was removed. So what do you think the spleen's (or the cells') market value was at that time? If your answer is "nothing," then we are in agreement.

And the result is the same if we treat conversion as an action for value restitution rather than damages. The converted goods don't have a market value, and this is just as true in restitution as in damages.

If it does belong to the plaintiff, then the plaintiff can recover on a proprietary theory.

Of course, there may be times when the plaintiff alleges both theories to justify the action. After all, if some person has the plaintiff's property that person has pretty clearly been unjustly enriched hat the plaintiff's expense

The maxim is not intended as a statement of fact--the chancellors were aware that there

is often a considerable difference between what is and what ought to be. But the chancellor would quote the maxim as a justification for ordering the defendant to do what ought to be done.

178 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

This rather suggests that the justices were wasting their time--and ours-- with their long-winded disagreement about the availability of the action in conversion. Even if the action were allowed, the damages would have been only nominal.

4. The majority's concern for innocent researchers, who might come into pos-

session of Moore's cells, seems misguided. It would be reasonable to treat such innocents as being--or being analogous to--bona fide purchasers. Bona fide purchasers can be held liable for conversion, but there are sev- eral rules that tend to reduce their potential liability. In the first place, the amount of their liability will be determined as of the time of the initial conversion or as of the time that they acquired the goods, whichever time produces the less liability. In the second place, if they mix their own labor and goods with the converted goods, they will not be liable for any value that they have added.

This concern of the majority's seems, however, to be misguided in a more fundamental way. If one of the researchers, in all innocence, were to pur- chase chemicals that had been stolen, the true owner of the chemicals would have a good cause of action against the researcher in conversion. This may discourage research, but that is the way that the law of con- version works. Why should the law be any different in the case of John Moore's cells?

It would seem that the majority objects to the fact that the law of con- version recognizes that there can be innocent converters, innocent tort- feasors. I too think that that is objectionable. But it seems to me far more objectionable to let the law of conversion remain unchanged, but to carve out a single exception protecting scientific researchers from conver- sion actions by cancer patients.

5. The majority opinion holds that Moore's complaint stated a cause of ac-

tion for "breach of fiduciary duty and lack of informed consent." But Justice Mosk in his dissent makes a very persuasive argument that Moore is not going to be able to recover any damages under that cause of ac- tion. Since it also seems pretty clear that Moore would have little chance collecting damages in a conversion action,

one might wonder whether he

could have any good cause of action for damages.

I do not think that Moore could be entitled to damages on any theory. Let's face it, Moore was benefited, not damaged, by the surgery. Dr. Golde may well have committed some technical torts against Moore; Dr. Golde may have violated his fiduciary duty to Moore; but Dr. Golde cured Moore rather than damaging him.

There is, of course, the possibility that the plaintiff could have obtained both nominal

and punitive damages. But certainly no court would have imposed punitive damages on those innocent researchers whose protection was the major concern of the majority.

See the discussion in Note 3, above.

September 11, 2000

1.16. GENETIC MATERIAL AND INFORMATION 179

But the fact that Moore probably has no claim for damages does not mean that he has no cause of action at all.

Remember, it was suggested in Note 2, above, that Dr. Golde had been unjustly enriched by his breach of his fiduciary duty to inform Moore of the use that he planned to make of Moore's cells. Quite often--as happened in this case--an unfaithful fiduciary succeeds in enriching himself without causing damage to the victim of his breach. In such circumstances courts of equity have for centuries imposed a constructive trust for the benefit of the victim upon the illgotten gains of the unfaithful fiduciary.

Another equitable maxim is: No one should be allowed to profit from his own wrong.

So it turns out--since a constructive trust is a restitutionary remedy--that Moore is a restitution case. The only trouble is that the California justices seem, in their eagerness to encourage research, be moral, and legislate the appropriate rule of substantive of law, to have overlooked this fact.

6. Moore v. Regents is noted in 104 Harv. L. Rev. 808 (1991).

180 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW 1.16.3 FMC Corp. v. Capital Cities/ABC, Inc.

FMC Corp. v. Capital Cities/ABC, Inc. United States Court of Appeals for the Seventh Circuit

915 F.2d 300

1990

Before Bauer, Chief Judge, Cudahy and Flaum, Circuit Judges.

Cudahy, Circuit Judge. FMC Corporation brought suit against Capital Cities/ABC, Inc. for con- version and for misappropriation of its business information in connection with ABC's refusal to return copies of the FMC documents ABC had in its posses- sion. The district court dismissed FMC's claims. We aAErm in part and reverse in part.

I. Facts The facts of this case are, we hope, unique. On October 20, 1988, Capital Cities/ABC, Inc. ("ABC"), broadcast a story on its World News Tonight show that dealt with FMC's work on the Bradley Fighting Vehicle (the "BFV") for the United States Army. During this broadcast, ABC displayed what appeared to be several of FMC's documents relating to FMC's pricing policies and to FMC's contract with the U.S. Defense Department to provide spare parts for the BFV. The ABC news reporter covering the story reported, on the air, that the documents displayed in the newscast were, in fact, copies of FMC's documents. Four of these corporate documents are apparently missing from FMC's files.

FMC does not have copies of the documents. It is apparently undisputed that ABC possesses copies of these documents. (In fact, it is quite possible that ABC has the originals of these documents.) It is also undisputed that ABC was not directly responsible for the loss of FMC's documents. ABC has refused, on various grounds and after repeated requests, to return the documents to FMC. Indeed, ABC has refused to even supply copies of the documents to FMC.

FMC brought suit in state court against ABC for conversion and for mis- appropriation. FMC sought to have the documents replevied and asked for damages to compensate it for the misappropriation of its confidential busi- ness information. ABC had the suit removed to federal court. Jurisdiction is premised on diversity of citizenship. The district court dismissed FMC's con- version claim on the grounds that copies of documents could not be converted and dismissed FMC's misappropriation claim on the grounds that confiden- tial business information could be misappropriated only by a direct business competitor, something which ABC is not. We aAErm the dismissal of FMC's misappropriation claim but reverse the dismissal of FMC's conversion claim.

A list of the documents missing from FMC's files, which FMC believes to be in the

possession of ABC, is attached as Exhibit A to Appellant's Brief. ABC notes, however, that three of the seven documents listed in this exhibit have been found by FMC. Appellee's Brief at xii. Whatever the number, our holding is limited to the return of those documents of which FMC no longer has a copy. [Footnote by Court, renumbered]

September 11, 2000

1.16. GENETIC MATERIAL AND INFORMATION 181

II. Legal Analysis A. Choice of Law The parties disagree over what law should apply. The district court applied Illinois law because it believed that neither party had addressed the choice of law issue. FMC, which has its headquarters in California, asserts that California law should apply because the documents were taken in California and because California is where, since the taking, FMC is being deprived of their use. ABC contends, on the other hand, that New York law should apply because New York is where it is maintaining control over the documents.

Illinois has adopted the "most significant contacts" test for determining choice of law in tort cases. . . . We think that, under the circumstances, the law of California should be applied to FMC's claims. There are two funda- mental elements of the tort of conversion. The first is that the plaintiff own or have a right to use the property in question at the time of the conversion. The second is the exercise of unlawful dominion over the plaintiff's property by the defendant in a manner that is inconsistent with the plaintiff's title or rights. See, e.g., Moore v. Regents of Univ. of Cal., 215 Cal. App. 3d 709, 249 Cal. Rptr. 494, 503 (Cal. App. 1988).

Comment i to section 147 of the Restatement [(Second) of Conflicts of Law] states that the issue of whether the plaintiff is entitled to use the converted property is actually a property question. On the other hand, whether the de- fendant asserted wrongful dominion over or wrongfully detained the property at issue is a conversion issue sounding in tort.

We believe that, in this case, the

law of California should control the resolution of both questions. Section 247 of the Restatement states that "interests in a chattel are not affected by the mere removal of the chattel to another state." Hence, we will apply California law to decide whether FMC is entitled to the possession or use of the documents retained by ABC. With respect to the conversion issue, we recognize that ABC apparently took and maintains control over copies of FMC's documents in New York. But the fact that FMC is located in California and is feeling the loss of its documents there means that the "most significant contacts" for purposes of FMC's conversion and misappropriation claims are to be found in California.

This seems to mean that the plaintiff's rights should be governed by the law of whatever

jurisdiction would be appropriate to determine property issues--which normally is wherever the property is located--but that the conversion issue should be governed by the law of the place where the tort occurred. It is easy to determine where the tort occurred; at least, it is easier to figure that out than to figure out where the information was located.

Aren't legal characterizations fun? [pdj]

We believe that the particular choice of law is not crucial in this case. While the facts

of this case may present a novel question, our analysis does not. The same result would be reached under the conversion and replevin laws of most states. As one district court recently noted, "the principles of what conduct constitutes conversion are universal." P.M.F. Services, Inc. v. Grady, 703 F. Supp. 742, 743 n. 1 (N.D. Ill. 1989). Indeed, the claims of trover and conversion have been around, in much the same form, for centuries. [Footnote by Court, renumbered]

182 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW We believe that California has the greatest interest here. That state has an important interest in insuring that the property of its citizens is returned.

We will, however, apply Illinois law to determine whether ABC has a First Amendment-related defense to FMC's conversion and misappropriation claims. ABC's World News Tonight show was televised throughout the world. Hence, for the purpose of the First Amendment and the dissemination of news, no one state actually has more "significant contacts" with this dispute than any other. We will therefore apply the law of the forum as well as federal law to ABC's First Amendment-related defenses.

B. Conversion In California, as in most states, the tort of conversion consists of " `a distinct act of dominion wrongfully exerted over another's personal property in denial of or inconsistent with his title or rights therein, . . . without the owner's consent and without lawful justification.' " Moore v. Regents of the Univ. of Cal., 215 Cal. App. 3d 709, 249 Cal. Rptr. 494, 503 (Cal. App. 1988) (citing 18 Am.Jur.2d, Conversion, 1, at 145-46; footnotes omitted)). It is " `an act of wilful interference with a chattel, done without lawful justification, by which any person entitled thereto is deprived of use and possession.' " De Vries v. Brumback, 53 Cal. 2d 643, 2 Cal. Rptr. 764, 767, 349 P.2d 532 (1960) (quoting W. Prosser, Prosser on Torts 66 (2d ed. 1955)). We believe that, under any of the scenarios we shall outline, ABC is chargeable with conversion under California law and hence must return to FMC either the originals, if it has them, or a copy of any of FMC's documents listed in Exhibit A of Appellant's Appendix, of which FMC no longer has a copy.

FMC contends that ABC has several of its documents or that ABC has copies of these documents. Paragraph 14 of FMC's Second Amended Complaint alleges, for example, that "ABC has received the stolen documents, or copies thereof." See also Appellant's Appendix at 1. ABC contends that it does not have the originals and that FMC has not, and cannot, allege that it does. We read the plain language of FMC's complaint differently, however. If ABC has the originals, they must be returned to FMC for it is axiomatic that property known to belong to another must be returned.

See DeTomaso v. Pan American

World Airways, Inc., 172 Cal. App. 3d 1170, 218 Cal. Rptr. 746, 754 (Cal. App. 1985) (quoting section 485 of California's Penal Code) ("One who finds lost property under circumstances which give him knowledge of or means of inquiry as to the true owner, . . . , without first making reasonable and just efforts to find the owner and restore the property to him, is guilty of theft."

) ABC can,

however, keep copies of the documents so that its First Amendment investigative

[Note the reference to replevin. Would it surprise you to know that this is the only reference to replevin in the entire case? [pdj]

It is axiomatic in what system of axioms? [pdj]

Are we to assume that Capital Cities/ABC Inc. is guilty of theft? If it is, what does

that have to do with the issues in this case? What was the subject of the theft? Paper? Information? [pdj]

September 11, 2000

1.16. GENETIC MATERIAL AND INFORMATION 183 activities will not be chilled or discouraged. ABC refuses to show the documents in question to anyone, claiming that the First Amendment and the reporter's privilege exempts it from so doing.

Because neither FMC, the district court

nor this court had or has any way of knowing exactly what documents ABC possesses, we believe the burden should be on ABC, and not FMC, to come forward with evidence that it does not have the originals of the documents pilfered from FMC's files (if this is the case). We are mindful of the First Amendment issues attending such a demonstration; hence we leave it to the district court, and to the parties, to decide what form ABC's proof may take. The district court is welcome, for example, to undertake an in camera inspection of the documents. If, on the other hand, FMC is willing to accept copies of the documents, ABC should not have to submit to such a procedure. We leave the precise resolution of this matter to the district court. ABC is not, however, to be allowed to flout well-accepted property and tort law in the name of the First Amendment-especially since procedures are available that should adequately protect ABC's investigative activities. We now move on to address the issue whether ABC must return copies of FMC's own documents to FMC if the only documents ABC possesses are merely duplicates of the documents removed from FMC's files.

As the district court correctly noted, "the receipt of copies of documents, rather than the documents themselves, should not ordinarily give rise to a claim for conversion." March 8, 1989 Memorandum Opinion and Order at 2. See Harper & Row Publishers, Inc. v. Nation Enters., 723 F.2d 195, 201 (2d Cir. 1983), rev'd on other grounds, 471 U.S. 539, 85 L. Ed. 2d 588, 105 S. Ct. 2218 (1985); Pearson v. Dodd, 133 App. D.C. 279, 410 F.2d 701, 706-08 (D.C. Cir.), cert. denied, 395 U.S. 947, 89 S. Ct. 2021, 23 L. Ed. 2d 465 (1969). The reason for this rule is that the possession of copies of documents--as opposed to the documents themselves--does not amount to an interference with the owner's property suAEcient to constitute conversion. Harper & Row, 723 F.2d at 201. In 304 cases where the alleged converter has only a copy of the owner's property and the owner still possesses the property itself, the owner is in no way being deprived of the use of his property. The only rub is that someone else is using it as well.

But this case is different. Here, the owner, FMC, does not have a copy of the documents known to be in the possession of the alleged converter, ABC. Hence, ABC is not only an additional user of the property but has deprived FMC of any use of its documents. ABC argues, however, that Harper & Row and Pearson actually cut against FMC's claim because those cases focus upon the "property" alleged to have been converged and not upon the "effect of the deprivation" on the plaintiff. Appellee's Brief at 8. We disagree.

The gravamen of the tort of conversion is the deprivation of the possession

Now to my mind that is the real mystery in this case. Why would ABC object to giving

copies (of copies) of FMC's documents to FMC?

I don't get it. [pdj]

184 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW or use of one's property. Prosser & Keeton on the Law of Torts ch. 3, x15, at 102 (5th ed. 1984) ("The gist of conversion is the interference with control of the property.") (emphasis supplied). We read both Harper & Row and Pearson to be consistent with this theme. The holdings in both cases are premised upon the extent of the property deprivation involved. See Harper & Row, 723 F.2d at 201 (conversion requires more than a "temporary interference with property rights"); Pearson, 410 F.2d at 706 ("where the intermeddling falls short of the complete or very substantial deprivation of possessory rights in the property, the tort committed is not conversion"). Thus Harper & Row and Pearson are clearly distinguishable from the present case. Where, as here, the owner does not have the originals and the alleged converter has the originals or the only known copies of the originals, the retention of such property--to the exclusion of the owner--constitutes conversion.

In such a case the copies become the functional equivalents of the originals. Because ABC has refused to return copies of the documents that FMC has a right to use, ABC's retention of the documents amounts to the exercise of unlawful dominion over them. Hence, ABC is chargeable with conversion.

ABC also contends that it is not liable to FMC for conversion because a "third party voluntarily provided copies of [FMC's] documents to ABC and no ABC employee or agent ever possessed [FMC's] original documents." Appellee's Brief at 8. Even assuming that this is true, it would not help ABC's case. For purposes of conversion, it is not the intent to steal or pilfer property that matters, but rather "an intent to exercise a dominion or control over the goods which is in fact inconsistent with the plaintiff's rights." Prosser & Keeton on the Law of Torts ch. 3, x15, at 92 (footnote omitted). Accordingly, a "bona fide purchaser of goods from one who has stolen them, or who merely has no power to transfer them, becomes a converter when the purchaser takes possession to complete the transaction." Id. at 93-94. Hence, it is of no moment that ABC is not directly responsible for the loss of FMC's documents. What is important is that ABC now possesses either the originals or copies of FMC's documents that FMC no longer has and refuses to return them.

In addition, we pause to note that, even if the retention of mere copies of documents did not constitute conversion, we think that FMC would also have a valid claim for conversion on the grounds that ABC is essentially depriving FMC of the use of its own business information. ABC contends that the type of business information lost by FMC does not constitute "protectable property" for purposes of conversion. Appellee's Brief at 10. Again we disagree with ABC's argument.

The tort of conversion has had a tortured history.

[The] conception that an action for conversion lies only for tan- gible property capable of being identified and taken into actual possession is based on a fiction on which the action of trover was founded--namely, that the defendant had found the property of an- other which was lost--and that such conception has become, in the

September 11, 2000

1.16. GENETIC MATERIAL AND INFORMATION 185

progress of law, an unmeaning thing which has been discarded by most courts. . . .

Annotation, Nature of Property or Rights Other than Tangible Chattels Which May Be Subject of Conversion, 44 A.L.R.2d 927, 929 (1955). As Prosser and Keeton have noted, however, "there is perhaps no very valid and essential reason why there might not be conversion" of intangible property. Prosser & Keeton on the Law of Torts ch. 3, x15, at 92. Indeed, the Supreme Court has recently held that " `confidential information acquired or compiled by a corpo- ration in the course and conduct of its business is a species of property to which the corporation has the exclusive right and benefit, and which a court of eq- uity will protect through the injunctive process or other appropriate remedy.' " Carpenter v. United States, 484 U.S. 19, 26, 98 L. Ed. 2d 275, 108 S. Ct. 316 (1987) (quoting from 3 W. Fletcher, Cyclopedia of Law of Private Carporations x 857.1, at 260 (rev. ed. 1986) (footnote omitted)). ABC would have us believe that the only business information in which a company can acquire a protectable property interest is information which is sold as a commodity. But, the Supreme Court's opinion in Carpenter is not so limited. Indeed, the Supreme Court's approach is consistent with what appears to be the modern trend of state law in protecting against the misuse of confidential business information through conversion actions. See, e.g., Annis v. Tomberlin & Shelnutt Associates, Inc., 195 Ga. App. 27, 392 S.E.2d 717 (Ga. App. 1990) (aAErming jury verdict for conversion of confidential information

); Conant v. Karris, 165 Ill. App. 3d

783, 520 N.E.2d 757, 117 Ill. Dec. 406 (Ill. App. 1987) (upholding a claim for the conversion of confidential information

); Datacomm. Interface, Inc. v.

Computerworld, Inc., 396 Mass. 760, 489 N.E.2d 185 (Mass. 1986) (upholding damages award for conversion of circulation list copy

ABC argues that, even if FMC is found to have set forth a valid claim for conversion, FMC should still be precluded from obtaining copies of its docu- ments from ABC because the First Amendment protects ABC's investigative activities. More specifically, ABC contends that the "adoption of FMC's theory would cripple all investigative reporting concerning the defense industry (or any other industry for that matter)." Appellee's Brief at 24. We think that ABC's

In this case the defendant himself had stolen the plaintiff's marketing strategy manual;

the defendant was not alleged to have received a copy of the manual. [pdj]

In this case the plaintiff sued his real estate broker--who had bid, successfully, against the

plaintiff for a parcel of land--for, among other things, imposition of a constructive trust and `unjust enrichment'. One of the counts was for the `conversion of confidential information', i.e., the financial projections that the plaintiff had developed, and this count was held good by the court. Note, however, that once again the defendant was the one who originally appropriated the plaintiff's information and also note that the defendant used the plaintiff's own information in competition with the plaintiff. [pdj]

This case is rather complex and is scarcely relevant to FMC. The counter-defendant had

settled earlier litigation with the counter-plaintiff by turning over to the counter-plaintiff what it swore was its only copy of this list. The `conversion' consisted of retaining another copy of the list. Whether or not the term `conversion' should have been used, the conduct was clearly tortious. [pdj]

186 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW contention cuts much too broadly. We are not allowing FMC's conversion claim to be used as a "tool[] for the reproduction or disclosure of any document that a particular contractor does not want the public to see." Id. Rather, we are simply allowing FMC to obtain copies of its own information, information which has apparently been stolen from it and which it needs in order to comply with its government contracts.

ABC is free to retain copies of any of FMC's docu-

ments in its possession (and to disseminate any information contained in them) in the name of the First Amendment. Moreover, ABC is in no way being pun- ished for the dissemination of FMC's information. It is merely being required to make copies of documents it refuses to return.

On a related ground, ABC argues that Illinois law provides an independent statutory, as opposed to constitutional, basis for protecting its "source mate- rial." ABC believes that the Illinois "Reporter's Privilege" shields it from having to return copies of FMC's documents to FMC. Section 1 of this provision (Ill. Rev. Stat., ch. 51, para. 111 (1979)), however, provides, in part, that: "No court may compel any person to disclose the source of any information obtained by a reporter during the course of his employment except as provided in this Act." Since FMC in this case is seeking the return of its property and is not attempting to ascertain ABC's sources, the Illinois shield statute is inapplicable to this case.

C. The Misappropriation of Confidential Business Information FMC has not stated a valid claim for the misappropriation of confidential business information under California law. The thrust of the misappropriation tort is the inequitable pirating of the fruits of another's labor and then passing these fruits off as one's own. See, e.g., KGB, Inc. v. Giannoulas, 104 Cal. App. 3d 844, 164 Cal. Rptr. 571 (Cal. App. 1980). As the district court correctly noted in connection with Illinois law (which is largely the same as California law on this point), ABC is not in competition with FMC. Rather, ABC is simply a news organization in the business of reporting information. Hence, the normal policy concerns behind a claim for the misappropriation of confidential business information are not implicated in this case. Although it may be true that FMC has suffered some economic harm from the loss and exposure of its military and pricing information on the BFV, the fact remains that ABC is not a fiduciary of

For similar reasons, we reject ABC's argument that the "specter" of conversion suits like

this "would saddle those investigating matters of public concern with an impossible dilemma: either wait for the subjects of news reports to voluntarily disclose their challenged conduct, or risk lawsuits and liability for damages from disclosure of . . . `confidential business informa- tion.' " Appellee's Brief at 24. Even ABC must realize that this argument is extreme. ABC remains free to report whatever it deems fitting. It must, however, return documents that rightfully belong to another or make copies of documents that the owner no longer has access to. [Footnote by Court, renumbered]

If ABC can legitimately show that, by returning copies of FMC's documents, it will be in

danger of revealing its sources, ABC should be allowed to furnish FMC with its information in some way that will protect its sources. We leave the precise determination as to whether ABC may be compromising its sources and what form any return of documents should take to the district court. [Footnote by Court, renumbered]

September 11, 2000

1.17. USE AND OCCUPATION 187 or competitor with FMC. FMC has therefore failed to state a valid claim for the misappropriation of confidential business information.

Moreover, a contrary

holding would certainly raise important First Amendment problems.

III. Conclusion During the course of a news investigation, ABC acquired either the originals or copies of documents belonging to FMC. Because these documents were stolen from its files, FMC no longer has the information contained in these documents, information it needs to comply with government contracts. ABC has refused to return FMC's documents or the information contained in those documents, forcing FMC to bring suit over what amounts to four pieces of paper. We hold that ABC's refusal to return the documents or copies of the documents, under the unique circumstances presented by this case, constitutes conversion. Because of the delicate First Amendment principles attending this case, we are leaving the precise implementation of our holding to be overseen by the district court. Because ABC is not a competitor or fiduciary of FMC, the dismissal of FMC's claim for the misappropriation of its confidential business information is aAErmed. This case is accordingly AFFIRMED in part and REVERSED and REMANDED in part for proceedings not inconsistent with this opinion. ABC shall bear the costs of this appeal.

1.17 Use and Occupation 1.17.1 Edwards v. Lee's Administrator

Edwards v. Lee's Administrator

Court of Appeals of Kentucky

265 Ky. 418, 96 S.W.2d 1028

1936

Opinion of the Court by Judge Stites--AAErming in part and reversing in part.

This is an appeal from a judgment of the Edmonson circuit court sitting in equity. Appellants argue but two points in this court: (1) That the court below applied an improper measure of damages; and (2) even if the measure of damages was correct, the amount was erroneously computed. Due to the unique nature of the case, a somewhat detailed statement of the facts is necessary.

About twenty years ago L.P. Edwards discovered a cave under land belong- ing to him and his wife, Sally Edwards. The entrance to the cave is on the Edwards land. Edwards named it the "Great Onyx Cave," no doubt because of the rock crystal formations within it which are known as onyx. This cave is

ABC argues that, even if FMC were to state a valid claim for misappropriation, such a

claim would be preempted by federal copyright law. In the light of the conclusion drawn above, however, we need not address this aspect of ABC's defense. [Footnote by Court, renumbered]

188 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW located in the cavernous area of Kentucky, and is only about three miles dis- tant from the world-famous Mammoth Cave. Its proximity to Mammoth Cave, which for many years has had an international reputation as an underground wonder, as well as its beautiful formations, led Edwards to embark upon a pro- gram of advertising and exploitation for the purpose of bringing visitors to his cave. Circulars were printed and distributed, signs were erected along the roads, persons were employed and stationed along the highways to solicit the patron- age of passing travelers, and thus the fame of the Great Onyx Cave spread from year to year, until eventually, and before the beginning of the present litigation, it was a well-known and well-patronized cave. Edwards built a hotel near the mouth of the cave to care for travelers. He improved and widened the footpaths and avenues in the cave, and ultimately secured a stream of tourists who paid entrance fees suAEcient not only to cover the cost of operation, but also to yield a substantial revenue in addition thereto. The authorities in charge of the de- velopment of the Mammoth Cave area as a national park undertook to secure the Great Onyx Cave through condemnation proceedings, and in that suit the value of the cave was fixed by a jury at $396,000. In April, 1928, F.P. Lee, an adjoining landowner, filed this suit against Edwards and the heirs of Sally Edwards, claiming that a portion of the cave was under his land, and praying for damages, for an accounting of the profits which resulted from the operation of the cave, and for an injunction prohibiting Edwards and his associates from further trespassing upon or exhibiting any part of the cave under Lee's land. At the inception of this litigation, Lee undertook to procure a survey of the cave in order that it might be determined what portion of it was on his land. The chancellor ordered that a survey be made, and Edwards prosecuted an appeal from that order to this court. The appeal was dismissed because it was not from a final judgment. Edwards v. Lee, 230 Ky. 375, 19 S.W. (2d) 992. Thereupon Edwards sought a writ of prohibition in this court against the circuit judge to prevent the carrying out of the order of survey. The writ was denied. Edwards v. Sims, 232 Ky. 791, 24 S.W. (2d) 619, 620. In this last case the maxim, "Cu- jus est solum, ejus est usque ad coelum et ad infernos" (to whomsoever the soil belongs, he owns also to the sky and to the depths) was considered and applied, and an analogy drawn between trespassing through mining beneath another's land and passing under it through a cave. A tremendous amount of proof was taken on each side concerning the title of Lee to the land claimed by him; how much, if any, of the cave is under the land of Lee; the length of the exhibited portion of the cave and the amount thereof under the land of Lee; the net earn- ings of the cave for the years involved; the location of the principal points of interest in the cave and whether they were under the lands of Edwards or of Lee; and whether or not Edwards and his associates had knowledge of the fact that they were trespassing on Lee's property. An appeal was taken to this court from a judgment fixing the boundaries between the lands of Edwards and Lee, and that judgment was aAErmed. Edwards v. Lee, 250 Ky. 166, 61 S.W. (2d) 1049. An injunction was granted prohibiting Edwards and his associates from further trespassing on the lands of Lee. On final hearing the chancellor stated separately his findings of law and of fact in the following language:

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1.17. USE AND OCCUPATION 189

"The Court finds as a matter of law the plaintiff is entitled to recover of defendants the proportionate part of the net proceeds defendants received from exhibiting Great Onyx Cave from the years 1923 to 1930, inclusive, as the footage of said cave under Lee's land bears to the entire footage of the cave exhibited to the public for fees during the years 1923 to 1930, inclusive, with 6% interest on plaintiff's proportionate part of said fund for each year from the first day of the following year as set out in the memorandum opinion.

"1. The Court finds as a matter of fact the true boundary line between the Lee and Edwards land is as set out in a former judgment of this Court in this case which was aAErmed in Edwards v. Lee, 250 Ky. 166, 61 S.W. (2d) 1049.

"2. The Court finds as a matter of fact there was 6,449.88 feet of said cave exhibited to the public during 1923 to 1930, inclusive, and that 2,048.60 feet of said footage was under Lee's lands making plaintiff entitled to 2048.60/6449.88, or 1/3 of the proceeds.

"3. The Court finds as a matter of fact the proof failed to show the proceeds received for the years 1923 and 1924 and there can be no recovery for those years. That the net proceeds for 1925 amounted to $3,090.31 and plaintiff's one-third thereof is $1,030.10, with 6% interest from January 1st, 1926, and that the net proceeds for the other years were:

1926 $ 4,039.56 1927 7,288.57 1928 14,632.99 1929 24,551.96 1930 23,340.51

"and the plaintiffs are entitled to one-third of the net proceeds for each of said years, with 6% interest thereon from January 1st of each succeeding year."

Appellants, in their attack here on the measure of damages and its application to the facts adduced, urge: (1) That the appellees had simply a hole in the ground, about 360 feet below the surface, which they could not use and which they could not even enter except by going through the mouth of the cave on Edwards' property; (2) the cave was of no practical use to appellees without an entrance, and there was no one except the appellants on whom they might confer a right of beneficial use; (3) Lee's portion of the cave had no rental value; (4) appellees were not ousted of the physical occupation or use of the property because they did not and could not occupy it; (5) the property has not in any way been injured by the use to which it has been put by appellants, and since this is fundamentally an action for damages arising from trespass, the recovery must be limited to the damages suffered by appellees (in other words, nominal damages) and cannot properly be measured by the benefits accruing

190 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW to the trespasser from his wrongful use of the property; (6) as a result of the injunction, appellees have their cave in exactly the condition it has always been, handicapped by no greater degree of uselessness than it was before appellants trespassed upon it.

Appellees, on the other hand, argue that this was admittedly a case of willful trespass; that it is not analogous to a situation where a trespasser simply walks across the land of another, for here the trespasser actually used the property of Lee to make a profit for himself; that even if nothing tangible was taken or disturbed in the various trips through Lee's portion of the cave, nevertheless there was a taking of esthetic enjoyment which, under ordinary circumstances, would justify a recovery of the reasonable rental value for the use of the cave; that there being no basis for arriving at reasonable rental values, the chancellor took the only course open to him under the circumstances and properly assessed the damages on the basis of the profits realized from the use of Lee's portion of the cave. Appellees have taken a cross-appeal, however, on the theory that, since the trespass was willful, their damages should be measured by the gross profits realized from the operation of the cave rather than from its net profits.

As the foregoing statement of the facts and the contentions of the parties will demonstrate, the case is sui generis, and counsel have been unable to give us much assistance in the way of previous decisions of this or other courts. We are left to fundamental principles and analogies.

We may begin our consideration of the proper measure of damages to be applied with the postulate that appellees held legal title to a definite segment of the cave and that they were possessed, therefore, of a right which it is the policy of the law to protect. We may assume that the appellants were guilty of repeated trespasses upon the property of appellees. So much was in effect determined when the case was here before on the appellants' application for a writ of prohibition. Edwards v. Sims, 232 Ky. 791, 24 S.W. (2d) 619. The proof likewise clearly indicates that the trespasses were willful, and not innocent.

Appellees brought this suit in equity, and seek an accounting of the profits realized from the operation of the cave, as well as an injunction against future trespass. In substance, therefore, their action is ex contractu and not, as appel- lants contend, simply an action for damages arising from a tort.

Ordinarily, the

measure of recovery in assumpsit for the taking and selling of personal property

Here the court exhibits a fairly common sort of confusion. The relief that the appellees

sought was not the recovery of their damages resulting from the appellant's trespass. On the other hand, they were not suing ex contractu--there was no contract on which anyone could sue!

The relief that the appellees sought was restitution of the profits that the appellants had received from their trespass. The theory on which they claimed this relief was unjust en- richment. Since the appellees sued in equity, they were seeking an equitable accounting, and perhaps the imposition of a constructive trust on their share of the profits received by the appellants, as well as an injunction against future trespasses.

It is true, of course, that if the appellees had not wanted an injunction they could have sued in law in an action of so-called quasi-contract to recover the profits. If they had brought such a quasi-contractual suit, they would have been, as it is so quaintly described, waiving the tort (of trespass) and suing in assumpsit.

September 11, 2000

1.17. USE AND OCCUPATION 191 is the value received by the wrongdoer. On the other hand, where the action is based upon a trespass to land, the recovery has almost invariably been measured by the reasonable rental value of the property. . . . Strictly speaking, a count for "use and occupation" does not fit the facts before us because, while there has been a recurring use, there has been no continuous occupation of the cave such as might arise from the planting of a crop or the tenancy of a house. Each trespass was a distinct usurpation of the appellees' title and interruption of their right to undisturbed possession. But, even if we apply the analogy of the crop cases or the wayleave cases (Phillips v. Homfray, 24 Ch. Div. 439; Whithem v. Westminster Co., 12 Times L.R. 318; Carmichael v. Old Straight Creek Coal Corporation, 232 Ky. 133, 22 S.W. (2d) 572), it is apparent that rental value has been adopted, either consciously or unconsciously, as a convenient yardstick by which to measure the proportion of profit derived by the trespasser directly from the use of the land itself . . . . In other words, rental value ordinarily in- dicates the amount of profit realized directly from the land as land, aside from all collateral contracts.

That profits rather than rent form the basis of recovery is illustrated by the cases involving the question of when an action of this character survives against the personal representative of a wrongdoer. If rent alone were the basis of recovery, we would expect to find that the action would survive against the estate of the trespasser. It would certainly be reasonable to assume that a simple action for debt would lie and that this would survive. The rule, however, has been established to the contrary. In considering what actions survive against an estate, Lord Mansfield, in Hambly v. Trott, 1 Cowp. 371, said:

"If it is a sort of injury by which the offender acquires no gain to himself, at the expense of the sufferer, as beating or imprisoning a man, &c., there, the person injured, has only a reparation for the delictum in damages to be assessed by a jury. But where, besides the crime, property is acquired which benefits the testator, there an action for the value of the property shall survive against the executor. As for instance, the executor shall not be chargeable for the injury done by his testator in cutting down another man's trees, but for the benefit arising to his testator for the value or sale of the trees he shall.

"So far as the tort itself goes, an executor shall not be liable; and therefore it is, that all public and all private crimes die with the offender, and the executor is not chargeable; but so far as the act of the offender is beneficial, his assets ought to be answerable; and his executor therefore shall be charged."

This "quasi-contractual" remedy has nothing to do with contracts; it is the classic legal remedy for the prevention of unjust enrichment, in this case the enrichment that resulted from the appellees' willful trespasses.

[pdj]

192 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

In the leading case of Phillips v. Homfray, 24 Ch. Div. 439, the plaintiffs were the owners of a farm, and the defendants had for some time past been working the minerals underlying lands adjoining plaintiffs' farm. Plaintiffs discovered that the defendants were not only getting minerals from under their farm, but were using roads and passages made by them through the plaintiffs' minerals for the conveyance of minerals gotten by the defendants from their own mines. An action was brought to recover for the minerals taken from under the plaintiffs' property, and also for damages to be paid as wayleave for the use of the roads and passages in transporting the minerals of the defendants across the property. One of the defendants having died, the question was presented as to whether either of these causes of action survived against his estate. The court held that this defendant's estate was liable in the action for the minerals taken because it had, to that extent, been enriched by the defendant's wrong. As to the recovery for wayleave, the court held that the action did not survive because nothing had been added to the defendant's estate through the use of the roads and passages under plaintiffs' land. The defendant had been saved expense in thus using the passages, but it was pointed out that this did not constitute an enrichment and that the action did not, therefore, survive. Other English cases in harmony with Hambly v. Trott and Phillips v. Homfray might be cited, but we deem these two to be suAEcient to illustrate the principle. Clearly, the unjust enrichment of the wrongdoer is the gist of the right to bring an action ex contractu. Rental value is merely the most convenient and logical means for ascertaining what proportion of the benefits received may be attributed to the use of the real estate. In the final analysis, therefore, the distinction made between assumpsit concerning real and personal property thus disappears. In other words, in both situations the real criterion is the value received for the property, or for the use of the property, by the tort-feasor.

Similarly, in illumination of this conclusion, there is a line of cases holding that the plaintiff may at common law bring an action against a trespasser for the recovery of "mesne profits" following the successful termination of an action of ejectment. For example, see Capital Garage Co. v. Powell, 98 Vt. 303, 127 A. 375. Here again, the real basis of recovery is the profits received, rather than rent. In Worthington v. Hiss, 70 Md. 172, 16 A. 534, 536, 17 A. 1026 (cited with approval in the Vermont case), the court said:

"It is well settled that in an action to recover mesne profits the plaintiff must show in the best way he can what those profits are, and there are two modes of doing so, to either of which he may resort,-- he may either prove the profits actually received, or the annual rental value of the land. West v. Hughes, 1 Har. & J. [(Md.) 574] 576 [2 Am. Dec. 539]; Mitchell v. Mitchell, 10 Md. 234. The latter is the mode usually adopted. Where there is occupation of a farm or land used only for agricultural purposes, and the income and profits are of necessity the produce of the soil, the owner may have an account of the proceeds of the crops and other products sold or raised thereon,

September 11, 2000

1.17. USE AND OCCUPATION 193

deducting the expense of cultivation. These are necessarily rents and profits in such cases, but even there it is more usual to arrive at the same result by charging the occupier, as tenant, with a fair annual money rent. McLaughlin v. Barnum, 31 Md. [425] 452. But the proprietor of city lots, with improvements upon them, can only derive therefrom, as owner, a fair occupation rent for the purposes for which the premises are adapted. This constitutes the rents and profits, in the legal sense of the terms, of such property, and is all the owner can justly claim in this shape from the occupier."

Finally, in the current proposed final draft of the Restatement of Restitution and Unjust Enrichment (March 4, 1936), Part 1, sec. 136, it is stated:

"A person who tortiously uses a trade name, trade secret, profit a prendre, or other similar interest of another, is under a duty of restitution for the value of the benefit thereby received."

The analogy between the right to protection which the law gives a trade- name or trade secret and the right of the appellees here to protection of their legal rights in the cave seems to us to be very close. In all of the mineral and timber cases, there is an actual physical loss suffered by the plaintiff, as well as a benefit received by the defendant. In other words, there is both a plus and a minus quantity. In the trade-name and similar cases, as in the case at bar, there may be no tangible loss other than the violation of a right. The law, in seeking an adequate remedy for the wrong, has been forced to adopt profits received, rather than damages sustained, as a basis of recovery. In commenting on the section of the Restatement quoted above, the reporter says:

"Persons who tortiously use trade names, trade secrets, water rights, and other similar interests of others, are ordinarily liable in an action of tort for the harm which they have done. In some cases, however, no harm is done and in these cases if the sole remedy were by an action of tort the wrongdoer would be allowed to profit at little or no expense. In cases where the damage is more extensive, proof as to its extent may be so diAEcult that justice can be accomplished only by requiring payment of the amount of profits. Where definite damage is caused and is susceptible of proof, the injured person, as in other tort cases, can elect between an action for damages and an action for the value of that which was improperly received. The usual method of seeking restitution is by a bill in equity, with a request for an accounting for any profits which have been received, but the existence of a right to bring such a bill does not necessarily prevent an action at law for the value of the use. In the case of tortious interference with patents, under existing statutes there is a right to restitution only in connection with an injunction."

194 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

Whether we consider the similarity of the case at bar to (1) the ordinary actions in assumpsit to recover for the use and occupation of real estate, or (2) the common-law action for mesne profits, or (3) the action to recover for the tortious use of a trade-name or other similar right, we are led inevitably to the conclusion that the measure of recovery in this case must be the benefits, or net profits, received by the appellants from the use of the property of the appellees. The philosophy of all these decisions is that a wrongdoer shall not be permitted to make a profit from his own wrong. Our conclusion that a proper measure of recovery is net profits, of course, disposes of the cross-appeal. Appellees are not entitled to recover gross profits. They are limited to the benefits accruing to the appellants.

This brings us to a consideration of appellants' second contention, namely, that even if the measure of recovery was correct, the amount was erroneously computed. It is argued that the appellants ceased to exhibit the portion of the cave on appellees' land after electric lights were put into that part of the cave on appellants' property. The proof on this question was conflicting. Various wit- nesses testified concerning the particular points of interest that were exhibited, and many of these were shown to have been on appellees' land. Likewise, it was established that tourists entering the cave, even after it had been electrified to the limits of appellants' property, carried lanterns, which, presumably, would only be of use if they were going into its unlighted portions, and advertisements of the cave published after the electrification continued to feature points of in- terest on the appellees' land. Under the circumstances, therefore, we cannot say that the chancellor did not correctly conclude that the entire cave was exhibited even after the portion of it on appellants' land had been equipped with electric lights.

In determining the profits which might fairly be said to arise directly from the use of appellees' segment of the cave, the chancellor considered not only the footage exhibited, but the relative value of the particular points of interest featured in advertising the cave, and their possible appeal in drawing visitors. Of thirty-one scenes or objects in the cave advertised by appellants, twelve were shown to be on appellees' property. Several witnesses say that the underground Lucikovah river, which is under the appellees' land for almost its entire exhibited length, is one of the most attractive features of the cave, if not its leading attraction. Other similar attractions are shown to be located on appellees' property. The chancellor excluded profits received by the appellants from the operation of their hotel, and we think the conclusion that one-third of the net profits received alone from the exhibition of the cave is a fair determination of the direct benefits accruing to the appellants from the use of the appellees' property.

Finally, it is argued that the chancellor erroneously permitted the recovery of one-third of the profits for the entire year of 1930, when in fact the record shows that the appellants did not exhibit the entire cave during the latter part of that year. Appellees, in their brief, do not dispute this contention, and, on the contrary, refer to the figure given by an audit showing the profits during the

September 11, 2000

1.17. USE AND OCCUPATION 195 first six months of 1930. We think it may properly be assumed that a third of the net profits for the six months' period was derived from the use of appellees' segment of the cave, although it is argued that this portion of the cave was only exhibited for five months. Certainly it was advertised as an attraction during the entire year. It is evident that the chancellor simply overlooked this fact in going through the mass of figures contained in the ten volumes which make up the record, and that the base figure to be used in ascertaining appellees' one-third of the profits for the year 1930 should be $17,240.97 in lieu of the figure of $23,340.51 found in the judgment. The judgment is aAErmed in part and reversed in part on the original appeal and aAErmed on the cross-appeal.

Whole court sitting, except Judge Richardson, who took no part in the consideration or decision of this case.

Judge Thomas filed a separate concurring opinion. Concurring opinion by Thomas, Justice. I concur in the ultimate conclusion reached by my brethren as expressed in the majority opinion, but I differ widely from the reasoning employed therein as a basis for reaching it. In expressing my views as to the basis--or platform so to speak--upon which I think the judgment should rest, I will content myself with only mentioning universally known principles of the law without encumbering what I shall say with supporting opinions and text authorities, except where I deem it necessary to adopt a different course. If this were the majority opinion, I would feel it requisite throughout to fortify the legal propositions that I shall state with adjudicated cases and text authorities of recognized and undisputed reliability.

The opinion states the facts, and correctly concludes that "the case is sui generis." It then adds: "Counsel have been unable to give us much assistance in the way of previous decisions of this or other courts. We are left to fundamental principles and analogies." Those excerpts therefrom are undoubtedly true, and some principle must be found by which (1) the involved property (the cave) may be rendered profitable to each of its several owners, and (2) that it may be kept open in its entirety; not only for the purpose of making each owner's portion profitable to him, and all others having proprietary rights therein, but also that the patronizing public might not be deprived of the educational and other benefits to be derived from visiting the nature-made wonder throughout its length, without any obstructing walls by separate segment owners, which under the theory of the opinion they would undoubtedly have the right to construct, provided they could gain entrance into the cave for that purpose.

It is because of the recognition of such segment ownership, as recognized and applied by the opinion, with its following consequences, that has led me to adopt the views hereinafter expressed, and which I am confident will be found to be not only the more practical, but also an assured guarantee is thereby furnished against the possible obstructions, already mentioned, and other potential con- sequences that lurk in the theory approved and adopted by the court's opinion. The case, being sui generis, with its peculiar facts having never heretofore been

196 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW presented to a court for a declaration of rights growing out of similar conditions, must necessarily be determined upon equitable principles, formulated with the view of not only preserving the rights of owners, but also for maintaining those of the public, both of which I think are endangered and liable to become wholly destroyed if the declared basis of the opinion should be adhered to in any future state of facts wherein such obstructing activities should be employed. The opin- ion, according to my interpretation of it, recognizes the right of courts in such sui generis cases to employ a tool from the contents of its inexhaustible chest whereby a particular case may be fitted into the niche that it should occupy so as to preserve the rights of all persons concerned. That recognition is exhibited by the attempted differentiation of this case from an ordinary trespass action and to determine the rights of the parties on ex contractu principles. In doing so it regards as analogous the multiplied cases that have been determined wherein a trespasser on real estate takes away from the corpus a part of it, and which part so abstracted was the only source of profit involved--as for example oil, gas, coal, and other tangible minerals. To the same effect are the cases wherein a trespasser takes away a part of the soil of another. In all such cases where the trespassing act is willfully done, the measure of recovery of the one trespassed upon is the net value of the substance taken away from the corpus of his prop- erty. On the other hand, where no corpus is abstracted and taken away, but only a mere use of the property, with the corpus left intact upon the cessation of the use, the measure of recovery is the reasonable rental value of the property.

I have yet to meet with a case where A would be made to account to B for all of the agricultural profits grown by A on B's land while the grower was an undoubted trespasser. The measure would be the damages that A did to B's land (all of which he would leave intact after the trespassing act ceased) and which is practically universally determined as being the rental value of the land for the use to which it was put. Other illustrations could be cited in substan- tiation of the same view and which illustrations are analogous to the one here involved, as is pointed out in the opinion. Manifestly that rule for the measure of damages in this case (and which is the one insisted on by appellants) would be utterly impractical and glaringly inequitable in the exigencies of the case developed by the facts. Therefore, the opinion properly searches for, and finally discovers and applies what is regarded therein as the proper shaping tool from the law's reserved chest, but which I think is the improper one. Authority for the grafting upon a universally established rule an exception to meet the exi- gencies of the case, or to reshape and remodel it so as to fit the facts in hand, is well stated in the text of 21 C.J. pages 22 to and including page 30, and the devotion of more time and space would thoroughly demonstrate it. Such au- thority springs from the recognized fact that the reservoir of the law, containing available equitable principles, is not supposed to ever become so depleted as to render courts impotent in the administration of justice. The theory herein advanced for the correct principle upon which the judgment should be based, recognizes and employs that authority, the same as does the majority opinion; but it is my conclusion that the theory herein advanced is the one best fitted

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1.17. USE AND OCCUPATION 197 and best calculated to guarantee and perpetually preserve the rights of all par- ties concerned than is the one adopted and approved by the majority members. The sui generis nature of the case producing the demonstrated exigencies un- doubtedly calls for an exercise of that authority in declaring the principles upon which the rights of all parties concerned should be adjusted.

My theory is this: That the cave in this sui generis case should be treated as a unit of property throughout its entire exhibitable length, including the augmentations of prongs or branches, and that it should be adjudged as owned jointly by all of the surface owners above it, in proportion that the length of their surface ownership bears to the entire length of such exhibitable portion. I realize that herein lies the departure (but which I think is justified from the exigencies of the case) from the ancient rule of, "Cujus est solum, ejus est usque ad coleum et ad infernos (to whomsoever the soil belongs, he owns also to the sky and to the depths.)" That maxim literally followed would segmentize ownership both above and below the surface corresponding to boundaries of the latter; and it is the denying of that effect, as applied to property of the nature of a cave, that constitutes the departure from, or exception to the rule, that I advocate; whilst the majority opinion not only discards that theory, but advocates other departures equally if not more drastic, and which are necessarily followed by much more impractical and destructive consequences. The same departure has already been made by all courts before which the question has arisen, with reference to ownership "to the sky" by the owner of the surface, in determining aerial navigation rights, and which departure was forced by the necessities of the case. I, therefore, can conceive of no objection to extending it in the opposite direction when the same necessities demand it.

Joint ownership arises under three classes of acquired titles. Under one, the several owners are known as "cotenants"; under another they are known as "tenants in common"; and still another they are known as "joint tenants" or "holders in coparcenary." But subsection 28 of section 732 of our Civil Code of Practice dispenses with the common-law distinctions and treats alike all of such joint ownerships. It was so interpreted and applied in the case of Melton v. Sellars, 167 Ky. 704, 181 S.W. 346. The Code provision, therefore, dispenses with the technical distinction of such joint ownerships and upholds all the rights that a cotenant would have at common law in and to the jointly owned property. Among those rights are (1) to employ the jointly owned property so as to produce profit to the one so employing it, as well as to his Co-owner or owners, and (2) to call upon his cotenant or tenants, who do profitably employ the property, to account to him for his proportion of the net profits. See the text in 7 R.C.L. 832, sec. 26, and Freeman on Co-Tenancy, sec. 260 et seq.

The cave in divided segments according to surface ownership, if the division should be made, would render each segment of little profit producing value. But the theory of the opinion indisputably implies that right which if exercised would render all portions of the cave beyond the Edwards boundary (within which is located its entrance from the surface) absolutely valueless, since it is incontrovertibly established by the evidence in this case that no opening into the

198 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW cave can be made upon any of the lands of the respective owners extending back from its mouth located, as said, within the Edwards boundary. Nevertheless, as pointed out, the other owners of different segments of the cave (back from its entrance) may prevent, under the theory adopted by the majority opinion, the owners of the Edwards tract from exhibiting any portion of the cave than that which lies under their surface. With the attractiveness of the cave thus curtailed, but a small amount of patronage of inspecting it could be obtained, since the sightseers could penetrate it no farther than the Edwards line. The same consequences would follow as to the other segments, if their owners could make a practical entrance into their separately owned segment, but which as we have seen, they cannot do. Thus the cave as an entirety, as will be easily seen, could be destroyed as a profit producing property, and also as a pleasing and educating exhibition to the members of the public. But such consequences could not and would not follow the theory herein advanced. Following its adoption, remedies are abundant whereby any joint owner might enforce the continued opening and operation of the cave, even by the appointment of a receiver if necessary, or the employment of some other remedy known to the law. The theory of joint ownership which I conclude is the correct one to adopt and apply under the exigencies of this case does not conflict with the maxim supra that the surface owner also owns to the "depths below," except that it applies his ownership--not to the particular segment underlying his surface rights-- but to the aliquot part of the entire attractive vacuum made by nature, called "a cave," and that the extent of his joint ownership in the entire property is measured by his surface rights. As will be seen, that theory prevents any such obstructive and destroying consequence as is above pointed out, both as applied to each joint owner and to the sightseeing public; as well as to render easy the adjustments of the rights of all the owners in all future operation of the cave as a profit-producing agency.

If it should be said that some of the rulings heretofore advanced by us in former appeals with reference to the rights of the parties in this case prevent the application of the views of joint ownership herein advocated, the answer is that so far as I have been able to discover such orders were interlocutory in their nature and were not final, being employed only to preserve the status until a correct and final determination of the rights of the parties could be adjudged. If, however, I should be mistaken in that, then the majority opinion might be approved as being the only equitable one now available, after barring the joint ownership theory in this particular case under the "law of the case" rule, but at the same time declare that as to future cases of like nature the joint ownership theory should prevail.

For the reasons stated, I concur in the result of the majority opinion, but disagree with the theory upon which it is based.

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1.17. USE AND OCCUPATION 199 1.17.2 Raven Red Ash v. Ball

Raven Red Ash Coal Co. v. Ball

Supreme Court of Virginia 185 Va. 534, 39 S.E.2d 231, 167 A.L.R. 785

1946

Error to a judgment of the Circuit Court of Russell county. Hon. E. T. Carter, judge presiding.

Hudgins, J., delivered the opinion of the court. Plaintiff, Estil Ball, stated, in his notice of motion, that he was entitled to recover $5,000 from the defendant for the use and occupation of an easement across his land. Defendant denied any liability. The trial court entered judgment for plaintiff in the sum of $500 on the verdict returned by the jury. From that judgment, defendant obtained this writ of error.

There is no substantial conflict in the evidence. Plaintiff proved that he is the present owner of approximately 100 acres of land lying in Russell county which was a part of a 265-acre tract formerly owned by Reuben Sparks, and that Reuben Sparks and his wife, by deed dated November 19, 1887, conveyed the coal and mineral rights on the 265-acre tract to Joseph I. Doran and William A. Dick. The deed conveying the mineral rights to Doran and Dick, their heirs and assigns, conveyed an easement expressed in the following language: "The right to pass through, over and upon said tract of land by railway or otherwise to reach any other lands belonging to the said Joseph I. Doran and Wm. A. Dick or those claiming such other lands by, through or under them, for the purpose of digging for, mining, or otherwise securing the coal and other things hereinbefore specified, and removing same from such other land."

It seems that on or about November 19, 1887, Doran and Dick owned ap- proximately 3,000 acres of land lying in Russell and Tazewell counties, Virginia, estimated to contain nine million tons of coal. By mesne conveyances the Raven Red Ash Coal Company became the lessee of all the coal and mineral rights on and under this 3,000 acres. Probably 25 years ago the Raven Red Ash Coal Company, under the easement purchased of Reuben Sparks, built a tramway or railroad through and over the 265 acres formerly owned by Sparks, which right of way extends for approximately 2800 feet across the 100 acres of land now owned by plaintiff.

The Raven Red Ash Coal Company acquired coal and mineral rights on the following tracts of land not originally owned by Doran and Dick: 3 1/4 acres now owned by S. T. Newberry and wife, 29 1/2 acres now owned by Henry Bird, 29 1/9 acres now owned by Ronda Blankenship, 17 acres now owned by Will Bird, and another small tract now owned by W. P. Dixon.

The testimony reveals that, during the past five years, defendant transported 49,016 tons of coal mined from the five small tracts over the tramway erected across plaintiff's land and transported 950,000 tons of coal mined from lands formerly owned by Doran and Dick. There remains to be mined approximately

200 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW 8,000,000 tons of coal on the tracts formerly owned by Doran and Dick and 180,000 tons of coal on the other small tracts.

Defendant's six assignments of error present two questions: (1) Whether the facts entitle plaintiff to maintain an action of trespass on the case in assumpsit; and (2) what test should be applied to determine the amount of damages to be allowed.

Ball concedes that defendant exercised its right in transporting across plain- tiff's land the 950,000 tons of coal mined from tracts of land formerly owned by Doran and Dick, but contends that it violated the property rights of plaintiff in transporting the 49,016 tons of coal mined from the five small tracts described above across plaintiff's land to defendant's tipple.

These cases hold that every use of an easement not necessarily included in the grant is a trespass to realty and renders the owner of the dominant tene- ment liable in a tort action to the owner of the servient tenement for all damages proven to have resulted therefrom, and, in the absence of proof of special dam- age, the owner of the servient tenement may recover nominal damages only.

Plaintiff did not prove any specific damage to the realty by the illegal use of the easement, and admitted that he suffered "no more damage other than the exclusion of us during that moment and that's the reason we have sued for use and occupancy."

It thus appears that plaintiff bases his sole ground of recovery on the right to maintain assumpsit for use and occupation. In his brief, plaintiff states: "That plaintiff was entitled to recover for the use of hauling this 49,016 tons of coal 2,800 feet over his land has been settled in this state since the case of Clayborn v. Camilla Red Ash Coal Co., 128 Va. 383, 105 S.E. 117, 15 A.L.R. 946; and that he could sue in this form for use and occupation has been held from the beginning of our system of government; although controverted in some states, Sutton v. Mandeville, 1 Munf. (15 Va.) 407; Eppes v. Cole, 4 Hen. & M. (14 Va.) 161, 4 Am.Dec. 512; 4 Min.Inst. (3rd Ed.) 164; Code sec. 5519."

The authorities cited do not extend the right to maintain an action of as- sumpsit as far as the plaintiff claims. In the Clayborn Case, supra, it was held that a deed, conveying to a coal mining company all the coal in or under a specified tract of land "with the right to mine and remove the same," did not convey to the company the right to use an underground haulway through the tract for transporting coal mined by the company from adjacent tracts, and that such use of the haulway placed an additional burden upon the easement.

Judge Kelly, speaking for the court in discussing this phase of the case, said: "The use of it (the haulway) for any other purpose is a trespass, and the continued and daily use which the company is now making of it is a continued trespass, for which the only adequate remedy is an injunction."

In Eppes v. Cole, supra (decided in 1809 before the enactment of the per- tinent provision now found in Code of 1919, sec. 5519), it was held that a landowner could maintain an action of assumpsit where the facts showed that he had permitted defendant to use the property and that defendant had promised

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1.17. USE AND OCCUPATION 201 to satisfy him for such use and occupation.

The decision in Sutton v. Mandeville, supra, decided in 1810, was controlled by the opinion in Eppes v. Cole, supra, and, in addition, the opinion expressly held that assumpsit for use and occupation lies on an implied as well as an express promise. See Briggs v. Hall, 4 Leigh (31 Va.) 484.

Mr. Minor (4 Minor's Inst., 3 Ed., pp. 164-5) refers to the cases last cited and says: "It must be observed, that as the action for use and occupation is always founded on the idea of a contract, express or implied, to pay a reasonable compensation for such use, so it has ever been held that, if it appears at the trial that the occupancy of the lands was by a title adverse to that of the plaintiff, it defeated the action, by disproving the existence of any contract."

The only other authority cited by plaintiff to support his contention is section 5519 of the Code of 1919.

This entire section presupposes the relation of

landlord and tenant. The pertinent provision reads: "A landlord may also, by action, recover (where the agreement is not by deed) a reasonable satisfaction for the use and occupation of lands; * * *." (Italics supplied.)

The provision quoted was taken from the English statute, Geo. II, ch. 19, sec. 14, but, even before the Virginia statute was enacted, this court held, in Eppes v. Cole, supra, that the English "statute was made for the benefit of land- lords, and to prevent tenants from putting them to diAEculties (after enjoyment of the lands) in recovering their rents under parol demises or agreements; for, before the statute, in actions for the use and occupation, the landlords were con- tinually nonsuited, by the tenants' proving, at the trial, some parol demise, or memorandum in writing, amounting to a demise; for, in that case, the landlord ought to have brought an action of debt, and not case, on assumpsit; which was remedied by the statute. That this was the true reason for making the statute, will appear by the cases on the subject, * * *."

Since plaintiff failed to prove that he gave express permission for the ad- ditional use of the easement or that defendant promised to pay for such use, it became necessary for the plaintiff to establish facts and circumstances from which the law will imply the promise to pay for use and occupancy.

While the plaintiff has not cited, and we have not found, any controlling Virginia authority on this phase of the case, a short review of the theory and modern development of the action of assumpsit will be helpful in deciding the question.

Assumpsit is classified as an action ex contractu as distinguished from an action ex delicto. Hence, in order to sustain the action, it is necessary for the

"Rent of every kind may be recovered by distress or action. A landlord may also, by

action, recover (where the agreement is not by deed) a reasonable satisfaction for the use and occupation of lands; on the trial of which action, if any parol demise, or any agreement (not being by deed) whereon a certain rent was reserved, shall appear in evidence, the plaintiff shall not therefor be nonsuited, but may use the same as evidence of the amount of his debt or damages. In any action for rent, or for such use and occupation, interest shall be allowed as on other contracts." [Footnote by court, renumbered]

202 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW plaintiff to establish an express contract or facts and circumstances from which the law will raise an implication of a promise to pay. In such a case, a plaintiff may waive the tort and institute his action in assumpsit for money had and received. If the defendant has not parted with the personalty but has converted it to his own use, the owner still has a right to waive the tort and proceed upon the theory of an implied contract of sale to the wrongdoer. The contract implied is one to pay the value of the property at the time of conversion. 1 Cooley on Torts, 4 Ed., sec. 61.

Different promises may be inferred from different acts or omissions. If a per- son has seized and sold property belonging to the plaintiff, the promise implied is that the defendant received the money for the plaintiff's use. Where no money has been actually received, the implied undertaking is that the wrongdoer would pay the value or price of the property taken.

The overwhelming majority of the decided cases holds that where a person has illegally seized another's personal property and converted it to his own use, the owner may bring trespass, trover, detinue or assumpsit. By bringing the action of assumpsit, the owner waives all claim for wrongful taking, detention and conversion. . . .

Where a naked trespass is committed, whether upon the person or property, assumpsit will not lie. If one commits an assault and battery upon another, it is absurd to imply a promise by the defendant to pay the victim a reasonable compensation. There is no basis for an implication of a contract where cattle inadvertently invade a neighbor's premises and trample down and destroy his crops. In each instance, a wrong and nothing more and nothing less has been committed. On the other hand, if a trespasser invades the premises of his neigh- bor, cuts and removes timbers or severs minerals from the land and converts them to his own use, the owner may waive the tort and sue in assumpsit for the value of the materials converted. 1 Cooley on Torts, 4 Ed., sec. 61, p. 181.Such a person has depleted the value of the owner's property and materially enhanced his own possessions.

The same principle is stated in 4 Am. Jur., 503-4, as follows: "* * *, in the absence of a contractual relationship, the general rule is that where one person derives a benefit from the commission of a tort against the property of another, the law will, at the election of the person injured, imply a contract on the part of the tort-feasor to pay to the person injured a just remuneration for the damages sustained as a consequence of the wrong, and on this contract implied by law general assumpsit lies. But a promise will be implied in such a case only because it will be deemed that it was intended that it should be, or because natural justice requires it in consideration of some benefit received, and where no benefit accrues, or is intended to accrue, to the tort-feasor, the action of assumpsit cannot, as a general rule, be substituted for the proper form of action on the tort." (Italics supplied.) See 1 C.J.S., p. 1131.

The duty to pay damages for tort does not necessarily imply a promise to pay them, hence a party cannot convert a mere tort action by electing to bring his action on contract. The old rule that what was a tort in its inception

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1.17. USE AND OCCUPATION 203 could not be made the basis of an implied contract has been greatly relaxed in most jurisdictions. The authorities are not in accord as to the extent of this relaxation. 1 C.J.S. 1129.

The general rule stated in the majority of cases we have found is that, in an action for use and occupation, or for damages to realty, based on assump- sit, the plaintiff must prove that the defendant occupied the premises with his permission, either express or implied, or that the trespasser obtained something from the soil, such as growing crops, timber or ore, and appropriated the same to his own use. If the trespasser simply used the property of another to save himself inconvenience or even expenditure of money, the owner cannot maintain an action of debt or assumpsit. . . .

The precise question has never been decided in this jurisdiction. If the rule in force in the majority of States is followed, the landowner will be placed in this position: If he maintains an action for tort, he will be limited to nominal damages only. He may obtain an injunction and restrain the defendant from the further unlawful use of the easement, and thus indirectly, perhaps, force him to agree to pay for future additional burdens imposed on the easement. Such proceedings would not give the owner compensation for past illegal use of his property, although the wrongdoer had received and retained substantial benefits by reason of his own wrongs.

The plaintiff relies upon the following quotation from Jaggard on Torts, pp. 296-7, found in Burks Pl. & Prac., 3 Ed., p. 174: " `Wherever a person commits a wrong against the estate of another, with the intention of benefiting his own estate, the law will, at the election of the party injured, imply a contract on the part of the wrongdoer to pay the party injured the full value of all benefits resulting to such wrongdoer; and, in such case, the injured party may elect to sue upon the implied contract for the value of benefits received by the wrongdoer.' The legal presumption of the implied contract being conclusive, the defendant will not be permitted to set up his tort in order to defeat the implied promise."

The principle stated in the quotation from Jaggard is modified by Judge Burks in the same section as follows: "As appears by the general statement of the rule given earlier in this section, the fiction of an implied promise proceeds on the idea that the defendant's estate has been enriched and the plaintiff's diminished by the wrongful act of the defendant. Hence the implied assumpsit. It follows that where the tort in question is a mere naked trespass, such as an assault and battery, or an injury (unknown to the owner) done by trespassing cattle, there is no ground for any implication of a contract. Such acts would be simple wrongs, nothing more, and the plaintiff's only remedy would be in a tort action."

This indicates that Judge Burks was inclined to the view expressed in the majority opinion in Phillips v. Homfray, 24 Chan.Div. 439, 462, 471, which case Jaggard cites to support his statement. The facts in that case were that defendants had been removing, over a period of years, minerals under lands ad- jacent to plaintiffs' farm. Defendants extended their mining operations across the boundary line and removed minerals owned by plaintiffs. Defendants also

204 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW constructed and used roads and passages under plaintiffs' land for the trans- portation of ore mined by the defendants from their own land. Suit was brought for the value of the minerals taken from under plaintiffs' property and for com- pensation for the use of the roads and passages in transporting minerals of defendants across plaintiffs' property. One of the defendants died. The ques- tion involved was whether either of the causes of action survived against his estate. The court held that the defendant's estate was liable in the action for minerals taken on the ground that it had to that extent been enriched by the wrong, and the value of plaintiffs' land had been diminished proportionately.

On the question of recovery for the illegal use of roads and passages, the majority of the court held that the action did not survive because defendant's estate had not been enriched directly through the use of roads and passages over plaintiffs' land. Plaintiffs contended that the defendants had been saved expense and inconvenience by using the roads and passages, but it was said that this did not deprive plaintiffs of anything nor did it enrich defendants. This decision was based on the interpretation of language used by Lord Mansfield in Hambly v. Trott, 1 Cowp. 371. Lord Justice Baggallay filed a strong dissent, in which he said that the language of Lord Mansfield and the opinions in former cases did not support the construction placed thereon by the court.

"Speaking with much diAEdence, as my views in this respect differ from those of my colleagues, I feel bound to say that I cannot appreciate the reasons upon which it is insisted that although executors are bound to account for any accretions to the property of their testator derived directly from his wrongful act, they are not liable for the amount or value of any other benefit which may be derived by his estate from or by reason of such wrongful act. I can find nothing in the language used by Lord Mansfield that can support this view. On the contrary, when classifying the actions which survive against an executor by reason of the causes of action, he includes among such causes of action `gain or acquisition by the testator, by the work and labour, or property of another,' and he in no respect limits or qualifies the nature or character of the `gain' referred to. A gain or acquisition to the wrongdoer by the work and labour of another does not necessarily, if it does at all, imply a diminution of the property of such other person.

* * * "*20*20*. Upon the question whether the wrongful act resulted in a benefit to the estate of the wrongdoer I think the proper inquiry is that suggested by Sir Thomas Plumer, `Did the wrongdoer derive any benefit from the wrong done by him, or was it a naked injury by which his estate was in no way benefited?' My answer to that inquiry, as applied to the circumstances of the present case, is that the estate of the Defendant R. Fothergill was benefited by the wrongful user by the Defendants of the roads and passages under the Plaintiffs' farm."

In the Notes on Restatement of Restitution by Warren A. Seavey and Austin W. Scott, pp. 193-4, this is said: "The reasons for denying an action of assumpsit against the trespasser for the value of land acquired by a trespass or for the value of its use are largely historical. * * *. Like many other rules originating at an

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1.17. USE AND OCCUPATION 205 early period, the reasons for its existence have largely disappeared but, except in a few jurisdictions, the rule remains."

The logic of the dissenting opinion in Phillips v. Homfray, supra, is irre- sistible. To hold that a trespasser who benefits himself by cutting and removing trees from another's land is liable on an implied contract, and that another trespasser who benefits himself by the illegal use of another's land is not liable on an implied contract is illogical. The only distinction is that in one case the benefit he received is the diminution of another's property. In the other case, he still receives the benefit but does not thereby diminish the value of the owner's property. In both cases, he has received substantial benefit by his own wrong. As the gist of the action is to prevent the unjust enrichment of a wrongdoer from the illegal use of another's property, such wrongdoer should be held on an implied promise in both cases.

The facts in Edwards v. Lee, 265 Ky. 418, 96 S.W.(2d) 1028, were that Edwards discovered a cave on the land belonging to himself and his wife, which he developed and advertised as the "Great Onyx Cave." Later, Lee, the owner of an adjoining tract, filed suit against Edwards and the heirs of his wife, claiming that a portion of the cave was under his land. He asked for an accounting of the profits which resulted from the operation of the cave and for an injunction prohibiting Edwards and his associates from further trespassing or using that part of the cave under his land. It was said that the action was based on repeated trespasses to land and that, although no damage or injury was shown to plaintiff's land, plaintiff was entitled to recover on the ground of an implied promise to pay. The measure of recovery was fixed at one-third of the net profits inasmuch as one-third of the cave was under plaintiff's land. It was contended that the use of the cave by the trespasser did not damage or diminish Lee's property, but the court held that the gist of the action was the unjust enrichment of the wrongdoer, which would support an implied promise to pay.

In the Notes on Restatement of Restitution, supra, commenting on this case at p. 194, this is said: "The decision (Edwards v. Lee) is a welcomed departure from the result in Phillips v. Homfray (1883), 24 Chan.Div. 439, where recovery was denied against a person who had used a passageway under the plaintiff's land for the removal of coal."

The illegal transportation of the coal in question across plaintiff's land was intentional, deliberate and repeated from time to time for a period of years. Defendant had no moral or legal right to enrich itself by this illegal use of plaintiff's property. To limit plaintiff to the recovery of nominal damages for the repeated trespasses will enable defendant, as a trespasser, to obtain a more favorable position than a party contracting for the same right. Natural justice plainly requires the law to imply a promise to pay a fair value of the benefits received. Defendant's estate has been enhanced by just this much.

Pomeroy's

Remedies and Remedial Rights, 2 Ed., pp. 630-635.

Mr. Duncan McR. Cocke, in 22 Va. Law Review 683, at 688, in discussing this question,

reaches the following conclusion: "In waiver of tort, the question is first, has defendant's act been tortious as to plaintiff. If so, a right of plaintiff's must necessarily have been invaded.

206 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

The facts in De Camp v. Bullard, 159 N.Y. 450, 54 N.E. 26, were that plaintiff owned a tract of land in the Adirondack wilderness through which the north branch of the Moose river flows for 20 to 30 miles. The defendants had cut a large number of logs upstream from plaintiff's land under the belief that they had the right to float the logs down the river through plaintiff's land to a mill. Plaintiff obtained an injunction restraining defendants from entering his land and transporting the logs downstream. This judgment was suspended for a definite period upon condition that defendants execute a bond in the penalty of $5,000 with surety to indemnify plaintiff "against any and all loss or damage * * * sustained by the plaintiff" during the period that the injunction order was suspended. Defendants thereupon floated the logs downstream. Defendants refused to comply with the condition of the bond and an action was instituted thereon. Plaintiff, on the trial, admitted that the floating of the logs through his land did not injure or damage his realty but proved that the prevailing price for the floating of the logs, which measured two million feet when manufactured into lumber, was two cents a mile per thousand feet. The jury were told that plaintiff was entitled to a "fair compensation for the use of the river to float the 2,000,000 feet of logs." A verdict was rendered in favor of plaintiff for $500. In sustaining this verdict, the court said:

"The defendants insist that the measure of damages is not what the privilege of trespassing was worth to the trespassers, but what the plaintiff actually lost through interference with his business, loss of rent and the like. As there was no proof of actual loss of this character, they further insist that the plaintiff is entitled to nominal damages only. This position would place a premium on trespassing, because it makes the position of the trespasser more favorable than that of one lawfully contracting. If a man's house is vacant with no prospect of a tenant and no intention on his part of occupying it himself, and a trespasser occupies it, he must pay as damages for the trespass the value of the use and occupation, for this would be the duty of a tenant contracting upon a quantum meruit for the use, by consent, of that which the trespasser uses without consent.

"In cases of involuntary trespass the damages are restricted as much as possible, but when the trespass is deliberate, intentional and continuous, they include, at least, the value of the use of the premises for the period that the owner is kept out of possession."

Plaintiff proved: (1) Ownership of the 100-acre tract, (2) the grant of an

Second, has defendant acquired a benefit by virtue of his wrongful act. Third, is plaintiff in equity and good conscience entitled to the benefit, or to state it in another fashion, is plaintiff's invaded right of such a nature that plaintiff is in justice entitled to all benefits accruing thereon. This necessarily means that the right must be capable of being dealt with contractually, as opposed to a right which, although if invaded may be compensated for in damages, in its unviolated state has no ascertainable value upon which a contract might be founded. It makes no difference that plaintiff's right still has all the value to him which it would have had, had not defendant violated it. The point is that plaintiff is exclusively entitled to benefits derived from or accruing on that right. Defendant now has a benefit which he derived by virtue of his violation of plaintiff's right."

See Keener on Quasi-Contracts, p. 159 et seq.; Clark on Contracts, 2 Ed., sec. 282. [Footnote by court, renumbered]

September 11, 2000

1.17. USE AND OCCUPATION 207 easement across the 100 acres for a limited purpose, and (3) the use of the easement over a period of years for a purpose not specified in the grant. He admitted that the illegal use caused no damage to the realty. Plaintiff, without attempting to prove any damage to the realty or the value of the benefits received by defendant, rested his case. Defendant's motion to strike the evidence was overruled, and it is from the testimony of its witnesses that the proof of the value of the benefit is ascertained.

While plaintiff offered no evidence to establish the value of the illegal use of the easement, we, as reasonable men, know that the transportation of 49,016 tons of coal over the tramroad across the plaintiff's land was a benefit to de- fendant. However, in the absence of proof of the value of the benefit, the court could enter no judgment for plaintiff. This proof is supplied by the testimony of the general manager on his cross-examination. The substance of his testimony on this point is that the prevailing rate of payment, or purchase of a right of way for transportation of coal across another's land, is one cent per ton, and that this purchase includes the right to construct and maintain a tramway for distances varying up to 2 1/2 miles; but that, where the owner of the easement has already entered upon the land, and has constructed and is maintaining a tramroad for the transportation of coal from certain specified tracts, the pur- chase price should be much less--a small fraction of a cent per ton. The jury were instructed that they should fix the amount of damages, if any, at such as would fairly compensate plaintiff for the use and occupation of this strip of land in the hauling and transportation of 49,016 tons of coal over the same.

While the evidence on the value of the benefits retained by defendant is not as clear and full as it could be, and perhaps should have been, the jury had all the facts and circumstances before it and evidently concluded that the value of the benefit to the defendant for the illegal use of the easement should be computed at one cent per ton. Viewing the case as a whole, we find no reversible error, and the judgment of the trial court is aAErmed.

AAErmed.

1.17.3 Notes on Raven Red Ash v. Ball

1. Note the understanding and misunderstanding of general assumpsit that

were revealed by the questions raised by the defendant. The first question

indicates a firm understanding of the way that case evolved in analogy to trespass and assumpsit grew out of case and shortly thereafter we are told that the plaintiff's count was for "use and occupation," so that we know that the full name of the plaintiff's action was: Trespass on the case in assumpsit for use and occupation (of land). The second question,

"Whether the facts entitle plaintiff to maintain an action of trespass on the case in as-

sumpsit."

"[W]hat test should be applied to determine the amount of damages to be allowed."

208 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

however, though formally unobjectionable, seems to treat general assump- sit as an action for damages, which it is not.

The `damages' sought by

the plaintiff in this action for use and occupation were actually the value of the benefits received by the defendant by his tortious activities.

2. Raven Red Ash neatly illustrates the interplay of substantive law and the

law of judicial relief, the latter usually being called `remedies.' As a matter of substantive law the defendant was guilty of a trespass to land when he overused the easement,

but he did not cause the plaintiff any actual

damages. So, as a matter of judicial relief, and to prevent the defendant from profiting from his tort, the court allowed the plaintiff to "waive the tort and sue in assumpsit."

Under the requirements of modern notice pleading, a plaintiff is required to state in his complaint only those facts that entitle him to relief, anything else is surplusage. The required facts would be only those that support a trespass action; in particular, the plaintiff is not required to warn the defendant--and the court--of plans to waive the right to trespass damages and to seek instead the restitution of the value of the benefits received by the defendant on account of the trespass.

3. The only benefit that the defendant obtained by his trespass was the

saving of the amount that he would have otherwise have had to spend to get the coal to market. Some courts who would have no diAEculty allowing restitution of, say, a horse, or even the value of a horse, baulk at the idea of allowing restitution of a saving--after all the defendant did not get anything new; he just saved himself an expense. An example is Phillips v. Homfray,

in which the majority held that savings resulting from the

illegal use of roads neither deprived the plaintiffs of anything nor enriched the defendants.

This point of view probably will not make much sense to you; even so, if you represent the defendant in a case like Raven Red Ash, you might just try such an argument.

Some courts used

to take an even stranger position, one that may also

be ascribed to the majority in Phillips v. Homfray. Before they would allow restitution in a case where the plaintiff waived the tort and sued

Except in form.

Query whether the overuse of an easement would have amounted to a trespass at common

law. The defendant's original entry upon the land was, after all, with permission.

The point raised here is not one of great importance. If the facts alleged in the complaint do not state a good cause of action in trespass for damages then the courts would certainly have allowed an analogous action for damages in trespass on the case. The only trouble is that there were no damages.

Which is discussed supra at pages 136-37 by the court in Raven Red Ash.

Or would you be afraid of winning below and then being reversed on appeal?

I hope that no court would take this position today.

September 11, 2000

1.17. USE AND OCCUPATION 209

in assumpsit, they required that the defendant had gained something and that the plaintiff had lost something. It is certainly reasonable to insist that the defendant gain something--even if it be only a savings; in a restitution action the plaintiff is seeking to recover that gain. But it is not reasonable to require the plaintiff to show that he has lost something, for a loss is relevant only when the plaintiff is claiming damages.

4. Recall that the court in Raven Red Ash says:

Different promises may be inferred from different acts or omissions. If a person has seized and sold property belonging to the plaintiff, the promise implied is that the defendant received the money for the plaintiff's use. Where no money has been actually received, the implied undertaking is that the wrongdoer would pay the value or price of the property taken.

. . . . Where a naked trespass is committed, whether upon the per- son or property, assumpsit will not lie. If one commits an assault and battery upon another, it is absurd to imply a promise by the defendant to pay the victim a reasonable compensation. There is no basis for an implication of a contract where cattle inad- vertently invade a neighbor's premises and etrample down and destroy his crops. In each instance, a wrong and nothing more and nothing less has been committed. . . .

The same principle is stated in 4 Am. Jur., 503-4, as fol- lows: "* * *, in the absence of a contractual relationship, the general rule is that where one person derives a benefit from the commission of a tort against the property of another, the law will, at the election of the person injured, imply a contract on the part of the tort-feasor to pay to the person injured a just remuneration for the damages sustained as a consequence of the wrong, and on this contract implied by law general assumpsit lies. But a promise will be implied in such a case only because it will be deemed that it was intended that it should be, or be- cause natural justice requires it in consideration of some benefit received, and where no benefit accrues, or is intended to accrue, to the tort-feasor, the action of assumpsit cannot, as a general rule, be substituted for the proper form of action on the tort." (Italics supplied.)

The duty to pay damages for tort does not necessarily imply a promise to pay them, hence a party cannot convert a mere tort action by electing to bring his action on contract. . . .

Of course, if one of the element's of the tort that is being `waived' is that the plaintiff

suffered damages, i.e., that he lost something, then the plaintiff must prove those damages before he can prevail in an assumpsit action.

210 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

If this is merely read as meaning that no one can successfully waive the tort and sue in assumpsit in a case where the defendant has obtained nothing by his tort that can be restored to the plaintiff, then it is unobjectionable. If, on the other hand, the passage is taken as suggesting that, when the law `implies a promise,' there really is a promise or undertaking, then it is dangerously misleading. An action in quasi-contract--an action `implied in law'--no more involves a contract than mock turtle soup involves a turtle.

5. The court in Raven Red Ash says, citing Cooley on Torts, that "[i]f the

defendant . . . has converted [the owner's personalty] to his own use, the owner . . . has a right to waive the tort and proceed upon the theory of an implied contract of sale to the wrongdoer." You will recall, however, that Lord Mansfield did not recognize the existence of such an action "for goods sold and delivered." In Massachusetts and some other states, it is well established that one cannot sue a trespassor or converter in assumpsit for goods sold and delivered, though if the tortfeasor has sold the goods, assumpsit for for the sales price, for money had and received, will lie. See, e.g., Jones v. Hoar, 5 Pick. (22 Mass.) 285 (1827). But, as was said in Terry v. Munger, 121 N.Y. 161, 164-65, 24 N.E. 272 (1890):

As the defendants . . . had not, after their conversion of it, them- selves sold or otherwise disposed of the property which they acquired from the plaintiffs, the fiction of the receipt by defen- dants of money for the sale of the property, which ex aequo et bono they ought to pay back to plaintiffs and which they, there- fore, impliedly promised to pay back, could not be indulged in, and the position of the parties would have been, at one time, the subject of some doubt whether there was any foundation for the doctrine of an implied promise in such case, or any possibility of the waiver of the tort committed by the defendants in the conversion of the property.

In some of the states it has been denied and such denial placed upon the ground that the property remained in the hands of the wrong doer, and, therefore, no money having been re- ceived by him in fact, an implied promise to pay over money had and received by defendant to the plaintiffs' use, did not and could not arise. Such was the case of Jones v. Hoar (5 Pick. 285). But the great weight of authority in this country is in favor of the right to waive the tort even in such case. If the wrong doer has not sold the property, but still retains it, the plaintiff has the right to waive the tort and proceed upon an implied contract of sale to the wrong doer himself, and, in such event, he is not charged as for money had and received by him to the use of the plaintiff. The contract implied is one to pay the value of the property, as if it had been sold to the wrong doer

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 211

by the owner. If the transaction is thus held by the plaintiff as a sale, of course the title to the property passes to the wrong doer when the plaintiff elects to so treat it.

6. Everyone seems to have assumed that the plaintiff did not lose anything

in Raven Red Ash, but is that assumption correct? Didn't the trespass cause the plaintiff to lose the opportunity of extorting a fair rent--or an even higher sum--from the defendant?

In cases where the defendant has actually entered upon the plaintiff's land and remained there for a while, the plaintiff's trespass damages usually include the fair rental value of the land. Should the rule be any different when there is a continuing trespass that does not amount to an entry?

7. A major problem--perhaps the major problem--in Raven Red Ash has to

do with the availability of indebitatus assumpsit for use and occupation as a remedy for a continuing trespass. It is not likely that you can understand that issue without an historical explanation. So here is still another one of those historical digressions that occupy such a large percentage of these materials.

1.18 Forms of Action and the System of Writs

1.18.1 More on Law as an Evolutionary System The old forms of action that evolved within the writ system illustrate the evo- lution of cultural artifacts at least as well as do potsherds and arrowheads. Although they are no more tangible than any concept preserved in writing, we can identify the same forms, and observe their development, over a period of eight hundred years.

In legal theory--and this was also true in practice until the relatively late explosion of new forms of action evolving out of trespass and its offshoot, case-- each writ had its own function and its own niche within the legal system. Viewed in this fashion there was no distinction between substantive law and remedies: each writ had its own rules, its own substantive law. There was no law of contract; rather there was the law inherent in the use of the writs of covenant, debt, and, finally, special assumpsit. There was no law of tort; rather there was the law inherent in the use of the writs of trespass and case--though the action of assumpsit, at least the action of indebitatus (or general) assumpsit, did not

Terry involved the election of remedies. In an earlier action the plaintiff had sued other

defendants in assumpsit rather than in conversion. The plaintiff then brought an action against Munger for the conversion of the same goods. Held, the the plaintiff, having elected to treat the goods as being sold, could not in the second suit recover on the theory that they had been converted.

212 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW involve any wrong (or tort, if one prefers the French). There was no law of restitution; rather there was the law inherent in the use of replevin, all the old praecipe writs, and, in time, ejectment and, still later, indebitatus assumpsit.

Contract and tort are alien concepts in the common law, the product to some extent of an effort on the part of those with some Latin and little sense to impose the sterile categories of the law of the late Roman Empire, the categories of contract and delict, upon the Common Law that had developed organically from very different roots and that was still evolving, and that continued to evolve in its own fashion up to at least the middle of the nineteenth century.

To a much greater extent, contract and tort were the inventions of the second- rate academic minds of the late nineteenth century that dominated legal edu- cation, at least within the new fangled law schools of the United States. Thus Grant Gilmore pointed out:

[1974] is by way of being a centennial year. It was just a hundred years ago that Christopher Columbus Langdell, like his namesake four centuries earlier, set sail over uncharted seas and inadvertently discovered a New World. Western civilization had done very nicely for several millennia without anyone knowing that two undiscovered continents were interposed between Europe and Asia. It may be that we would all be better off if the first Columbus, as the result of a series of absurd miscalculations, had not revealed the truth. In somewhat the same way the common law had done very nicely without anyone realizing that there was such a thing as the law of contracts.

Perhaps Gilmore is guilty of some slight exaggeration here; treatises on contracts--if not on the general theory of contracts--had been written before 1874, if not much before 1800. Thus, for example, Parsons wrote in 1853 in the preface to the first edition of his treatise on Contracts:

The title of the thirtieth chapter of the Second Book of Blackstone's Commentaries is, "Of title by gift, grant, and contract;" and in no other chapter does he treat of the law of contracts under that name. Since the publication of that work, many treatises on this subject have been published in England and in this country; some of them are large volumes, and the latest are the largest.

If contracts as a subject is a recent invention, the idea of studying torts is even more recent. It is generally accepted that "[t]he first treatise in English on

G. Gilmore, The Death of Contract 5 (1974) [footnotes omitted]. Later in the text,

Gilmore makes clear that it was Dean Langdell--of Harvard Law School, the inventor of the infamous `case method'--whom he credited with "the almost inadvertent discovery of the general theory of contract." Id. at 12.

1 T. Parsons, Contracts xiii (6th ed., 1873).

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 213 Torts was published in 1859 by Francis Hilliard of Cambridge, Massachusetts, who was followed a year later by Addison in England."

The idea that torts

could be a separate area of academic study was not greeted with universal approbation.

The definitive characteristic of these new academic subjects is that they were abstract, that they were quite cut off from the underlying reality of the old forms of action. Instead of studying the forms of action, and particularly the remedies, that can be used in cases involving contracts, the academic mind concentrated on what it considered to be the characteristics of contracts; the perverse results were (i) that contracts tended to be analyzed solely in terms of the action of special assumpsit, which was actually an action for both restitu- tion (of the plaintiff's expectancy) and for tort-like (special) damages, (ii) that a great deal of effort was wasted in a vain effort to distinguish the action for breach of contract from other actions (which were usually tort action) that grew out of case, (iii) that all consensual transactions--including conveyances--were as- sumed to be contractual in nature and (iv) that actions to recover entitlements-- restitutionary actions--were ignored, not because they were unimportant, but because they simply would not fit into the accepted academic categories. In the same fashion torts has been cut away from its traditional underpinnings in trespass and case--and from any meaningful sense of `tort', which is just the French for `wrong'--in a vain effort (i) to shift losses so eAEciently that the losses will simply disappear and (ii) to arrive at a system of liability without fault approximating that which existed before the dawn of the Common Law in the 12th century.

W. Keeton, D. Dobbs, R. Keeton, and D. Owen, Prosser and Keeton on the Law

of Torts 1 (5th ed., 1984).

In his dedicatory preface addressed Justice Holmes, dated 1886, Sir Frederick Pollock in his Law of Torts stated: "The earliest text-book I have been able to find is a meager and unthinking digest of `The Law of Actions on the Case for Torts and Wrongs' published in 1720, remarkable chiefly the depths of historical ignorance which it occasionally reveals. The really scientific treatment of principles begins only with the decisions of the last fifty years."

It was noted in a review of a student edition of Addison's treatise that:

We are inclined to think that Torts is not a proper subject for a law book. Under this title we expect to find some or all of the wrongs remedied by the actions of trespass, trespass on the case and trover. But we cannot help believing that the cohesion or relationship, say, of trespass quare clausu, is closer with the duties to him in possession enforced by real actions, than with assault and battery. So, to give another example, the law of actions for deceit seems to us to be properly presented in connection with estoppel in pais as two forms of sanction for the same duty--not to defraud one's neighbor, to put it broadly. Seduction, which we find in the next chapter of this book, belongs at the other end of the Corpus Juris.

Book Note, 5 Am. L. Rev. 340, 341 (1871).

Since we are concerned with restitution, we should note that, though the anonymous re- viewer couples deceit with estoppel in pais, he does not note their connection with the con- structive trust, another "sanction for the same duty."

In Anglo-Saxon times the law provided a fixed sum as compensation for the loss of life or

limb, though the amount varied with the social class of the victim. The claimant had to show

214 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

The separate subject known as `restitution' was not invented until the second quarter of this century. There was no accepted name for the various forms of relief that we today lump together under that label before the publication of the Restatement of Restitution in 1937.

But this `new' subject differed

radically from contracts and torts in that it was often treated as a part of the law of remedies and was considered to be somehow peripheral to the private law, that is, peripheral to contracts and torts.

This new subject of restitution was seen as combining several older sub- jects: Quasi-Contracts, Constructive Trusts, and, to a lesser extent, the law of Subrogation. What supposedly held these three subjects together was the fact that they were used as remedies to enforce the substantive law of Unjust Enrichment. Thus most writing on restitution is limited to cases which ar- guably involve unjust enrichment; the cases involving replevin, ejectment, debt, and similar remedies used to secure property interests or other entitlements are completely ignored or only mentioned in passing.

A more reasonable, but still incomplete,

division of the private law would

be to distinguish between actions for damages caused by a wrong committed by the defendant, be the wrong a tort or a breach of contract, on the one hand, and, on the other, restitutionary actions based on the plaintiff's right, whether that right is based on a pre"existing property right (or other entitlement) or on the prevention of unjust enrichment.

This book is based on such an--admittedly unfashionable--division. Being about restitution, it, of course, focuses on cases involving restitution, rather than damage cases. In the first part of this Chapter we considered various remedies which typically involve the restitution of entitlements which the plain- tiffs claimed as of right, on a theory of property or of debt; but in the latter

that the loss was caused by the "defendant", but did not have to prove any fault. I cannot help but think that this is very similar to modern workers compensation plans and similar no-fault schemes that have been proposed to replace much of the law of personal injury that has grown like a kudzu vine out the actions on the case for negligence and for professional malpractice. (It is perhaps worth reminding ourselves here that actions on the case for malpractice were also one of the springs from which the action of special assumpsit arose.)

"The term `restitution' appears in early decisions, but generally recognition probably

began with the publication of the Restatement of Restitution." F. Lawson and H. Teff, Remedies of English Law 4 (2d. ed., 1980). "There can be little doubt that the impetus towards . . . recognition of the expression `restitution' came from the United States, particu- larly because of the compilation of the Restatement of Law." G. Fridman and J. McLeod, Restitution 5 (1982). At the time the first Restatement of Restitution was published the Library of Congress could catalogue it only under the subject headings of "Quasi contracts," "Trusts and trustees," "Unjust enrichment," and "Equitable remedies"; restitution was not a recognized subject.

This ignores the `preventative' relief afforded by many injunctions, especially those against

the commission of continuing torts, and various forms of equitable liability imposed on trustees and other fiduciaries. Both of these matters are within the equitable jurisdiction of the court of chancery. Perhaps the former can be analogized to actions to restore an entitlement, since arguably they preserve entitlements, while the later can be analogized to torts. It is probably safest, however, simply to recognize that the division given in the text is incomplete (and that one can never hope to have a complete and unambiguous taxonomy of the law).

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 215 part our concern to a large extent has been with so-called Quasi-Contractual actions in General (aka Indebitatus) Assumpsit, and Quasi-Contractual actions are typically--but not solely--brought on a theory of unjust enrichment.

Quasi-Contract was recognized as a separate subject at least as early as 1893 when William A. Keener published his treatise on that subject. Keener's treatise, however, was not very much like modern treatises on Torts or Contracts since it was very much in the traditional pattern, concentrating primarily on a a particular form of action, rather than on a broad area of substantive law.

The form of action, of course, was Indebitatus Assumpsit.

1.18.2 Keener on Quasi-Contract It is instructive to examine the introductory material to Keener's treatise:

C H A P T E R I. NATURE AND SCOPE OF THE OBLIGATION It is usual to divide Contracts into three classes,--

1. Simple Contracts. 2. Contracts under Seal. 3. Contracts of Record.

Where this classification is made, Simple Contracts are subdi- vided into--

1. Express Contracts. 2. Contracts implied in Fact. 3. Contracts implied in Law.

In this classification of Contracts, obligations of a quasi- contractual nature are treated either as Simple Contracts or as Con- tracts of Record.

This treatment of Quasi-Contracts is, in the opinion of the writer, not only unscientific, and therefore theoretically wrong, but is also destructive of clear thinking, and therefore vicious in practice.

It needs no argument to establish the proposition that it is not scientific to treat as one and the same thing, an obligation that exists in every case because of the assent of the defendant,

and an

obligation that not only does not depend in any case upon his assent, but in many cases exists not withstanding his dissent.

And yet with

In particular, Keener was not writing primarily about the substantive law of unjust en-

richment, though many of the actions that he discusses can be explained on that qround.

This obligation, of course, is the obligation of contracts. [pdj]

This second type of obligation is that of quasi-contracts. [pdj]

216 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

this wide difference between simple contracts and quasi-contracts, the latter are generally treated to-day as a species of simple contract.

Equally objectionable in principle, though perhaps not so mis- leading in practice, is the classification of such quasi-contracts as cannot by any possibility be treated as simple contracts, as con- tracts of record.

A true contract, whether it be a simple contract, a specialty,

contract in the nature of a specialty, or a contract of record, exists as an obligation, because the contracting party has willed,

in cir-

cumstances to which the law attaches the sanction of an obligation, that he shall be bound. Had he not so willed, he would not be under a contractual obligation. This statement is as true of a contract im- plied in fact as of an express contract. Indeed, the division of Simple Contracts into "express contracts" and "contracts implied in fact" does not involve a consideration of the principles of contracts at all.

. . . . The difference between the cases is a difference simply in the kind of evidence used to establish the contract. In the one case the language of contract is in terms used, and because of the expressions used, the contract is called an express contract; whereas in the other case the contract is established by the conduct of the parties, viewed in the light of surrounding circumstances, and is called a contract implied in fact.

The terms, "express contracts" and "contracts implied in fact," are used then to indicate, not a distinction in the principles of con- tract, but a difference in the character of the evidence by which a simple contract is proved. The source of the obligation in each such case is the intention of the parties.

The term "contract implied in law" is used, however, to denote, not the nature of the evidence by which the claim of the plaintiff is to be established, but the source of the obligation itself. It is a term used to cover a class of obligations where the law, through the defendant did not intend to assume an obligation, imposes an obligation upon him, notwithstanding the absence of intention on his part, and in many cases in spite of his actual dissent.

The identity in principle of express contracts and contracts im- plied in fact, and the distinction between a genuine contract, whether express or implied in fact, and a quasi-contract, commonly called a contract implied in law, is thus stated by Maine in his "Ancient Law"

"That part of Roman law which has had most extensive 3

An obligation evidenced by a writing under seal. [pdj]

Or, at least, consented. [pdj]

3d Am. Ed. 332. [footnote by Keener]

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 217

influence on foreign subjects of inquiry has been the law of Obligation, or, what comes nearly to the same thing, of Contract and Delict.

The Romans themselves were not

unaware of the oAEces which the copious and malleable terminology belonging to this part of their system might be made to discharge, and this is proved by their employ- ment of the peculiar adjective quasi in such expressions as Quasi-Contract and Quasi-Delict. `Quasi,' so used, is exclusively a term of classification. It has been usual with English critics to identify the quasi-contracts with implied contracts; but this is an error, for implied contracts are true contracts, which quasi-contracts are not. In implied contracts, acts and circumstances are the symbols of the same ingredients which are symbolized, in express con- tracts, by words; and whether a man employs one set of symbols or the other must be a matter of indifference so far as concerns the theory of agreement. But a quasi-contract is not a contract at all. The commonest sample of the class is the relation subsisting between two persons, one of whom has paid money to the other through mistake. The law, consulting the interests of morality, imposes an obli- gation on the receiver to refund; but the very nature of the transaction indicates that it is not a contract, inasmuch as the convention,

the most essential ingredient of contract,

is wanting. This word `quasi,' prefixed to a term of Ro- man law, implies that the conception to which it serves as an index is connected with the conception with which the comparison is instituted by a strong superficial analogy or resemblance. It does not denote that the two conceptions are the same, or that they belong to the same genus. On the contrary, it negatives the notion of an identity between them; but it points out that they are suAEciently similar for one to be classed as the sequel to the other, and that the phraseology taken from one department of law may be transferred to the other, and employed without violent straining, in the statement of rules which would otherwise be imperfectly expressed."

This suggests--I fear correctly--that the modern academic division of the law into Con-

tracts and Torts (Delicts) is a consequence of a misapplication of Romanesque concepts to our distinctively non-Roman law. [pdj]

This word is here being used in its Roman law sense of `an agreement or pact.' [pdj]

W.A. Keener, A Treatise on the Law of Quasi-Contracts 3-6 (1893) (hereinafter

"Keener").

218 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

Keener continues for an additional six pages giving horrible examples of the confusion between contracts and quasi-contracts. And then he goes on to say:

The question naturally arises, why a classification productive of so much confusion was ever adopted. The answer to this question is to be sought, not in the substantive law, but in the law of remedies.

The only forms of action known to the common law were actions of tort and contract.

If the wrong

complained of would not sustain

an action, either in contract or tort, then the plaintiff was without redress, unless the facts would support a bill in equity.

Although from time to time the judicial view of substantive rights broadened under the leavening effect of equity and other considera- tions, the broadening process did not lead to the creation of reme- dies sounding in neither contract nor tort.

The judges attempted,

however, by means of fictions, to adapt the old remedies to the new rights, with the result usually following the attempt to put new wine into old bottles. Thus, largely through the action of assumpsit, that portion of the law of quasi-contract usually considered under the head of simple contracts, was introduced into our law.

In the action of assumpsit, as the word assumpsit implies, whether it be special or indebitatus assumpsit, a promise must al- ways be alleged, and at one time it was an allegation which had to be proved. It was only natural, therefore, that the courts in using a purely contractual remedy to give relief in a class of cases possessing none of the elements of contract, should have resorted to fictions to justify such a course. This was done in the extension of assumpsit to quasi-contract; and the insuperable diAEculty of proving a promise where none existed was met by the statement that "the law im- plied a promise." The statement that the law imposes the obligation would not have met the diAEculties of the situation, since the action of assumpsit presupposed the existence of a promise. The fiction of a promise was adopted then in this class of cases solely that the remedy of assumpsit might be used to cover a class of cases where, in fact, there was no promise.

This, of course, is an example--at once ridiculous and horrible--of the confusion engen-

dered by ignoring the existence of the praecipe actions. Keener, of course, knew that they existed; it was just that he had been brain-washed into thinking that somehow or other they were contractual, even though he knew better.

Note that Keener seems incapable of conceiving of an action based on a right, where no

wrong is alleged.

Do remedies ever sound in contract or tort or any other branch of the substantive law?

It seems to me the fact that the remedy of damages is the typical legal remedy for both tort and breach of contracts suggests that remedies can be quite detached from the `nature' of the substantive action.

Note that the fiction was necessary only if the plaintiff wanted to bring indebitatus as-

sumpsit; there was nothing in the writ of debt that required the allegation of a promise (or

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 219

It might be asked: Why did the court extend to this class of obligations the remedies peculiar to contracts rather than the reme- dies peculiar to tort? The right conferred in quasi-contract, and the right, the violation of which constitutes a tort, undoubtedly possess this common characteristic,--that the obligation is imposed by oper- ation of law, regardless of the consent of the defendant. But treating a tort as the violation of a right in rem,

the obligations differ in an

important particular; for while to avoid committing a tort, one need only forbear,

to discharge the obligation imposed by quasi-contract

one must act. It is true that the obligation imposed by a contract may be simply to forbear; but the obligation most generally assumed under a contract requires one to act, and therefore contract rather than tort would naturally suggest an analogy.

Another considera-

tion would also suggest the analogy of contract rather than of tort; not only in most cases where a quasi-contractual obligation has the defendant not acted in violation of a right in rem,

in consequence

assumpsit) and--as I have argued many times throughout these materials--the action of debt was not based on contract.

As we shall shortly see, Keener recognized that many actions in debt were not contractual-- he labels them quasi-contractual. Yet Keener was so brainwashed by the legal Zeitgeist of the late 19th century that he seems honestly to have believed that the only legal actions known to the common law were in tort or contract.

I am not quite sure what Keener means by `a right in rem'. Literally that means `a right

in a thing' or a `right in the thing'. But what does that mean in this context? (Perhaps Keener is thinking of a right in rem as being a right against the whole world, rather than a right only against a particular person, but if he is, I still do not understand why he uses the term at this point.)

Austin, Jurisprudence, Lect. XIV. [footnote by Keener, renumbered]

This citation to the high priest of legal positivism may explain the source of some of Keener's confusion. The idea expressed in the clause to which this footnote is aAExed, is the old notion, no longer accepted in fashionable legal circles, that non-feasance cannot amount to a tort, but can only be the basis for a contractual action in assumpsit.

Once again, this overlooks the fact that the remedy in both tort and breach of contract

actions is supposedly damages, while the remedy in quasi-contractual cases is normally seen as restitutionary. One can, however, argue that in contracts cases, even cases where the plaintiff sues for `breach of contract' in indebitatus assumpsit, the remedy--though called damages--is really restitutionary. Thus, for example, when the plaintiff is a party to a bilateral contract and has fully performed, the recovery of contract damages (in theory, at least) equals the value of the performance promised by the defendant and that can be analyzed as the recovery of an entitlement, as a case of value restitution; in other words, the remedy is not calculated on the basis of what the plaintiff lost, but rather on the basis of the plaintiff's entitlement to performance by the defendant.

Ah, now I think I understand what this `right in rem' business is all about. If someone

commits a tort against you--by, say, punching you in the nose--then he has violated a right which you have against everyone in the whole world, rather than a right which you only have against a particular person and would not have at all if that particular person had not granted you the right by contract. Rights against the whole world, as opposed to rights against individuals, are often called `in rem rights'.

Strangely enough, that usage of the term in rem is normally used to differentiate property rights from contract rights, not to distinguish the rights not to be victim of a tort from the

220 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

of which the law could impose an obligation; but in many cases he has either not acted at all,--as, for example, where an absent hus- band, who is ignorant of the death of his wife, is obliged to reimburse one who has defrayed the expenses attend upon her burial,

or, if he

has acted, has acted with the consent, and perhaps the co-operation, of the plaintiff, as, for example, where a defendant is obliged to re- fund money which he has received from the plaintiff,

both parties

acting under a misapprehension.

Perhaps it is unwise to introduce you to Keener's analysis of quasi-contrac- tual actions, since in some respects he seems quite confused. But Keener is the inventor of the subject of quasi-contract as a separate legal category and thus may lay claim to the discovery of the law of restitution and unjust enrichment, just as Christopher Columbus Langdell can lay claim to the discovery of the law of contract.

If Keener is confused on some peripheral issues, he clearly grasps the major point: AN ACTION IN QUASI-CONTRACT IS NOT AN ACTION IN CON- TRACT, or, to put the point more bluntly, whatever--if anything--a `quasi- contract' may be, A QUASI-CONTRACT IS NOT A CONTRACT, whatever definition of `contract' one may be using.

Where Keener is confused it appears to be the result of his rigidly ahis- torical approach to his subject. Keener clearly `knew' that the old action of debt was used in cases that he classifies as quasi-contractual,

but he was so

caught up with the late nineteenth century idea that all of the private law is

rights created by contracts. If you own the horse Dobbin, then your rights in Dobbin are rights in rem, rights against the whole world, but if I contract to buy Dobbin from you, then--unless one considers the contract to be a sale, i.e., a conveyance--my rights to Dobbin are rights only against you, in personam, and I have no rights against anyone else in the world, no rights in rem.

That is a classic example of a quasi-contractual action. The undertaker would sue in

indebitatus assumpsit for the amount merited (quantum meruit) for his work, labor, and services and also for the amount of the value (quantum valebant) of the goods sold and delivered, that is to say, the value of the coAEn.

This, of course, is an example of an action in indebitatus assumpsit for money had and

received. The typical case--and the one that Keener cites--is an action for money paid to the defendant (or to a third person for the benefit of the defendant) by mistake. We have already seen an untypical example of such an action for money had and received: Moses v. Macferlan.

Keener 14-16.

Before he published his treatise on quasi-contract, Keener published a casebook on that

subject. The first case in that casebook is: Speake v. Richards, Hobart 206 (Common Pleas, 1618), in which the plaintiff brought an action of debt--not indebitatus assumpsit--for "five hundred and twenty-three pounds and seventeen shillings" which were allegedly owed by the defendant upon a "recognizance in chancery"--roughly, a judgment by confession.

The facts in Speake are not important, but the resolution of the issue in that case clearly shows that an action in debt can be at least as quasi-contractual as one in indebitatus as- sumpsit:

The first question in this case was, whether the action of debt would lie,

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 221 divided into tort and contracts that he tried to `shoehorn' the old restitutionary action of debt into the only categories that his legal metaphysics was capable of recognizing.

Once Keener abandons his philosophical preconceptions, he does an excellent job of categorizing the various types of quasi-contracts:

Quasi-contracts may be said in general to be founded,--

1. Upon a record. 2. Upon a statutory, or oAEcial, or customary duty. 3. Upon the doctrine that no one shall be allowed to enrich himself unjustly at the expense of another.

The obligation created by a judgment which . . . is unfortunately styled in our law a contract of record, resting, not upon the agree- ment of the parties, but regardless thereof, is a quasi-contractual, and not a contractual, obligation. In Louisiana v. New Orleans,

Mr. Justice Field, delivering the opinion of the court, in support of the decision that a judgment was not a contract within the meaning of that word as used in the clause of the Constitution forbidding the enactment by a State of a law impairing the obligation of a contract said:--

"A judgment for damages, estimated in money, is some- times called by text-writers a specialty or contract of record, because it establishes a legal obligation to pay the amount recovered; and by a fiction of law a promise to pay is implied where such legal obligation exists. It is on the principle that an action ex contractu lies upon a judgment.

because there was no contract between the plaintiff and the sheriff. But that was resolved by the court that it would lie; for though there were no actual contract yet there was a kind of contract in law, so it is ex quasi contractu. And therefore upon damages recovered in an action of trespass, the plaintiff shall have an action of debt . . . .

1 W.A. Keener, A Selection of Cases on the Law of Quasi-Contracts 1 (1888).

In other words, debt lies to collect a judgment and Keener was perfectly aware (as was the Court of Common Pleas in Speake) that a judgment--and certainly a judgment issued for damages in a trespass action--is not a contract.

Note that Keener is careful to speak of quasi-contracts, rather than of actions in indeb-

itatus assumpsit. Although many actions in indebitatus assumpsit are founded on quasi- contractual claims, indebitatus assumpsit can also be brought in cases where Keener, and most other authorities, would say that there really was a contract. Moses v. Macferlan may be one of those cases: Moses sued in indebitatus assumpsit and Lord Mansfield decided the case on equitable principles, but the fact remains that the only reason that Macferlan was held liable was because he had made an express contract with Moses in which he agreed that he would save Moses safe from any liability on the endorsement of the notes made by Chapman Jacob.

109 U.S. 285. [footnote by Keener, renumbered]

222 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

But this fiction cannot convert a transaction wanting the consent of parties into one which necessarily implies it."

A statutory obligation which does not rest upon the consent of the parties, is clearly quasi-contractual in its nature. In Steamboat Co. v. Joliffe,

Mr. Justice Field, in discussing the nature of the claim

for half-pilotage fees under a statute allowing such fees, where a pilot's services are offered and declined, thus distinguishes between a contract liability and a liability imposed by statute:--

"The transaction in this latter case, between the pilot and the master or owners, cannot be strictly termed a contract, but it is a transaction to which the law attaches similar consequences; it is a quasi-contract. The absence of assent on the part of the master or owner of the vessel does not change the case. In that large class of transactions designated in the law as implied contracts, the assent or convention which is an essential ingredient of an actual contract is often wanting. . . .

"The claim of the plaintiff below for half-pilotage fees resting upon a transaction regarded by the law as a quasi- contract, there is no just ground for the position that it fell with the repeal of the statute under which the transaction was had."

In Inhabitants of Milford v. Commonwealth,

the court, dis-

cussing the nature of the plaintiff's claim for the support of a pauper under a statute imposing upon the Commonwealth an obligation to reimburse the plaintiff for the expenses so incurred, recognizes the distinction between a contract liability and a liability imposed by statute, in the following language:--

"The law regards the money as expended at the implied re- quest of the defendant, and a promise to pay the money is said to be implied from the liability created by the statute. A contract may be expressly made, or a contract may be inferred or implied when it is found that there is an agree- ment of the parties and an intention to create a contract, although that intention has not been expressed in terms of contract; in either case there is an actual contract. But a contract is sometimes said to be implied when there is no intention to create a contract, and no agreement of parties; but the law has imposed an obligation arising ex

2 Wall. 450. [footnote by Keener, renumbered]

144 Mass. 64. [footnote by Keener, renumbered]

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 223

contractu. In such a case there is not a contract, and the obligation arises ex lege."

Of a quasi-contractual nature, it is submitted, is the duty of a carrier, founded upon the custom of the realm to receive and to carry safely. That the liability is such cases arises, not from contract, but from duty, is clear. While it is true that the liability is ordinarily described as one in tort, it is submitted that it has been so described because of the usual classification of legal rights into contracts and torts, and that since the obligation imposed upon the carrier is to act, the obligation is really quasi-contractual in its nature, and not in the nature of a tort. If this be the proper classification of the duties imposed by law upon a carrier, it must necessarily be true of the common law liability of an innkeeper to receive guests, or to keep their goods safely. . . .

Of this nature also, it is submitted, is the obligation of a sher- iff to levy execution and pay the proceeds thereof to a judgment creditor.

And then Keener comes--finally!--to the third and most important cate- gory of quasi-contract, where the obligation is based on the theory of `unjust enrichment.'

By far the most important and most numerous illustrations of the scope of quasi-contract are found in those cases where the plaintiff's right to recover rests upon the doctrine that a man shall not be allowed to enrich himself unjustly at the expense of another.

As the question to be determined is not the defendant's intention, but what in equity and good conscience the defendant ought to do, the liability, while enforced in the action of assumpsit, is plainly of a quasi-contractual, and not contractual nature.

It is on the theory of quasi-contract, founded on the doctrine of unjust enrichment, that an insane man, known to be insane by the

Ex lege means `by operation of law.' So-called contracts arising by operation of law are

quasi-contracts, not contracts.

I agree with Keener that the liability of common carriers and innkeepers does not arise

from any contract and that it is therefore proper to classify that liability as quasi-contractual, if one needs to classify it at all. I also sympathize with Keener's obvious doubt as to whether this classification is acceptable; as I see it, the problem is that the liability of a common carrier or an innkeeper is typically enforced by an action for damages, rather than for restitution.

This indicates that actions based on quasi-contract are sometimes not restitutionary. There should be nothing surprising about that. Many actions based on tort--`all those in which the plaintiff waives the tort and sues in assumpsit'--result in restitutionary recoveries rather than damages. Many cases based on breach of contract result in restitutionary recoveries rather than damages. There is nothing shocking, therefore, about actions based on quasi-contract resulting in damages rather than restitutionary recoveries.

Keener 16-19.

224 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

party furnishing necessaries, is held liable therefor. That such is the nature of the liability is evident, not only from the fact that he has no contracting mind, but also from the fact that he is equally liable for necessaries furnished at a time when there was no attempt on his part to contract.

The nature of the obligation incurred by a lunatic for necessaries was thus stated by Lord Justice Cotton, in Rhodes v. Rhodes:

"Now the term `implied contract' is a most unfortu- nate expression, because there cannot be a contract by a lunatic. But whenever necessaries are supplied to a per- son who by reason of disability cannot himself contract, the law implies an obligation on the part of such person to pay for such necessaries out of his own property. It is asked, Can there be an implied contract by a person who cannot himself contract in express terms? The answer is, that what the law implies on the part of such a person is an obligation, which has been improperly termed a contract, to repay money spent in supplying necessaries."

Of a quasi-contractual nature also, is the obligation of an infant to pay for necessaries. It is usually stated that an infant is bound by his contract for necessaries. But if, as is held in many jurisdictions, the infant is bound to pay for necessaries, not the contract price, but the reasonable value thereof, it would seem clear that he is not liable on his contract. By the terms of his contract he is required to pay a stated sum, and not the reasonable value for necessaries furnished. If he is bound by his contract to pay for necessaries, then of course he should be liable in damages for having, in violation of his contract, refused to pay therefor; and if liable in damages, the amount of the plaintiff's recovery would be determined, not by the reasonable value of the necessaries, but by the price agreed upon,--since had the infant performed his contract, the plaintiff would have received that amount of money.

When, therefore, the infant is required

to pay, not the stated price, but simply the reasonable value of the necessaries, the obligation differs from that which he assumed; and

44 Ch. D. 94, 105. [footnote by Keener, renumbered]

This nicely illustrates the distinction between contract damages (which are based on the

agreed price) and value restitution (which is based on the reasonable value of the benefit received by the defendant). It should be noted however that the recovery of the agreed price, even if it is called `contract damages,' is actually the recovery of an entitlement (viz., the contract price) and thus can be seen as being restitutionary. Historically the action for the sales price of the necessaries would have been in debt, one of the praecipe, restitutionary actions; see the case discussed infra in Note 35 of this section.

By the way, in the rare case where the contract price is less than the reasonable value, the infant (or lunatic) will almost certainly be required to pay only the (lower) price, even if the action is quasi-contractual rather than on the contract.

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 225

though the result reached, as to the amount of the recovery, by a plaintiff in any given case, may be the same as would have been reached had the recovery been had on the theory of the plaintiff's being entitled to the price agreed upon, yet such a result is purely accidental. . . .

. . . . Such also, it is submitted, is the nature of the liability of a hus- band for necessaries furnished a wife whom he has wrongfully re- fused to support, where the circumstances do not justify the party supplying the necessaries in supposing that the husband in fact au- thorized the wife to pledge his credit. In such cases it is settled that one furnishing necessaries can recover against the husband therefor, notwithstanding his knowledge at the time he furnished them that the husband did not intend to pay therefor. It is usually stated that the wife, in such circumstances, is authorized to pledge the credit of the husband. Since, however, the husband may be liable for necessaries furnished even though the wife made no attempt to pledge his credit,--as, for example, for necessaries furnished a de- serted wife while she is unconscious; and since, furthermore, the husband is held liable for necessaries furnished a wife while he is incapable of contracting,--as where necessaries are furnished a wife while the husband is insane,--the better form of statement would seem to be that an obligation is imposed by law upon the husband to pay for necessaries furnished in such circumstances. That such is the nature of the liability was recognized in Cunningham v. Rear- don,

where Hoar, J., delivering the opinion holding the husband

liable for necessaries furnished a wife, said:--

"The husband, who by his cruelty, compels his wife to leave him, is considered by the law as giving her thereby a credit to procure necessaries on his account; and is re- sponsible to any person who may furnish her with them. This responsibility extends not only to supplies furnished her while living, but to decent burial when dead. Its ori- gin is not merely and strictly from the law making her his agent to procure the articles of which she stands in need. If it were so, the consequence would follow for which the defendant contends, that the agency would end with the life of the agent. But it is rather an authority to do for him what law and duty require him to do, and which he neglects or refuses to do for himself; and it is applicable as well to supplies furnished to the wife when she is sick, insensible, or insane, and the care of her lifeless remains,

98 Mass. 538. [footnote by Keener, renumbered]

226 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

as to contracts expressly made by her."

On this ground must also be put the obligation of a father, where such obligation is imposed by law, to pay for necessaries furnished a child whom he has refused to support.

That the right to recover money paid under mistake

rests upon

a quasi-contractual obligation is a self-evident proposition, when it is remembered that in the typical cases where money is recovered as paid under mistake, and the mind of the plaintiff as well as the mind of the defendant was directed, not to the creation of, but the discharge of the obligation.

That quasi-contract is the basis of liability where a plaintiff is allowed to sue a tort-feasor in assumpsit

is equally clear, since it

is the want of assent on the part of the plaintiff that renders the defendant's act tortious. For example: A takes B's horse, believing him to be his own, and sells it. B can recover from A, in a count for money had and received, the proceeds of the sale. To speak of a contract in such a case is simply to deceive one's self by a form of words.

Quasi-contractual, of necessity, is the nature of the obligation of the defendant, where a liability exists to compensate the plaintiff for benefits received under a contract which the plaintiff cannot enforce because he has failed to comply with the conditions thereof.

When it is for any reason conceded--e.g. illegality, the statute of frauds, impossibility of performance--that a defendant is not li- able to a plaintiff for a failure to perform a contract made with the plaintiff, and yet it is held that he is liable in assumpsit, or other contractual remedy, for benefits conferred by the plaintiff under the

The theory of holding a husband liable in quasi-contract to prevent an unjust enrichment,

where the facts will not warrant the inference of a contract, is of very early origin in our law. An illustration of this is found in case V. of Jenkins' Century Cases, p. 4, reported as follows:--

"The Wife of A receives $ 10 to the Use of A. and this comes to the Use of her Husband in a convenient or necessary Way; altho' the Husband did not command it, nor consent afterwards, he is liable to this Debt, and the Count shall be of a Receipt by the Hands of the Husband. Such manner of Count will serve in Debt in this Case. The Reason is, the Wife's Contract is void; and it ought not to be alleged in the Count, but the Count ought to be as above. Nemo debet locupletari ex alterius incommodo." [footnote by Keener, renumbered]

[That last Latin phrase means, roughly, that `no one ought to profit by another's loss.' The quoted case was decided in the 34th year of the reign of King Edward I, which was a short year, running from Nov. 20, 1306 to July 8, 1307, when Edward I. died. --pdj]

This is one of the most common types of cases in which restitution is granted on the

ground of unjust enrichment.

This is another of the common types of cases in which restitution is granted on the ground

of unjust enrichment.

This is one of the many types of cases where a restitutionary remedy is available to a

party to a contract. The next two paragraphs give other examples.

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 227

contract, such liability is necessarily quasi-contractual, and rests on the doctrine of unjust enrichment.

Of this character also is the liability of a defendant for benefits received, which, though requested by him, were not conferred under a contract, because of some misunderstanding of the parties, or other reason, preventing the creation of a contract.

Where the benefit for which the plaintiff seeks a recovery was conferred without the assent of the defendant, there can, of course, be no contract, and unless the facts would establish a liability in tort, the plaintiff must proceed on the theory of quasi-contract.

Where one is compelled to indemnify, or contribute to the ex- penses of one with whom he has not consciously or voluntarily had any dealing, the elements of a contract are necessarily wanting, and the basis of the liability is that in equity and good conscience he should either assume or share a burden which was borne by the plaintiff.

Where money is paid to another, who demands it as his right, or as a condition of allowing the plaintiff to exercise a right, it may well be, and is in many instances, held that the money so paid can be recovered; but to speak of an implied contract in such a case is idle, if anything more is meant than that the obligation is imposed by law, and is therefore a quasi-contract. The statement shows the absence of assent on the part of the defendant, and therefore the absence of a contract.

And there Keener has supplied us with a listing of many of the types of cases that can be brought on the theory of unjust enrichment in a quasi-contractual action in indebitatus assumpsit (or possibly, in ancient times, in debt).

But Keener has not afforded us a good explanation of the development of the action of assumpsit, and especially of indebitatus assumpsit. Keener is too much the academic, attempting to `shoehorn'

cases into preconceived categories to

be concerned with the way in which the law actually evolved.

Before we examine the evolution of indebitatus assumpsit as a restitutionary remedy out of assumpsit, which started as an action for damages for misfeasance

Keener 16-25.

The word is Stephen Jay Gould's, used repeatedly in his book Wonderful Life: The

Burgess Shale and the Nature of History (1989) to describe what happens to historical data in the hands of one who has preconceived ideas. But, of course, we all do have precon- ceived ideas and I am undoubtedly doing a fair amount of `shoehorning' myself. In Keener's defense--and mine--I should point out that each of us is primarily concerned with a different problem: Keener with the law of quasi-contractual obligations, I with the law of restitution- ary remedies. Though the typical remedy associated with quasi-contractual obligations is, as a matter of contingent fact, restitutionary, there is no necessary correlation between those obligations and restitution; the quasi-contractual obligations of an innkeeper may, after all, be enforced by an action for damages. Furthermore restitutionary remedies are available in many cases where no one would speak of quasi-contract: e.g., ejectment, replevin, and many cases involving constructive trusts.

228 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW and became--in its better known form (special assumpsit)--an action for dam- ages for breach of contract, it would be well to focus for a moment on the evolution of the remedy of damages itself.

As we have seen, the earliest civil

remedies--replevin and the praecipe

actions--were restitutionary in the sense that the plaintiff sued to get an en- titlement, something that was already his, either something that he owned or something that he was owned. But nothing in the law is ever quite that sim- ple: we have seen that, in the excerpts from Stephens in the later years of the writ system, the plaintiff in the action of covenant recovered something called `damages' and that in detinue the plaintiff would also recover such `damages' in the case where the defendant would not or could not return the detained goods. These so-called `damages', however, differ radically from the paradig- matic damages that are associated with actions in trespass or on the case; the award of such `damages' amounts to the award to the plaintiff, not of his claimed entitlement, but of the value of that entitlement. In short, such `damages' are not damages at all; they are early examples of what has become known in this century as `value restitution.'

True damages, which were not available in the common law courts until the development of trespass, and the later development of case, differ radically in theory, if not always in amount, from value restitution. True damages were first awarded in cases where the defendant had harmed the plaintiff, but had nothing (and never had had anything) that the plaintiff could claim as his own. To flesh out that statement, assume that the plaintiff bases his claim on the fact that the defendant punched the plaintiff in the nose. The plaintiff has been harmed, has suffered damages, but there is nothing that the defendant acquired by his punch that could be restored to the plaintiff--nor is there any possibility of value restitution, for the amount of the value (of the nothing) acquired by the defendant is obviously zero.

On the other hand, though to admit it may confuse the issue, there were many cases in which the damages recoverable in an action of trespass or case equaled (or included) the amounts that would have been recovered using (value

restitution. Thus, for example, in the case of trespass d.b.a.,

the plaintiff's

damage is the value of the lost goods while the defendant gains the same goods (and their value). In such a case the damages recoverable in a trespass action will be identical to the value restitution that would be recoverable in, say, an action of detinue in which the defendant refused (or was unable) to return the

Appeal, for these purposes, is best considered as part of the criminal law.

Since the damages awarded in an action of trespass or case were always awarded as a

judgment for money, any equation of damages and restitution must assume that the restitution is of the monetary value of the res rather than of the specific res itself. Of course, in the case where the res is money, one cannot profitably distinguish between the res and its monetary value: the monetary value of ten dollars is ten dollars.

Trespass de bonis asportatis, i.e., trespass `of goods carried off'.

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 229 goods.

It should be noted, however, that if the trespasser broke a window

in order to be able to carry off the goods, the damages in a trespass action would include not only the lost value of the goods but also the lost value of the window; in such a case, the plaintiff would recover more in trespass than in a restitutionary action like detinue.

We have already seen the distinction between `damages' and `value resti- tution' in Hambly v. Trott,

where Mr. Buller argued for the plaintiff that

"Trover is not like trespass . . . . It is founded solely in property: And the value of the goods only can be recovered." And--though the plaintiff lost because conversion is formally a tort--Lord Mansfield agreed with Mr. Buller on this point, saying: "An action of trover is not now an action ex maleficio, though it is so in form; but it is founded in property. If the goods of one person come to another, the person who converts them is answerable. In substance, trover is an action of property. If a man receives the property of another, his fortune ought to answer for it." The phrase `an action of property' is, of course, the equiva- lent, of `an action to recover an entitlement' or, more briefly, `a restitutionary action'. Since actions of trover and conversion were brought primarily to get around the limitations of the old praecipe action of detinue,

it is not surprising

that Lord Mansfield treated both actions as being `of property'. If Hambly had been able to sue the actual converter, rather than his administrator, in conver- sion he would have recovered the value of the converted goods, of his goods, of his entitlement.

But Hambly is a case in which the only possible restitutionary recovery was value restitution. To see the distinction between such restitution, on the one hand, and trespass-like damages on the other, we should look to Welch v.

For our immediate purposes there is no need to decide whether detinue would actually

have been available against the defendant who acquired the detained goods by a trespass. The point is a nice one, but for now just assume that detinue was, in fact, available in such a case.

Supra section 1.12.1.

The close functional relation between the quite modern action of conversion (based on

a fictional finding, the trover) and the ancient action of detinue is shown by the fact that, though most actions in detinue were sur bailment--i.e., based on a bailment of the detained goods to the defendant--it was also possible for the plaintiff to sue in detinue sur trover in which it was alleged, not that the defendant was a bailee, but that he had found the goods, an allegation identical to the initial allegations in an action of trover and conversion. See 3 W.S. Holdsworth, A History of English Law 324-27.

Holdsworth recognizes that, since the defendant in an action of detinue can always pay the value of the detained goods rather than returning them, the remedies in trespass d.b.a. and detinue were functional equivalents.

If the property was taken from the owner without felonious intent he could bring trespass against the taker. As against third persons into whose hands the property had come he could bring detinue . . . in trover. But by bringing these personal actions he could only get damages. The owner of goods has a real right; but it can only be enforced in a personal action for damages.

Id. at 327-28. The damages recoverable in either type of action were, of course, actually value restitution.

230 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW Kosasky,

where, as you will recall, the plaintiff had--before the commence-

ment of the action--succeeded in recovering the converted goods. Since the plaintiffs had already recovered all that could be recovered in a restitutionary action, the damages that they sought, and obtained, were trespass-like dam- ages, not value restitution:

$10,000 for loss of use of the silver, $22,000 for

diminution of value of the casters,

and $5,000 in consequential damages.

Now that we can distinguish with fair certainty between traditional damages and value restitution, we are prepared to deal with the development of the action of assumpsit.

1.18.3 Ames on the Evolution of Assumpsit The best historical study of the development of assumpsit is undoubtedly a pair of articles by James Barr Ames that appeared in the second volume of the Harvard Law Review and were later reprinted in a collection of his legal essays.

The sketch that is given here is drawn almost exclusively from those essays and to a large extent Ames's own words will be used.

1.18.3.1 Ames on Express Assumpsit Ames distinguishes between `express assumpsit' and `implied assumpsit'; the former being the first to evolve. According to his scheme, express assumpsit was an outgrowth of four different lines of cases:

actions on the case brought

Supra Section 1.9.1.

There was one possible restitutionary action left to the plaintiffs after the converted silver

was returned: an action for the value of the use of the silver while it was in the defendant's possession. The court, however, did not award any damages on such a restitutionary theory-- and the plaintiff did not apparently seek such an award; instead the plaintiffs were awarded actual damages for their loss of the use of the silver.

It is interesting to note that those actual damages awarded for loss of use of the silver amounted to only $10,000. If the court had instead awarded either damages for the loss of the use of the value of the silver or restitution for the use of the value of the silver by allowing the plaintiff simple interest on the value of the silver at 6 per cent a year for eight years, the plaintiff would have recovered--assuming that the value of the silver was only $40,000, which was less than its cost to the plaintiffs--$19,200.

The major issue in the case, of course, was whether this diminution of value could be

recovered as damages. The only basis that I can see for this recovery is to hold that causing the diminution of value amounted to a new tort, either a new conversion or something analogous to waste.

Consequential damages are almost always trespasslike damages rather than disguised value

restitution. They are called consequential because they are part of the consequences of the defendant's wrong; they are not something that the defendant has received and has been compelled to return to the plaintiff.

James Barr Ames, Lectures on Legal History (1913) (hereinafter "Ames").

One problem that afflicts an evolutionary analysis--a Darwinian analysis if you like--of

the forms of action, and of other critters in the legal jungle, is that new actions not only split off from their ancestral lines but sometimes come into being by a merger of several distinct lineages.

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 231 against a defendant who undertook to do some action, but did it badly to the damage of the plaintiff; actions on the case brought against a bailee for negligent custody; actions of deceit against a vendor of a chattel upon a false warranty; and actions of deceit in which the defendant broke a promise on which the plaintiff had been induced to part with money or other property. In each of these four types of action the plaintiff alleged an undertaking, but in each the action was in tort in the sense that the plaintiff recovered trespasslike damages for injuries caused by a wrongful act committed by the defendant.

As to the first of these ancestral actions, Ames says:

The earliest cases [i.e., actions on the case] in which an assump- sit was laid in the declaration were cases against a ferryman who undertook to carry the plaintiff's horse over the river, but who over- loaded the boat, whereby the horse was drowned; against surgeons who undertook to cure the plaintiff or his animals, but who ad- ministered contrary medicines or otherwise unskilfully treated their patient; against a smith for laming a horse while shoeing it; against a barber who undertook to shave the beard of the plaintiff with a clean and wholesome razor, but who performed his work negligently and unskilfully to the great injury of the plaintiff's face; against a carpenter who undertook to build well and faithfully, but who built unskilfully.

In all these cases, it will be observed, the plaintiff sought to re- cover damages for a physical injury to his person or property caused by the active misconduct of the defendant. The statement of the assumpsit of the defendant was for centuries, it is true, deemed es- sential in the count.

But the actions were not originally, and are not

to-day, regarded as actions of contract. They have always sounded in tort.

Ames goes on to say of the second of these ancestral actions:

An express assumpsit was originally an essential part of the plain- tiff's case in another class of action, namely, actions on the case against bailees for negligence in the custody of the things intrusted to them.

This form of the action on the case originated later than

The assumpsit was essential in all these cases because the plaintiff had placed the damaged

chattels (or himself) in the hands of the defendant and had requested the defendant to do, more or less, what defendant ultimately did. Thus the defendant was not considered to have done anything wrong, unless he specifically undertook to do the job well.

Ames 130.

Another action on the case, trover and conversion, also evolved and replaced detinue--

as we have seen in Hambly v. Trott--in cases where the defendant converted the plaintiff's goods to the defendant's own use by buying them, selling them, eating, refusing to return them, etc. Negligent custody of bailed goods does not, however, amount to a conversion. Thus a misdelivery by the bailee--a delivery to the wrong person--of bailed goods, even if

232 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

the actions for active misconduct, which have been already consid- ered, but antedates, by some fifty years, the action of assumpsit. The normal remedy against a bailee was detinue. But there were strong reasons for the introduction of a concurrent remedy by an action on the case. The plaintiff in detinue might be defeated by the defendant's wager of law; if he had paid in advance for the safe cus- tody of his property, he could not recover in detinue his money, but only the value of the property; detinue could not be brought in the King's Bench by original writ, and the procedure generally was less satisfactory than that in case. It is not surprising, therefore, that the courts permitted bailors to sue in case. The innovation would seem to have come in as early as 1449. The plaintiff counted that he delivered to the defendant nine sacks of wool to keep; that the defendant, for six shillings paid to him by the plaintiff, assumed to keep them safely, and that for default of keeping they were taken and carried away. It was objected that detinue, and not case, was the remedy. One of the judges was of that opinion, but in the end the defendant abandoned his objection; and Statham adds this note: . . . "et credo

the reason of the action lying is because the defendant

had six shillings which he [plaintiff] could not recover in detinue."

The bailor's right to sue in case instead of detinue was recognized by implication in 1472, and was expressly stated a few years later.

The action against a bailee for negligent custody was looked upon, like the action against the surgeon or carpenter for active misconduct, as a tort, and not as a contract

. . . .

As to the third of the ancestral actions, Ames says:

There is much in common between the two classes of actions on the case already discussed and a third group of actions on the case, namely actions of deceit against the vendor of a chattel upon

done innocently, was--and still is--a conversion, while the bailee's negligently damaging the bailed goods is not a conversion, but an action may be brought `for a breach of the contract of bailment.' [pdj]

I.e., `and I believe'.

Nota bene, that an action to recover only the six shillings is one that we today would

classify as restitutionary: an action to recover money that had been paid to the defendant as consideration where there was a failure of the consideration that should have come from the defendant.

What does Ames mean by saying that the action was not looked upon as a contract? One

possible meaning is that the plaintiff was not suing for his expectancy damages, not suing for the value of the expected performance. For Ames, however, the chief point seems to have been that consideration was not required to make the bailee liable in such an action, that is, that the action would lie against a gratuitous bailee. Ames adds: "If there was, in truth, a consideration for the bailee's undertaking, the bailor might, of course, declare in contract, after special assumpsit was an established form of action." Ames at 133.

Ames at 132-33.

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 233

a false warranty. This form of action, like the others, is ancient, being older, by more than a century, than special assumpsit. The words super se assumpsit were not used, it is true, in a count upon a warranty; but the notion of undertaking was equally well conveyed by "warrantizando vendidit."

Notwithstanding the undertaking, this action also was, in its origin, a pure action of tort. . . . The action sounding in tort, the plaintiff, in order to charge the defendant, must show, in addition to his undertaking, some act by him, that is, a sale . . . . A contract, again, is, properly, a promise to act or forbear in the future.

But

the action under discussion must be, as Choke, J. said . . . upon a warranty of a thing present, and not of a thing to come. A vendor who gives a false warranty may be charged to-day, of course, in contract; but the conception of such a warranty, as a contract, is quite modern. . . .

We have seen that an express undertaking of the defendant was originally essential to the actions against surgeons or carpenters and bailees. The parallel between these actions and the action on a warranty holds true on this point also. A case in the Book of Assizes is commonly cited, it is true, to show that from very early times one who sold goods, knowing that he had no title to them, was liable in an action on the case for deceit. This may have been the law.

But,

this possible exception apart, a vendor was not answerable to the vendee for any defect of title or quality in the chattels sold, unless he had either given an express warranty, or was under a public duty, from the nature of his calling, to sell articles of a certain quality. A taverner or vintner was bound as such to sell wholesome food and drink. Their position was analogous to that of the smith, common carrier, and innkeeper.

I.e., `warranting he sold', or something like that. The phrase is, I swear, the ugliest bit

of dog Latin that I have ever seen. [pdj]

Note that by this definition--and it may be the definition that lurks in most people's minds

when they find themselves speaking of contracts--a simple sale, or any other conveyance of something in existence, is not a contract. In the case of the sale or other conveyance of an existing whichamadingus, there is no `undertaking' to sell or convey, there is simply a sale or conveyance.

Note also that at the time of a breach of an undertaking--except, perhaps, in the case of an anticipatory breach--the act or forbearance that the plaintiff claims is no longer due in the future; it is due at that time. This suggests that, at the time of breach, there is no sharp distinction between the case where the plaintiff seeks an entitlement that was conveyed to him and one where he seeks an entitlement that was to have been conveyed to him.

And it is the law today; the defendant's liability is said, however, to be based, not on

deceit, but on an `implied warranty of title', that is, by a warranty implied in law, which I suppose could be called, by someone with Keener's proclivities, a `quasi-warranty'. Note that even today there is no implied warranty of title in a conveyance of land, though there may, and often are, express warranties of title in such a transaction.

Ames, at 136-37.

234 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

The fourth--and most important--of assumpsit's ancestors was described by Ames as follows:

However much the actions against a surgeon or carpenter for mis- feasance, those against a bailee for negligent custody, and, above all, those against a vendor for a false warranty, may have contributed, indirectly, to the introduction of special assumpsit, there is yet a fourth class of cases which seem to have been more intimately con- nected with the development of the modern parol contract than any of those yet considered. These cases are also, like the actions for a false warranty, were actions on the case for deceit. . . .

. . . .

. . . . In the first of these cases the writ is given, and the reader will notice the striking resemblance between its phraseology and the later count in assumpsit. The defendant was to answer for that he, for a certain sum to be paid to him by the plaintiff, undertook to buy a manor of one J.B. for the plaintiff; but that he, by collusion between himself and one M.N., contriving cunningly to defraud the plaintiff, disclosed the latter's evidence, and falsely and fraudulently became of counsel with M.N., and brought the manor for M.N., to the damage of the plaintiff.

All the judges agreed that the count

was good. Babongton, C.J.: "If he discovers his counsel, and becomes counsel for another, now that is a deceit, for which I shall have an action on my case." Cotesmore, J.: "I say, that matter lying wholly in covenant may by matter ex post facto be converted into deceit. . . . When he becomes of counsel for another, that is a deceit, and changes all that was before only covenant, for which deceit he shall have an action on his case."

The act of the defendant did not affect, it is true, the person or physical property of the plaintiff. Still, it was hardly an extension of the familiar principle of misfeasance to regard the betrayal of the plaintiff's secrets as a tortious invasion of his rights. But the judges

Ames then, before discussing the last of the ancestral classes, described a few cases,

starting in 1400, in which plaintiffs unsuccessfully tried to enforce promises to do something in the future. The promise in those cases was typically a contract to build something like a house or a mill.

This story of deceit is also a shocking story of a breach of the defendant's obligations

as a fiduciary. Today the plaintiff should have no diAEculty in having a constructive trust imposed on M.N.'s interest in the manor. In cases of fraud and deceit the plaintiff today often has a choice of remedies: damages in a legal action of deceit (as here), an action in general assumpsit for the restitution of whatever goodies the defendant got from the plaintiff by his fraud (which would not be a viable option on these facts), or the imposition of a constructive trust by a court of equity. The law courts came late in developing the action on the case for deceit; the chancellor, since he started holding his own court, has always taken jurisdiction over cases of fraud and, in most cases, the equitable relief available has been more attractive to plaintiffs than the relief available from courts of law.

Y.B. 11 Hen. VI. 18, pl. 10, 24, pl. 1, 55, pl. 26. See also Y.B. 20 Hen. VI. 25, pl. 11.

[footnote by Ames, renumbered]

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 235

encountered a real diAEculty in applying that principle to a case that came before the Exchequer Chamber a few years later.

It was a bill

of deceit in the King's Bench, the plaintiff counting that he bargained with the defendant to buy of him certain land for $ 100 in hand paid, but that the defendant had enfeoffed another of the land, and so deceived him. The promise not being binding of itself, how could the enfeoffment of a stranger be a tortious infringement of any right of the plaintiff: What was the distinction, it was urged, between this case and those of pure nonfeasance, in which confessedly there was no remedy? So far as the plaintiff was concerned, as Ayscoghe, J., said, "it was all one case whether the defendant made a feoffment to a stranger or kept the land in his own hands." He and Fortescue, J., accordingly thought the count bad. A majority of the judges, however, were in favor of the action. But the case was adjourned. Thirty-five years later (1476), the validity of the action in a similar case was impliedly recognized. In 1487 Townsend, J. and Brian, C.J., agreed that a traverse of the feoffment to the stranger was a good traverse, since "that was the effect of the action, for otherwise the action could not be maintained."

In the following year,

the

language of Brian, C.J., is most explicit: "If there be an accord between you and me that you shall make me an estate of certain land, and you enfeoff another, shall I not have an action on my case? Quasi diceret sic. Et Curia cum illo. For when he undertook to make the feoffment, and conveyed to another, this is a great misfeasance."

In the Exchequer Chamber case, and in the case following, in 1476, the purchase-money was paid at the time of the bargain. Whether the same was true of the two cases in the time of Henry VII., the reports do not disclose. It is possible, but by no means clear, that a payment contemporaneous with the promise was not at that time deemed essential. Be that as it may, if money was in fact paid for a promise to convey land, the breach of the promise by a conveyance to a stranger was certainly, as already seen, an ac- tionable deceit by the time of Henry VII. This being so, it must, in the nature of things, be only a question of time when the breach of such a promise, by making no conveyance at all, would also be a cause of action. The mischief to the plaintiff was identical in both cases. The distinction between misfeasance and nonfeasance, in the case of promises given for money, was altogether too shadowy to be maintained. It was formally abandoned in 1504, as appears from the following extract from the opinion of Frowyk, C.J.: "And so, if I sell you ten acres of land, parcel of my manor, you shall have an action on the case against me, because I received your money,

Y.B. 20 Hen. VI. 34, pl.4. [footnote by Ames, renumbered]

Y.B. 2 Hen. VII. 12, pl. 15. [footnote by Ames, renumbered]

Y.B. 16 ed. IV. 9, pl.7. [footnote by Ames, renumbered]

236 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

and in that case you have no other remedy against me. And so, if I sell you my land and covenant to enfeoff you and do not, you shall have a good action on the case, and this is adjudged. . . . And if I covenant with a carpenter to build a house and pay him $ 20 for the house to be built by a certain day, now I shall have a good action on my case because of payment of money, and still it sounds only in covenant and without payment of money in this case no remedy, and still if he builds it and misbuilds, action on the case lies. And also for nonfeasance, if money paid case lies."

. . . . That equity gave relief, before 1500, to a plaintiff who had in- curred detriment on the faith of the defendant's promise, is reason- ably clear, although there are but three reported cases. In one of them, in 1378, the defendant promised to convey certain land to the plaintiff, who, trusting in the promise, paid out money traveling to London and consulting counsel; and upon the defendant's refusal to convey, prayed for a subpoena to compel the defendant to answer of his "disceit."

The bill

sounds in tort rather than in contract, and

inasmuch as even cestuis que use

could not compel a conveyance

by their feoffees to use at this time, its object doubtless was not spe- cific performance, but reimbursement for the expenses incurred.

Appilgarth v. Sergeantson

(1438) was also a bill for restitutio in

integrum,

savoring strongly of tort. It was brought against a defen-

dant who had obtained the plaintiff's money by promising to marry her, and who then married another in "grete deceit." The remain-

Keilw. 77, pl.25, which seems to be the same case as Y.B. 20 Hen. VII 8, pl 18. . . .

[footnote by Ames, renumbered]

2 Cal. Ch. II. [footnote by Ames, renumbered]

In proceedings in Chancery suit was commenced by filing a `bill', which roughly corre-

sponds to a modern complaint. Original writs were never used in Chancery; the bill was a lengthy description of the plaintiff's claim; it was anything but a form in which the plaintiff's lawyer merely had to fill in the blanks.

I.e., `beneficiaries of a use', or, as we would now say, `beneficiaries of a trust'.

If Ames is right in this characterization of the relief sought, the case is an early example

of a suit to recover what are now called `reliance damages.'

Although `damages' are not considered to be an equitable remedy, they have always been awarded by courts of equity in appropriate cases, but that does not mean that courts of equity issued judgments, for they did not. The courts of equity issued `decrees', in which they ordered the defendant to do--or, more often, to refrain from doing--something; if the defendant did not obey, he went to jail for contempt.

The courts of equity as "courts of conscience" have always been willing to hear cases in- volving fraud and deceit, even when there is an adequate remedy at law.

1 Cal. Ch. II. [footnote by Ames, renumbered]

This is a Roman law term, used to describe a proceeding by which the plaintiff was

restored to his former condition; it included things like the recission of contracts and, as in this case, the restitution of benefits obtained from the plaintiff by deceit. [pdj]

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 237

ing case, thirty years later,

does not differ materially from the

other two. The defendant, having induced the plaintiff to become the procurator of his benefice, by a promise to save him harmless for the occupancy, secretly resigned his benefice, and the plaintiff, being afterwards vexed for the occupancy, obtained relief by subpoena.

Both in equity and at law, therefore, a remediable breach of a parol promise was originally conceived of as a deceit; that is, a tort. Assumpsit was in several instances distinguished from contract.

By a natural transition, however, actions upon parol promises came to be regarded as actions ex contractu. Damages were soon assessed, not upon the theory of reimbursement for the loss of the thing given for the promise, but upon the principle of compensation for the fail- ure to obtain the thing promised.

Again, the liability for a tort

ended with the life of the wrongdoer.

But after the struggle of a

century, it was finally decided that the personal representatives of a deceased person were as fully liable for his assumpsits as for his

Y.B. 8 Ed. IV. 4, pl. 11. [footnote by Ames renumbered]

In the proceedings in Chancery the bill was not served on the defendant, instead a writ

called a `subpoena' was served upon him ordering him to appear in court to answer questions about the allegations in the bill, which the defendant had no opportunity to read. This is an example of inquisitorial proceedings, a type of proceedings that were never adopted by the common law courts.

Notice that this case suggests that Moses could have sued Macferlan on the save-safe agree- ment on a tort theory. If Moses had sued on that agreement, as he would have if his lawyer had known what he was doing, would it have made any difference whether the action were in contract or in tort?

. . . . Contract originally meant what we now call a real contract, that is, a contract arising

from the receipt of a quid pro quo, in other words, a debt. [footnote by Ames, renumbered]

This point is extremely important since it clarifies the meaning of many older cases referring to contracts. I do not believe that the phrase `real contract' is very much used today; I prefer to call `real contracts' `sales' or `conveyances.' [pdj]

I have added the emphasis here, because this sentence reveals two key points.

In the first place, it shows the relation between torts and damages. Tort damages are given as reimbursement for the loss of something. In the case of the old assumpsit actions sounding in tort this was the loss of the thing given for the promise, which, by the way, did not have to be something that was given to the defendant, as is illustrated by the case in which the plaintiff recovered his reliance expenses for the trip to London.

In the second place `contract damages'--which you undoubtedly were taught to call `ex- pectancy' damages, as opposed to `special' or `consequential' damages--are given upon the principle of compensation for the failure to obtain the thing promised. But those damages are indistinguishable from the `damages' given in detinue (at the defendant's option), as well as in covenant, as compensation for the failure to obtain an entitlement. And detinue and covenant are--so I have been insisting--restitutionary actions, as were all the actions commenced with a praecipe writ. And from this one can, and I do, conclude that `expectancy damages' are not damages at all, but are rather a classic example of `value' restitution, restitution in which the successful plaintiff obtains, not his claimed entitlement, but its (monetary) value.

[pdj]

This, of course, is the learning of Hambly v. Trott. [pdj]

238 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

covenants.

. . . .

And there we have the evolution of the modern action for breach of contract, with `expectancy damages' turning out to be nothing more--or less--than value restitution. On the other hand, not all `damages' recoverable in an action for breach of contract are classifiable as value restitution; `special' or `consequential' damages are truly damages, damages of the same type as are recovered in tort actions like trespass, that is, reimbursement for a loss to the plaintiff.

But, though we may conclude that `expectancy damages' are actually a form of value restitution, we are not going to pay much attention to the action of special assumpsit where the remedy is such `damages,' whether you know it or not, you have spent a great deal of time on special assumpsit actions in your contracts course. Here we are far more concerned with indebitatus assumpsit.

Here is Ames on the evolution of indebitatus assumpsit:

The origin of indebitatus assumpsit may be explained in a few words: Slade's case,

decided in 1603, is commonly thought to be

the source of this action. But this is a misapprehension. Indebitatus assumpsit upon an express promise

is at least sixty years older

than Slade's case. The evidence of its existence throughout the last half of the sixteenth century is conclusive. There is a note by Brooke, who died in 1558, as follows: "Where one is indebted to me, and he promises to pay before Michaelmas, I may have an action of debt on the contract, or an action on the case on the promise."

In Manwood

v. Burston

(1588), Manwood, C.B., speaks of "three manners of

considerations upon which an assumpsit may be grounded: (1) A debt precedent,

(2) where he whom such a promise is made is

damnified by doing anything, or spends his labor at the instance of the promisor, although no benefit comes to the promisor . . . (3) or there is a present consideration."

The Queen's Bench went even further. In that court proof of a simple contract debt, without an express promise, would support an indebitatus assumpsit. The other courts, for many years, resisted this

Remember the dicta in Hambly v. Trott where Lord Mansfield said that an action in

(indebitatus) assumpsit could be brought against the converter's personal representative. [pdj]

Ames 138-45.

4 Rep. 92 a; Yelv. 21; Moore, 433, 667. [footnote by Ames, renumbered]

I.e., where the defendant actually undertake to pay the precedent debt.

Br. Abr. Act. on Case, pl 5. [footnote by Ames, renumbered]

[The action on the case on the promise is, of course, an action in indebitatus assumpsit. --pdj]

2 Leon. 203, 204. [footnote by Ames, renumbered]

This first category is indebitatus assumpsit based on a prexisting debt; the consideration

that makes that promise binding is the past (i.e., precedent) debt. [pdj]

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 239

doctrine. Judgments against a debtor in the Queen's Bench upon an implied assumpsit were several times reversed in the Exchequer Chamber.

But the Queen's Bench refused to be bound by these

reversals, and it is the final triumph of that court that is signalized by Slade's case, in which the jury found that "there was no other promise or assumption, but only the said bargain;" and yet all the judges of England resolved "that every contract

executory implied

an assumpsit."

Indebitatus assumpsit, unlike special assumpsit, did not create a new substantive right; it was primarily only a new form of procedure, whose introduction was facilitated by the same circumstances which had already made Case concurrent with Detinue. But as an express assumpsit was requisite to charge the bailee, so it was for a long time indispensable to charge a debtor. The basis or cause of the action was, of course, the same as the basis of debt, i.e., quid pro quo, or benefit.

. . . .

These passages from Ames are drawn from the first of his two lectures on the development of assumpsit, the lecture entitled Express Assumpsit. This material is important for an understanding of Restitution, since it establishes that the so-called `expectancy damages' recoverable in special assumpsit actually are a form of value restitution. But you will have studied such value restitution in your course in Contracts and we need not dwell on it here. The development of implied assumpsit is of far greater importance for the purposes of this course in Restitution, if only because one sort of implied assumpsit, the action based on quasi-contract, is not studied in any other course.

1.18.3.2 Ames on Implied Assumpsit As to implied assumpsits, Ames says:

Nothing impresses the student of the Common Law more than 38

Exchequer Chamber was not a court, but rather a courtroom; occasionally, however, all

the judges of England used to meet in that room as a single court, so that the decisions made there resemble modern en banc decisions.

In Slade's case, the contract was the uncompleted sale and did not involve any actual

promise.

This final statement is misleading. Debt was available in cases where the defendant

received a quid pro quo, as, for example, when the plaintiff sued to recover the price of goods he had sold to the defendant. Debt, however, was also available--as the selections from Keener show--in cases where there was no quid pro quo, no so-called `real contract', and no agreement of any kind. For example debt lay to collect a judgment or to collect a fixed sum due by statute or custom. And in all those cases indebitatus assumpsit was also available.

Ames 145-46.

240 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

its extraordinary conservatism.

The reader will easily call to mind

numerous rules in the law of Real Property and Pleading which illus- trate the persistency of archaic reverence for form and of scholastic methods of interpretation. But these same characteristics will be found in almost any branch of the law by one who carries his in- vestigations as far back as the beginning of the seventeenth century. The history of Assumpsit, for example, although the fact seems to have escaped general observation, furnishes a convincing illustration of the vitality of mediaeval conceptions.

We have had occasion, in the preceding lecture, to see that an express assumpsit was for a long time essential in the actions of tort against surgeons or carpenters, and bailees. It also appeared that in the action of tort for a false warranty the vendor's aAErmation as to quality or title was not admissible, before the time of Lord Holt, as a substitute for an express undertaking. We are quite prepared, therefore, to find that the action of assumpsit proper was, for gen- erations, maintainable only upon an express promise. Furthermore, assumpsit would not lie in certain cases even though there were an express promise. For example, a defendant who promised to pay a sum certain in exchange for a quid pro quo was, before Slade's case, chargeable only in debt unless he made a second promise to pay the debt.

It was only by degrees that the scope of the action was enlarged. The extension was in three directions. In the first place, Indebita- tus Assumpsit became concurrent with debt upon a simple contract in all cases. Secondly, proof of a promise implied in fact, that is, a promise inferred from circumstantial evidence, was at length deemed suAEcient to support an action. Finally, Indebitatus Assumpsit be- came the appropriate form of action upon constructive obligations, or quasi-contracts for the payment of money. These three develop- ments will be considered separately.

Although Indebitatus Assumpsit upon an express promise was valuable so far as it went, it could not be resorted to by plaintiffs in the majority of cases as a protection from wager of law by their debtors. For the promise to be proved must not only be express, but subsequent to the debt. In an anonymous case, in 1572, Manwood objected to the count that the plaintiff "ought to have said quod postea assumpsit,

for if he assumed at the time of the contract,

then

debt lies, and not assumpsit; but if he assumed after the contract,

It is this very conservatism that allows us to trace the evolution of the forms of action.

[pdj]

But we will skip Ames's discussion of the development of assumpsit based on a promise

implied in fact.

I.e., `that he afterwards promised'.

I.e., at the time of the exchange that created the debt.

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 241

then an action lies upon the assumpsit, otherwise not . . . ."

The

consideration in this class of cases was accordingly described as a "debt precedent." . . . .

What was the peculiar significance of the subsequent promise? Why should the same courts which, for sixty years before Slade's case, sanctioned the action of assumpsit upon a promise in consid- eration of a precedent debt, refuse, during the same period, to allow the action, when the receipt of the quid pro quo was contemporane- ous with or subsequent to the promise? The solution of this puzzle must be sought, it is believed, in the nature of the action of debt. A simple contract debt, as well as a debt by specialty, was originally conceived of, not as a contract, in the modern sense of the term, that is, as a promise, but as a grant.

A bargain and sale, and a loan,

were exchanges of values. The action of debt, as several writers have remarked, was a real

rather than a personal action. The judgment

was not for damages, but for the recovery of a debt, regarded as a res.

This conception of a debt was clearly expressed by Vaughan,

J., who, some seventy years after Slade's case, spoke of the action of assumpsit as "much inferior and ignobler than the action of debt," and characterized the rule that every contract executory implies a promise as "a false gloss, thereby to turn actions of debt into actions on the case; for contracts of debt are reciprocal grants."

Inasmuch as the simple contract debt had been created from time immemorial by a promise or agreement to pay a definite amount of money in exchange for a quid pro quo, the courts could not allow an action of assumpsit also upon such a promise or agreement, without

Dal. 84, pl.35. [footnote by Ames, renumbered]

I have added emphasis to this sentence because the old way of looking at a debt still seems

to me the only way that makes sense. If a debt is created by a simple contract, an exchange of a quid for the debt (which is, of course, the quo), or if a debt is created by a covenant under seal, i.e., by a specialty, then the holder of the debt has a good cause of action in debt--or, eventually, in indebitatus assumpsit--and that's all there is to it, the deal is done, and the `contract', if one wants to call it that is executed ab initio.

My real problem with the `modern sense' that a contract is a promise to do--or to forebear from doing--something in the future, is that that, too, seems to be a grant, a grant of an entitlement in the future.

The medieval mind may have had trouble with the idea of conveying an entitlement that has not yet come into existence, but surely we, who have nearly made it into the 21st century, need not be limited by such mediaeval conceptions.

[pdj]

I.e., restitutionary.

Res is Latin for a `thing'.

Edgecomb v. Dee, Vaugh. 89, 101. . . . [footnote by Ames, renumbered]

[Lord Justice Vaughan might find some consolation that today assumpsit, though descended from an action on the case, is no longer considered to be an action in tort, and thus is no less, an no more, ignoble than the action in debt. Both contracts of debt and modern bilateral contracts are, or so I submit, reciprocal grants. --pdj]

242 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

admitting that two legal relations, fundamentally distinct,

might

be produced by one and the same set of words. This implied a liberality of interpretation to which the lawyers of the sixteenth cen- tury had not generally attained. To them it seemed more natural to consider that the force of the words of agreement was spent in cre- ating the debt. Hence the necessity of a new promise, if the creditor desired to charge his debtor in assumpsit.

As the actions of assumpsit multiplied, however, it would nat- urally become more and more diAEcult to discriminate between promises to pay money and promises to do other things. The recog- nition of an agreement to pay money for a quid pro quo in its double aspect, that is, as being both a grant and a promise, and the con- sequent admissibility of assumpsit, with its procedural advantages, as a concurrent remedy with debt were inevitable. It was accord- ingly resolved by all the justices and barons in Slade's case, in 1603, although "there was no other promise or assumption but the said bargain," that "every contract executory imports in itself an as- sumpsit, for when one agrees to pay money, or to deliver anything, thereby he assumes or promises to pay or deliver it; and, therefore, when one sells any goods to another, and agrees to deliver them at a day to come, and the other, in consideration thereof, agrees to pay so much money at such a day, in that case both parties may have an action of debt, or an action on the case on an assumpsit, for the mu- tual executory agreement of both parties imports in itself reciprocal actions upon the case as well as actions of debt." Inasmuch as the judges were giving a new interpretation to an old transaction, since they, in pursuance of the presumed intention of the parties, were working out a promise from words of agreement which had hitherto been conceived of as sounding only in grant, it was not unnatural that they should speak of the promise thus evolved as an "implied assumpsit." But the promise was in no sense a fiction. The fictitious assumpsit, by means of which the action of Indebitatus Assumpsit acquired its greatest expansion, was an innovation many years later than Slade's case.

. . . . Although the right to a trial by jury was the principal reason for a creditor's preference for Indebitatus Assumpsit, the new action very soon gave plaintiffs a privilege which must have contributed

The trouble here is not that debt and assumpsit are fundamentally distinct, but rather

that in the late middle ages, and on into Tudor times, they were thought to be distinct. That the distinction between them was purely procedural, and not fundamental, is shown by the fact that in an action of debt the plaintiff recovered the amount of the debt as an entitlement, while in an action in assumpsit the plaintiff recovered the amount of the debt as `damages' for not having received the amount of the debt as an entitlement.

Now come on, you can't believe that that is a fundamental distinction. [pdj]

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 243

greatly to its popularity. In declaring in debt, except possibly upon an account stated, the plaintiff was required to set forth his cause of action with great particularity. Thus, the count in debt must state the quantity and description of goods sold, with the details of the price, all the particulars of a loan, the names of the persons to whom money was paid with the amounts of each payment, the names of the persons from whom money was received to the use of the plaintiff with the amounts of each receipt, the precise nature and amount of services rendered. In Indebitatus Assumpsit, on the other hand, the debt being laid as an inducement or conveyance to the assumpsit, it was not necessary to set forth all the details of the transaction from which it arose. It was enough to allege the general nature of the indebtedness, as for goods sold, money lent, money paid at the defendant's request, money had and received to the plaintiff's use, work and labor at the defendant's request, or upon an account stated,

and that the defendant being so indebted promised to pay.

This was the origin of the common counts.

In all the cases thus far considered there was a definite bargain or agreement between the plaintiff and the defendant. But instances, of course, occurred in which the parties did not reduce their transac- tions to the form of a distinct bargain. Services would be rendered, for example, by a tailor or other workman, an innkeeper or common carrier, without any agreement as to the amount of compensation. Such cases present no diAEculty at the present day, but for centuries there was no common-law action by which compensation could be recovered. Debt could not be maintained, for that action was al- ways for the recovery of a liquidated amount. Assumpsit would not lie for want of a promise. There was confessedly no express promise; to raise by implication a promise to pay as much as the plaintiff reasonably deserved for his goods or services was to break with the most venerable traditions. The lawyer of today, familiar with the ethical character of the law as now administered, can hardly fail to be startled when he discovers how slowly the conception of a promise implied in fact, as the equivalent of an express promise, made its way in our law.

There seems to have been no recognition of the right to sue upon an implied quantum meruit

before 1609. The innkeeper was the

This is a list of the more common Common Counts in Indebitatus Assumpsit. [pdj]

The common counts are nothing more than the most common subdivisions of indebitatus

assumpsit. In the old days--and it is still pretty much true today--if you sued on one of the common counts, you would have stated (though you might not be able to prove) a good cause of action. If, on the other hand, if you brought an action in indebitatus assumpsit and had to spell out the facts of your claim in detail, because they would not fit into a common count, the court would quite likely dismiss your action for failure to state a cause of action. Judges, relying as they do on precedents, are reluctant to try unprecedented actions. [pdj]

Quantum meruit is another name for the common count for work, labor and services;

244 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

first to profit by the innovation. Reciprocity demanded that, if the law imposed a duty upon the innkeeper to receive and keep safely, it should also imply a promise on the part of the guest to pay what was reasonable. The tailor was in the same case with the innkeeper, and his right to recover upon a quantum meruit was recognized in 1610. Sheppard,

citing a case of the year 1632, says: "If one bid me do

work for him, and do not promise anything for it; in that case the law implieth the promise, and I may sue for the wages." But it was only four years before that the court in a similar case were of opinion that an action lay if the party either before or after the services rendered promised to pay for them, "but not without a special promise."

In Nichols v. More

(1661) a common carrier resisted an action

for negligence, because, no price for the carriage being agreed upon, he was without remedy against the bailor. The court, however, answered that "the carrier may declare upon a quantum meruit, like a tailor, and therefore shall be charged." As late as 1697, Powell, J., speaking of the sale of goods for so much as they were worth, thought it worth while to add: "And note the very taking up of the goods implies such a contract."

. . . .

In the cases already considered the innovation of assumpsit upon a promise implied in fact gave a remedy by action, where none ex- isted before. In several other cases the action upon such a promise furnished not a new, but a concurrent remedy.

Assumpsit, as we

have seen, was allowed, in the time of Charles I., in competition with

translated roughly it refers to the allegation that the services were `worth so much'. [pdj]

Actions on the Case, 2d ed., 50. Shepp. Faithf. Counsellor, 2d ed., 125. [footnote by

Ames, renumbered]

Thrusby v. Warren, W. Jones, 208. [footnote by Ames, renumbered]

1 Sid. 36. See also Boson v. Sanford (1689), per Eyres, J. [footnote by Ames, renum-

bered]

Haywood v. Davenport, Comb. 426. [footnote by Ames, renumbered]

We are skipping over a good deal of interesting historical material here because the de-

velopment of the law relating to `contracts implied in fact' does not have much bearing on the subject of restitution. On the other hand, we cannot totally ignore such contracts, for in many cases they are indistinguishable from quasi-contracts (miscalled `contracts implied in law') based on the concept of unjust enrichment. Is it absolutely clear that the innkeeper and the tailor were allowed to sue because there was an implied promise? Or could it be that they were allowed to sue in order to prevent the defendant from being unjustly enriched at their expense? [pdj]

This development clearly shows that law--or at least that portion of it that was embodied

in the writ system and therefore left behind as fossils in the plea rolls and decisions of the courts--can be studied as a Darwinian system. Once two different causes of action became available to perform the same function, selective pressures--that is, the preferences of plain- tiffs' lawyers--led one form of action to die out, or be restricted to a narrow niche, and the other--the fittest--to survive. In this evolutionary competition, assumpsit was one of the must successful of the survivors. [pdj]

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 245

detinue and case against a bailee for custody. . . .

Account was originally the sole form of action against a factor or bailiff. But in Wilkins v. Wilkins

(1689) three of the judges

favored an action of assumpsit against a factor because the action was brought upon an express promise, and not upon a promise by implication. Lord Holt, however, in the same case, attached no importance to the distinction between an express and an implied promise, remarking that "there is no case where a man acts as bailiff, but he promises to render an account." The requisite of an express promise was heard no more. Assumpsit became theoretically con- current with account against a bailiff or factor in all cases, although by reason of the competing jurisdiction of equity, actions at common law were rare.

In the early cases of bills and notes the holders declared in an action on the case upon the custom of merchants.

Afterwards they

came to declare upon an assumpsit.

Now--at last!--we come to the history of the evolution of indebitatus as- sumpsit as the standard remedy for so-called quasi-contracts, the subject of Keener's treatise (and a large portion of the subject matter of the Restate- ment of Restitution.

It remains to consider the development of indebitatus assumpsit as a remedy upon quasi-contracts, or as they have been commonly

1 Show. 71, Carth. 89, 1 Salk. 9. Holt, 6, s.c. [footnote by Ames, renumbered]

Here one sees further confirmation--if any is needed--of the consequences of selective

pressure upon the forms of action. Assumpsit replaces the action of debt and also becomes a competitor of the action of account in the law courts. But in the latter case the bill for accounting in the courts of equity was the chief survivor, at least until the `merger' of law and equity. [pdj]

It is important to remember that the law courts were only one of many courts that existed

during the formative years of the common law. Besides the law courts, there were, of course, the `courts of equity' (primarily, but not exclusively, Chancery), ecclesiastical courts (which handled, among other matters, the distribution of decedents' estates and are the progenitors of modern probate courts), county courts, feudal courts, small claim courts (like the Court of Conscience in Moses v. Macferlan), courts martial, admiralty courts, and courts merchant. The latter developed their own body of substantive law, the so-called `custom of merchants' or `law merchant'. The law of bills and notes, so-called `commercial paper', was originally part of that law merchant and was only gradually and reluctantly adopted by the common law courts. The rights and liabilities of the makers, drawers, drawees, and holders of bills and notes cannot be explained, or even described, in terms of the forms of action at common law; but the common law action of assumpsit did evolve until it became the action by which those rights and liabilities are judicially enforced. One would be hard put to find a court merchant today, but the law of bills and notes that was developed in those courts survives--somewhat mangled by statutes like the U.C.C. [pdj]

Ames 149-60. This passage, like the one following, is taken from the lecture on "Implied

Assumpsit."

But incorrectly! [pdj]

246 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

called, contracts implied in law. The contract implied in fact, as we have seen, is a true contract. But the obligation created by law is no contract at all. Neither mutual assent or consideration is es- sential to its validity. It is enforced regardless of the intention of the obligor. It resembles the true contract, however, in one impor- tant particular. The duty of the obligor is a positive one, that is, to act.

In this respect they both differ from obligations, the breach of

which constitutes a tort, where the duty is negative, that is, to for- bear.

Inasmuch as it has been customary to regard all obligations

as arising either ex contractu or ex delicto, it is readily seen why obligations created by law should have been treated as contracts.

These constructive duties are more aptly defined in the Roman law as obligations quasi ex contractu than by our ambiguous "implied contracts."

Quasi-contracts are founded (1) upon a record, (2) upon a statu- tory, oAEcial, or customary duty, or (3) upon the fundamental prin- ciple of justice that no one ought unjustly to enrich himself at the expense of another.

As assumpsit cannot be brought upon a record, the first class of quasi-contracts need not be considered here.

Many of the

Notice that even Ames is reduced to incoherence when he attempts to talk about contracts.

(This is almost certainly part of the legacy of Dean Christopher Columbus Langdell, whose one positive contribution to the law--unless you like the case method--was hiring James Barr Ames as a professor at Harvard Law School.) Earlier Ames has told us, after all, that "A contract . . . is, properly, a promise to act or forbear in the future." [emphasis added] Now he is telling us that the duty of a promiser (or of the obligor under a quasi-contract) is to act, but not to forbear.

The distinction between action and forbearance cannot be used to distinguish contracts from other legal categories. The distinction may, however, indicate something about cases where specific restitution can be available: If A is under an obligation (contractual or otherwise) to forbear, and if A acts instead of keeping his obligation, then it is going to be impossible for any court, whether of law or of equity, to cause that action--which has already taken place--not to happen. In other words, if a plaintiff is entitled to forbearance by the defendant, and the defendant does not forbear, there is no way that a court can order specific restitution. The obvious remedy in such a case is an award of damages to the plaintiff; an equivalent remedy would be to award the plaintiff value restitution, i.e., the value of the forbearance, calculated either at its market value or at its value to the defendant.

[pdj]

But is not the most common form of tort action today, the action on the case for negligence,

as often based on the failure to act as on the positive action by the defendant? [pdj]

What is nearly incomprehensible to me is how commentators on the common law came to

`regard' obligations as arising either ex contractu or ex delicto. In part it is undoubtedly the consequence of a quasi-learned attempt to misapply the labels of Roman Law. In part it may be explained by the fact that those who write about the law often do not practice it. And in part it may be explained by the ideological presuppositions of the commentators. [pdj]

In Finch, Law, 150, they are called "as it were" contracts. [footnote by Ames, renumbered]

[It is unfortunate that Finch's plain English terminology did not catch on. --pdj]

We have, of course, seen much the same list in the excerpts from Keener's treatise. [pdj]

By `an action upon a record' Ames means an action to collect a judgment or to collect

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 247

statutory, oAEcial, or customary duties, also, e.g., the duty of the innkeeper to entertain, of the carrier to carry, of the smith to shoe, of the chaplain to read prayers, of the rector to keep the rectory in repair, of the fidei-commiss

to maintain the estate, of the finder

to keep with care, of the sheriff and other oAEcers to perform the functions of their oAEce, of the ship-owner to keep medicines on his ship, and the like, which are enforced by an action on the case,

are

beyond the scope of this essay, since indebitatus assumpsit lies only where the duty is to pay money or a definite amount of chattels. For the same reason we are not concerned here with a large class of duties growing out of the principle of unjust enrichment, namely, constructive or quasi trusts, which are enforced, of course, only in equity.

Debt was originally the remedy for the enforcement of a statu- tory or customary duty for the payment of money. The right to sue in indebitatus assumpsit was gained only after a struggle. The assumpsit in such cases was a pure fiction. These cases were not, therefore, within the principle of Slade's case, which required, as we have seen, a genuine agreement.

The authorities leave no room for

doubt upon this point, although it is a common opinion that, from the time of that case, indebitatus assumpsit was concurrent in all cases, unless the debt was due by record,

specialty,

or for rent.

an equitable decree for the payment of money. His claim is, in effect, that only debt lay to collect such a `quasi-contractual' obligation.

Since an action of debt upon a record was one where the defendant could not insist on wager of law, there was not a great deal of selective pressure that would cause indebitatus assumpsit to fill this particular environmental niche.

[pdj]

fidei-commiss is a critter--a little like the common law tenant in tail, a little like the

beneficiary of a common law trust--know only to the substantive law of civil law countries. Under the civil law the liability of the fidei commiss was based neither on contract nor on tort. [pdj]

This presumably means that the plaintiff recovered damages for the harm caused by the

failure of the defendant to carry out his obligation as if the action were in tort, as actions on the case are considered to be (except in the case of assumpsit, which is descended from, but is no longer considered to be a case of, the action on the case.) [pdj]

Quasi-contractual actions at law in indebitatus assumpsit and suits in equity to impose a

constructive trust are the two major types of restitutionary relief available in cases of unjust enrichment. There are undoubtedly cases where both forms of relief are available and, in the majority of jurisdictions where law and equity have been `merged', it can sometimes be diAEcult to tell which form of relief is being granted by the court. [pdj]

But abolished the requirement of a second undertaking by the defendant as a condition

precedent to the plaintiff being able to bring an action in indebitatus assumpsit on a debt created by such a genuine agreement.

See supra Note 30 and accompanying text. [pdj]

That is, unless the debt was created by an instrument under seal. [pdj]

The rule that indebitatus assumpsit could not be brought for rent is responsible for some

248 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

The earliest reported case of indebitatus assumpsit upon a cus- tomary duty seems to be City of London v. Goree,

decided seventy

years later than Slade's case. "Assumpsit for money due by custom for scavage.

Upon non-assumpsit the jury found the duty to be

due, but that no promise was expressly made. And whether as- sumpsit lies for this money thus due by custom, without express promise, was the question. Resolved it does." On the authority of that case, an oAEcer of a corporation was charged in assumpsit, three years later, for money forfeited under a by-law. So, also, in 1688, a copyholder

was held liable in this form of action for a customary

fine due on the death of the lord, although it was objected "that no indebitatus assumpsit lieth where the cause of action is grounded on a custom."

Lord Holt had not regarded these extensions of

indebitatus assumpsit with favor. Accordingly, in York v. Toun,

when the defendant urged that such an action would not lie for a fine imposed for not holding the oAEce of sheriff, "for how can there be any privity of assent implied when a fine is imposed on a man against his will?" the learned judge replied: "We will consider very well of this matter; it is time to have these actions redressed. It is hard that customs, by-laws, rights to impose fines, charters, and everything, would be left to a jury." By another report in the same case,

"Holt seemed to incline for the defendant. . . . And upon motion of the plaintiff's counsel, that it might stay till the next term, Holt, C.J., said that it should stay till dooms-day with all his heart; but Rokesby, J., seemed to be of opinion that the action would lie.--et adjournatur. Note. A day or two after I met the Lord Chief Justice Treby visiting the Lord Chief Justice Holt at his house, and Holt repeated the said case to him, as a new attempt to extend the indeb- itatus assumpsit, which had been too much encouraged already, and Treby, C.J., seemed also to be of the same opinion with Holt." But Rokesby's opinion finally prevailed. The new action continued to be encouraged. Assumpsit was allowed upon a foreign judgment in 1705, and the "metaphysical notion" of a promise implied in law

of the diAEculties that arose in the Raven Red Ash case. [pdj]

2 Lev. 174, 1 Vent. 298, 3 Keb. 677, Freem. 433, s.c. [footnote by Ames, renumbered]

A toll imposed upon merchants for showing their wares in the City.[pdj]

A copyholder held land within a manor, not as a freeholder whose seisin was protected by

the Royal Courts, but by some sort of lesser tenure. The copyholder's interest was protected by law, as was the interest of a tenant for a term of years, but it was not protected by the writ of right or the other real actions. Copyholders' rights increased over the years, but originally their position was much the same as that of serfs in continental Europe.

Shuttlewroth v. Garrett, Comb. 151, 1 Show. 35, Carth. 90, 3 Mod. 240, 3 Lev. 261, s.c.

[footnote by Ames, renumbered]

5 Mod. 444. [footnote by Ames, renumbered]

1 Ld. Ray. 502. [footnote by Ames, renumbered]

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 249

became fixed in our law.

The equitable principle which lies at the foundation of the great bulk of quasi-contracts, namely, that one person shall not unjustly enrich himself at the expense of another, has established itself very gradually in the Common Law.

Indeed, one seeks in vain to-day in

the treatises upon the Law of Contract for an adequate account of the nature, importance, and numerous applications of the principle.

The most fruitful manifestations of this doctrine in the early law are to be found in the action of account.

One who received money

from another to be applied in a particular way was bound to give an account of his stewardship. If he fulfilled his commission, a plea to that effect would be a valid discharge. If he failed for any reason to apply the money in the mode directed, the auditors

would find

that the amount received was due to the plaintiff, who would have a judgment for its recovery. If, for example, the money was to be applied in payment of a debt erroneously supposed to be due from the plaintiff to the defendant, either because of mutual mistake, or because of fraudulent representations of the defendant, the intended application of the money being impossible, the plaintiff would re- cover the money in account.

Debt would also lie in such cases,

since, at an early period, debt became concurrent with account, when the object of the action was to recover the precise amount received by the defendant. By means of the fiction of a promise implied in law indebitatus assumpsit became concurrent with debt, and thus was established the familiar action of assumpsit for money had and received to recover money paid to the defendant by mistake. Bonnel v. Fowke

(1657) is, perhaps, the first action of the kind.

Although assumpsit for money had and received was in its in-

Note that, though the principle is equitable, the common law courts applied it (as, of

course, did the courts of equity). [pdj]

Professor Keener published his Cases in Quasi-Contracts in 1888, and followed it, in 1893,

with his admirable treatise on the same subject. [footnote by Ames, renumbered]

[Since then the Restatement of Restitution has appeared and Professor Palmer has written his Treatise on Restitution. Even so, the statement in the text remains true. Treatises upon the Law of Contracts invariably make a hash of the law of quasi-contracts. --pdj]

Ames wrote this when modern quasi-contractual actions in indebitatus assumpsit had

become the standard remedy in cases of unjust enrichment. What he has to say about account is undoubtedly correct. Even so, I doubt that anyone in, say, the thirteenth century would have recognized the `fact' that account was used as a form of equitable relief in cases of unjust enrichment. [pdj]

An action of account was tried by auditors, not by wager of law or by a jury. [pdj]

Hewer v. Bartholomew (1597), Cro. El. 614; Anon. (1696), Comb. 447; Cavendish v.

Middleton, Cro. Car. 141, W. Jones, 196, s.c. [footnote by Ames, renumbered]

[Notice that the earliest of these cases was at the very end of the sixteenth century in the reign of Elizabeth I. Account itself extends back at least to the thirteenth century, but it was not originally available in cases of unjust enrichment of the sort described in the text. --pdj]

2 Sid. 4. . . . [footnote by Ames, renumbered]

250 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

fancy merely a substitute for account, it gradually outgrew the limits of that action. Thus, if one was induced by fraudulent representa- tions to buy property, the purchase-money could not be recovered from the fraudulent vendor by the action of account. For a time, also, indebitatus assumpsit would not lie in such a case. Lord Holt said in 1696: "But where there is a bargain, though a corrupt one, or where one sells goods that were not his own, I will never allow an indebitatus."

His successors, however, allowed the action. Simi-

larly, account was not admissible for the recovery of money paid for a promise which the defendant refused to perform. Here, too, debt and indebitatus assumpsit did not at once transcend the bounds of the parent action. But in 1704 Lord Holt reluctantly declined to nonsuit a plaintiff who had in such a case declared in indebitatus assumpsit.

Again, account could not be brought for money ac-

quired by a tort, for example, by a disseisin and collection of rents or a conversion and sale of a chattel. It was decided, accordingly, in Philips v. Thompson

(1675), that assumpsit would not lie for

the proceeds of a conversion. But in the following year the usurper of an oAEce was charged in assumpsit for the profits of the oAEce, no objection being taken to the form of the action. Objection was made in a similar case in 1677, that there was no privity and no con- tract; but the court, in disregard of all the precedents of account, answered: "An indebitatus assumpsit will lie for rent received by one who pretends to title; for in such cases an account will lie. Wherever the plaintiff may have an account an indebitatus will lie."

These

precedents were deemed conclusive in Howard v. Wood

(1678), but

Lord Scroggs remarked: "If this were now an original case, we are agreed it would by no means lie." Assumpsit soon became con- current with trover, where the goods had been sold.

Finally, under

the influence of Lord Mansfield, the action was so much encour- aged that it became almost the universal remedy where a defendant had received money which he was "obliged by the ties of natural justice and equity to refund."

But one is often bound by those same ties of justice and equity to pay for an unjust enrichment enjoyed at the expense of another, al-

Anon., Comb. 447. [footnote by Ames, renumbered]

Holmes v. Hall, 6 Mod. 161, Holt, 36, s.c. . . . [footnote by Ames, renumbered]

3 Lev. 191. [footnote by Ames, renumbered]

Arris v. Stukely , 2 Mod. 260. [footnote by Ames, renumbered]

[The law often `progresses' by disregarding inconvenient precedents. If the evolutionary pressures are strong enough, a mutation like Arris will survive and prosper, even though its holding appears to be the result of ignorance (or, perhaps, dishonesty). --pdj]

2 Show. 23, 2 Lev. 245. Free, 473, 478, T. Jones, 126, s.c. [footnote by Ames, renumbered]

We have seen this in Lord Mansfield's dicta in Hambly v. Trott. [pdj]

Moses v. MacFerlan, 2 Burr. 1005, 1012. [footnote by Ames, renumbered]

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 251

though no money has been received. The quasi-contractual liability to make restitution is the same in reason, whether, for example, one who has converted another's goods turns them into money or con- sumes them. Nor is any distinction drawn, in general, between the two cases. In both of them the claim for the amount of the unjust en- richment would be provable in the bankruptcy of the wrong-doer as an equitable debt,

and would survive against his representative.

Nevertheless, the value of the goods consumed was never recover- able in indebitatus assumpsit.

There was a certain plausibility in

the fiction by which money acquired as the fruit of misconduct was treated as money received to the use of the party wronged. But the difference between a sale and a tort was too radical to permit the use of assumpsit for goods sold and delivered where the defendant had wrongfully consumed the plaintiff's chattels.

The same diAEculty was not felt in regard to the quasi-contractual claim for the value of services rendered. The averment, in the count in assumpsit, of an indebtedness for work and labor was proved, even though the work was done by the plaintiff or his servants under the compulsion of the defendant. Accordingly, a defendant, who en- ticed away the plaintiff's apprentice and employed him as a mariner, was charged in this form of action for the value of the apprentice's services.

By similar reasoning, assumpsit for use and occupation would be admissible for the benefit received from a wrongful occupation of the plaintiff's land. But this count, for special reasons connected with the nature of rent, was not allowed upon a quasi-contract.

In assumpsit for money paid the plaintiff must make out a pay- 57

Ex parte Adams, 8 Ch. Div. 807, 819. [footnote by Ames, renumbered]

[This is an example of the fact that a plaintiff can also prevail in equity when he would lose in an action at law. Courts of bankruptcy historically were, and still are considered to be, courts of equity. --pdj]

Philips v. Homfray, 24 Ch. Div. 439. [footnote by Ames, renumbered]

[That the debt would survive against the representative in equity does not meant that it would similarly survive at law. If you doubt this, reread Hambly v. Trott. But since equity did not ever allow wager of law, the reason that debt and detinue did not survive at law--the fact that a dead man could not wage his law--did not have any application in equity. --pdj]

This statement was true when Ames wrote, but the majority of recent cases on the

subject in the United States have permitted indebitatus assumpsit to be brought in a count of goods sold and delivered against a converter who consumed the converted goods. The earlier decisions limited the plaintiff to an action in trover and conversion. Cf., Hambly v. Trott. [pdj]

Lightly v. Clouston, 1 Taunt. 112. See also Gray v. Hill, Ry. & M. 420. [footnote by

Ames, renumbered]

This means, I believe, that the plaintiff could sue in assumpsit for use and occupation if

the defendant had expressly promised to pay a fair rent; but that the same count would not be available in a quasi-contractual action against a trespasser. The rule stated in the text is, of course, one of the issues that troubled the court in Raven Red Ash Coal Co. v. Ball. [pdj]

252 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

ment at the defendant's request. This circumstance prevented for a long time the use of this count in the case of quasi-contracts. To- wards the end of the last century, however, the diAEculty was over- come by the convenient fiction that the law would imply a request whenever the plaintiff paid, under legal compulsion, what the defen- dant was legally compellable to pay.

The main outlines of the history of assumpsit have now been in- dicated. In its origin an action of tort, it was soon transformed into an action of contract, becoming afterwards a remedy where there was neither tort nor contract. Based at first only upon an express promise, it was afterwards supported upon an implied promise, and even upon a fictitious promise. Introduced as a special manifestation of the action on the case, it soon acquired the dignity of a distinct form of action, which superseded debt, became concurrent with ac- count, with case upon a bailment, a warranty, and bills of exchange, and competed with equity in the case of the essentially equitable quasi-contracts growing out of the principle of unjust enrichment. Surely it would be hard to find better illustration of the flexibility and power of self-development of the Common Law.

Before I attempt to summarize the entire discussion of the evolution of the forms of action, it would be well to look a little more closely--or rather to observe Ames looking a little more closely--at the issue in Raven Red Ash Coal Co. v. Ball, the issue of whether indebitatus assumpsit for use and occupation can be brought against a trespasser. As we shall see, there seems to be no reason of principle that would keep a plaintiff from recovering in indebitatus assumpsit the benefits received by a trespasser upon his lands. Yet for a long time, for purely historical reasons, such a recovery was denied. That could not have happen if the law were actually designed to vindicate certain principles; on the other hand, if the law simply grew the way organic systems grow, such anomalies are exactly what one would expect.

In the preceding lecture it was stated that indebitatus assumpsit for use and occupation was not allowed upon a quasi-contract, for special reasons connected with the nature of rent. To set forth briefly these reasons is the object of this excursus.

It is instructive to compare a lease for years, reserving a rent, with a sale of goods. In both cases debt was originally the exclusive action for the recovery of the amount due. In neither case was the duty to pay conceived of as arising from a contract in the modern sense of the term. Debt for goods sold was a grant. Debt for rent was a reservation. About the middle of the sixteenth century assumpsit was allowed upon an express promise to pay a precedent debt for goods sold; and in 1602 it was decided by Slade's case that the

Ames 160-66.

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 253

buyer's words of agreement, which had before operated only as a grant, imported also a promise, so that the seller might, without more, sue in debt or assumpsit, at his option.

Neither of these steps was taken by the courts in the case of rent. . . .

The chief motive for making assumpsit concurrent with debt for goods sold was the desire to evade the defendant's wager of law. This motive was wanting in the case of rent, for in debt for rent wager of law was not permitted. Again, although assumpsit was the only remedy against the executor of a buyer or a borrower,

l the

executor of a lessee was chargeable in debt. These two facts seem amply to explain the refusal of the courts to allow an indebitatus assumpsit for rent.

. . . . In the reign of Charles I. the rule was established in the King's Bench that assumpsit would lie concurrently with debt if, at the time of the lease, the lessee expressly promised to pay the rent. Action v. Symonds

(1634) was the decisive case. The count was upon

the defendant's promise to pay the rent in consideration that the plaintiff would demise a house to him for three years at a rent of $ 25 per annum. The court (except Croke, J.) agreed that if a lease for years be made rendering rent, an action on the case lies not upon the contract, as it would upon a personal contract for sale of a horse or other goods, but where there is an assumpsit in fact, besides the contract on the lease, an action on this assumpsit is maintainable. . . .

In the cases thus far considered the assumpsit was for the pay- ment of a sum certain. Assumpsit was also admissible where the amount to be recovered was uncertain; namely, where the defendant promised to pay a reasonable compensation for the use and occupa- tion of land. Indeed, in such a case assumpsit was the sole remedy, since debt would not lie for a quantum meruit.

Such was the state of the law when the Statute 11 Geo. II, c. 19, x 14, was passed, which reads as follows: "To obviate some diAEculties that may at times occur in the recovery of rents, where demises are not by deed, it shall and may be lawful to and for the landlord, where the agreement is not by deed, to recover a reasonable satisfaction

The ordinary action in debt or detinue did not survive against a decedent's personal

representative because the personal representative could not wage his decedent's law. This is mentioned by Lord Mansfield in Hambly v. Trott. [pdj]

W. Jones, 364, Cro. Car. 414, 1 Roll. Abr. 8, pl. 10, s.c. [footnote by Ames, renumbered]

Quantum meruit means `being worth so much'; debt would not lie to recover the amount

that the use and occupation was worth, because debt only lay for a sum certain. Although the phrase quantum meruit is usually confined to an action to recover the worth of work, labor, and services performed by the plaintiff it sometimes is used, as here, to describe an action for the fair rental value of land. [pdj]

254 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

for the lands, tenements, and hereditaments held or occupied by the defendant in an action on the case for the use and occupation of what was so held and enjoyed; and if, in evidence on the trial of such action, any parol demise or agreement, not being by deed, whereupon a certain rent was reserved, shall appear, the plaintiff shall not therefore be nonsuited, but may make the use thereof as an evidence of the quantum of damages to be recovered."

The "diAEculties" here referred to would seem to be two. If, before this statute, the plaintiff counted upon a quantum meruit, and the evidence disclosed a demise

for a sum certain, he would

be non-suited for a variance. Secondly, if he declared for a sum certain, he must, as we have seen, prove an express promise at the time of the demise. The statute accomplished its purpose in both respects.

But it is in the removal of the second of the diAEculties

mentioned that we find its chief significance. Thereby indebitatus assumpsit became concurrent with debt upon all parol demises. In other words, the statute gave to the landlord, in 1738, what Slade's case gave to the seller of goods, the lender of money, or the employee, in 1602; namely, the right to sue in assumpsit as well as in debt, without proof of an independent express promise.

The other counts in indebitatus assumpsit being the creation of the courts, the judges found no great diAEculty in gradually enlarg- ing their scope, so as to include quasi-contracts, where the promise declared upon was a pure fiction. Thus, one who took another's money, by fraud or trespass, was liable upon a count for money had and received; one who wrongfully compelled the plaintiff's servant to labor for him, was chargeable in assumpsit for work and labor; and one who converted the plaintiff's goods, must pay their value in an action for goods sold and delivered.

But, indebitatus assumpsit for rent being of statutory origin, the courts could not, without too palpable a usurpation, extend the count to cases not within the act of Parliament. The statute was

A `demise' is what we today tend to call a lease; it is a conveyance of a term of years

by the holder of a greater estate in the land, that holder being what today we tend to call a landlord. [pdj]

What is striking about this statute is that, though it was well-drafted and designed only

to make a modest `technical' amendment in the law of assumpsit for use and occupation as it had been developed by the courts, and despite the fact that it did a good job of solving the problems to which it was addressed, it ultimately inhibited what would have probably been the natural evolution of the count for use and occupation. In other words, it was this statute of George II that--quite unintentionally--shares some of the responsibility for making Raven Red Ash Coal Co. v. Ball a diAEcult case. [pdj]

Notice that this statement by Ames contradicts his earlier statement in the text supra at

Note 59. In some states, like Massachusetts, one still may not successfully sue a converter for goods sold and delivered. In such cases we can explain the failure of the courts to permit suit for goods sold and delivered by the fact that the action of conversion available, so that the plaintiff was not limited to the action of detinue with its nasty wager of law.

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 255

plainly confined to cases where, by mutual agreement, the occupier of land was to pay either a defined or a reasonable compensation to the owner. Hence the impossibility of charging a trespasser in assumpsit for use and occupation.

This last excursus upon the failure of the count for use and occupation to evolve into a quasi-contractual action is a good illustration of how our laws--or, at least, the forms of action--have evolved, or failed to evolve.

Permitting a plaintiff to sue a trespasser in assumpsit for use and occupation, rather than for the damages that would be awarded in an action of trespass, would be an example of the practice colloquially known as `waiving the tort and suing in assumpsit'. The policy behind such actions is summed up in the maxim that no one should be allowed to profit from his own wrong. If I receive a benefit by wronging you, you may or may not have an action for the damages that you suffered because of my wrong, but one would think, at least, that--ex aequo et bono--I should be able to recover those benefits from you. And, in fact, I often can recover those ill-gotten benefits (or their value) from you; very often I can recover them (or, more often, their value) in an action of indebitatus assumpsit. In particular, as Lord Mansfield pointed out in Hambly v. Trott, "if a man take a horse from another, and bring him back again; an action of trespass will not lie against his executor, though it would against him; but an action for the use and hire of the horse will lie against the executor." On the other hand, and this is the important point, if a man takes possession of the land of another and then surrenders that possession, an action of trespass will not lie against his executor, though it would against him; and an action for the use and occupation of the land will not lie against the executor, because it would not lie against him.

One cannot explain the difference between these two cases on any theoretical ground, nor can one explain it by citing any principle. The maxim that a man should not be allowed to profit from his own wrong applies equally well to both cases: in the first the defendant's decedent benefited by using the horse; in the second he benefited by using the land.

The only explanation for the difference is the historical one given in the last passage quoted from Ames. In some cases the maxim will be applied and the law will permit an action of indebitatus assumpsit; in other cases that seem identical in principle the law will not permit the action.

Ames 167-71.

This statement may not be true today. See, once again, Raven Red Ash Coal Co. v. Ball.

But it was true historically.

The action of trespass does not survive against the executor in either case for reasons that

Lord Mansfield explains in Hambly v. Trott.

256 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW 1.18.4 The Historical Evolution of the Forms of Action At this point it would probably be best to summarize the historical evolution of the forms of action, especially those that have a restitutionary function, i.e., those in which the successful plaintiff recovers an entitlement.

In the first place, you should recall that all of the actions that we have considered so far have been actions at law.

The crucial characteristic of actions

at law is that they end with a judgment, and that that judgment, to the extent that it is not self-enforcing,

is enforced by the sheriff.

One consequence of

this is that there are a very limited number of types of the judgments that a court of law can issue and that can be enforced by the sheriff; for our present purposes

there are, in fact, only three types of judgment: a judgment for money,

a judgment that the plaintiff is entitled to the possession of land, and a judgment that the plaintiff is entitled to the possession of a chattel. The limitations on the sheriff's ability to enforce a judgment is a very strong constraint on the types of actions that can be created by a law court.

In the second place, it is important to realize that all of the actions that we have considered so far, except one, were commenced by an original writ issued by the Chancellor in the name of the king. The one exception is replevin. One could not start an action without first buying an appropriate writ from the Chancellor's clerks, and if there was no writ that fit the facts of one's case, then one simply was out of luck.

And now a note about the terminology that I shall be using in this summary. What the plaintiff seeks--and, if he is lucky, gets--in an action I shall call `relief' rather than `a remedy.' For our present purposes,

we can limit our discussion

Some picky types might claim that all actions without exception are actions at law: one

has actions at law, but suits in equity.

A judgment for the defendant dismissing the action is an example of a self-enforcing

judgment.

Another very important characteristic of a judgment, though it need not detain us at this

point, is that a judgment creates facts. For example, it may be a fact that A has a cause of action against B for damages for assault and battery, but when A sues B on that cause of action and receives a judgment against him for $100, the judgment creates a new set of facts that were not true before the judgment: A no longer has a cause of action for assault and battery against B and B now owes A a debt in the amount of $100.

We are ignoring judgments in criminal actions and judgments that (or to the extent that

they) are self-enforcing or create facts.

This overlooks the fact that in the Court of Exchequer, and sometimes in King's Bench,

an action could be started by a bill, which corresponds to a modern complaint, rather than by an original writ. But one could not get a bill unless there was a writ available that did fit the facts of one's case, so this apparent exception actually makes no difference for our limited purposes.

The other forms of relief that we need not discuss include various forms of preventive

relief, such as injunctions against a continuing tort. Preventive relief is [almost] never granted by law courts; it is a characteristic form of equitable relief.

I suspect that there can be no complete and consistent listing of the various possible forms of relief. The types of relief listed in the text, on the other hand, are, I believe, suAEcient for

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 257 to two major forms of relief: `restitutionary relief' and `remedial relief'.

The successful plaintiff seeking restitutionary relief obtains some entitlement that he claims is his by right. In the simplest cases the claim will be based on a property right. Thus, for example, Ms. Livengood sought restitution of her cat from Mrs. Markusson because she claimed the cat was her property (or, more technically, because she claimed a property interest in the cat). Restitu- tionary relief can be divided into three subdivisions: specific restitution, generic restitution,

and value restitution. The plaintiff who is awarded specific resti-

tution recovers something specific; thus, for example, the Ms. Livengood, if she was successful at trial, would have been awarded specific restitution of the specific cat. Generic restitution, for practical purposes, is limited to the type of restitution that is obtained in an action of debt or--once the amount due is ascertained--in an action of account: the plaintiff claims restitution, not of some specific money, but of a certain amount of money. Thus, for example, in Williams Management Enterprises, Inc. v. Buonauro the plaintiff claimed, but failed to recover, specific restitution of the money that was embezzled by R. Bruce Williams and then left with his lawyer Buonauro, the defendant, but the plaintiff could have recovered a judgment for generic restitution against R. Bruce Williams himself, in, say, an action of account. One way of looking at Williams Management is to say that the trouble with the action against Buonauro was that the plaintiff could not trace any specific money into Buonauro's bank ac- count. The plaintiff who recovers value restitution does not recover the specific entitlement that he claims, but rather its value. Thus, for an example of value restitution, consider Johnson v. Covey, in which the plaintiff in claimed some pipe as his own, but recovered the value of the pipe.

The successful plaintiff seeking remedial relief obtains some remedy for a harm (or loss) that he has suffered. Remedial relief almost always takes the form of monetary damages in the amount of the plaintiff's loss. An example of such relief is the recovery of damages for pain and suffering in a personal injury case based on negligence or trespass. In theory, it is also possible that remedial relief may take the form of a specific remedy, but such cases are very rare and today could arise only in equity. If you insist on an example, there once was a case in which a defendant was ordered to repair a castle that the defendant had (in the modern vernacular) wasted to spite the plaintiff.

Damages have

historically been associated with torts, i.e., with actions in which the gravamen of the complaint is that the defendant has done something wrong; there is, however, no logical reason requiring a plaintiff to show a wrong by the defendant in order to recover damages. In that context, consider modern actions in which liability for damages is imposed on the defendant `without fault'.

our present discussion.

Specific restitution and value restitution are established labels. Generic restitution, on

the other hand, is my own invention and, in so far as I know, has never been used before. I trust the usefulness of the label will be some compensation for its novelty.

Vane v. Lord Barnard, 2 Vernon 738, Prec. Ch. 454, Gilb. Eq. 127, 2 Salk. 161

(Chancery, 1716).

258 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW

Let us first look at the forms of action that existed in the time of Glanvill toward the end of the twelfth century. There was replevin--that living fossil-- and then, as you will recall, there were, according to Maitland, two distinct categories of writs, the writs that began with the words Praecipe quod reddat-- faciat--permittat, in which the sheriff is to bid the defendant render (do, permit) something, and the writs that began with the words Si te fecerit securum. Of the writs in the first class, the praecipe writs, the real proprietary writs (e.g., the writ of right), debt and detinue (which were really the same writ), and perhaps account, were already in existence in Glanvill's day. Of the writs of the second class, only some of the possessory assizes had been invented by Glanvill's time, and he was probably instrumental in their invention.

We can begin our summary with Replevin, since its history is remarkably simple. Replevin was commenced in one of the local courts, but could be re- moved to the Royal Courts, which explains why it was not commenced by an original writ. Originally replevin was used only to recover goods or chattels that had been wrongfully distrained, and in England it was not greatly used for other purposes. In its original form replevin was used to obtain the specific restitu- tion of chattels before trial: the action was commenced by the sheriff replevying the chattels, then a trial was held to determine whether they in fact had been wrongfully distrained. In the United States, replevin (in a form usually modified by statute) has become an action that can be brought in any case where the de- fendant has wrongfully taken chattels belonging to the plaintiff; in many states the defendant can post a bond, rather than returning the replevied chattel, and thus the action has, at the defendant's option, been converted into one for value restitution. An other difference between modern replevin in the United States and replevin in its original form is that replevin can now be brought without the necessity of first having the sheriff seize the chattels at issue. Thus, in the United States, replevin has pretty well replaced detinue, at least in those cases where detinue has not been replaced by conversion.

Next we can trace the history of the Praecipe actions, both those that existed in Glanvill's day and those that were created shortly afterwards.

The Real Proprietary Actions were probably the most ancient of the praecipe actions. They were for the specific restitution of an estate in real property which the plaintiff claimed of right. Etymologically speaking, any action for specific restitution can be classified as a real action, since in specific restitution a specific res is recovered; in fact, that is how real estate got the label `real', it is the only thing--res just means `thing'--that could be specifically recovered in an action at law.

These old real proprietary actions need not

concern us greatly in this course, since today their function is performed by the action called ejectment. This is not to say that the real proprietary actions are unimportant, on the contrary the modern substantive law of real property is

We can ignore the appeals of felony on the grounds that they were primarily criminal

proceedings that were replaced by proceedings by indictment.

Some people classify replevin as a real action, even though it results in the specific resti-

tution of personalty.

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 259 little more than a distillation of the rules first established in those actions. In fact, it is impossible to understand the modern law of real property without some sort of understanding of the workings of those real actions.

Debt & Detinue were originally one writ, though Glanvill writes of them separately. They both, in form, were indistinguishable from the writ of right, the most ancient of the real proprietary actions. These three writs were, like all praecipe writs, restitutionary; they differed from each other only in the form of restitution that was recovered by the successful plaintiff.

Originally Debt was the action by which a plaintiff could recover, not a specific thing as in a real action, but a specific quantity of something that in turn was describable only in generic terms. If a plaintiff sought to recover twenty bushels of grain that he had stored in the medieval equivalent of a grain elevator where it was commingled with the grain of many other depositors, it would, in practice as well as in legal theory, be impossible for anyone, let alone the sheriff, to identify the specific grain that had been deposited by the plaintiff. In those circumstances it would be impossible for the sheriff to restore the plaintiff's specific grain to the plaintiff's possession, but it would not be impossible for the sheriff to restore twenty bushels of grain, selected at random from the grain in the elevator. It is this type of restitution, where the plaintiff does not recover a specific thing, but rather recovers a specific quantity of something, that I have labeled `generic restitution.' In its original form, debt was the action by which the plaintiff sought restitution of a specific quantity of some goods or chattels belonging to the plaintiff but in the defendant's possession.

Since, as we will see, in detinue, which in form was an action for specific restitution of a specific chattel, the successful plaintiff (though perhaps not in Glanvill's day) only recovered value restitution (i.e., a judgment for the mone- tary value of the chattel, rather than the chattel itself) it is not surprising that the successful plaintiff who was suing in debt for generic restitution of twenty bushels of wheat actually recovered a judgment for the value of twenty bushels of wheat. Thus debt, for all practical purposes, became an action to recover a specific sum of money owed to the plaintiff by the defendant or to recover the value of a specific amount of other fungible goods.

A debt

could be created in several different ways: by a covenant or promise

to pay a specific sum of money to the plaintiff set forth in a sealed writing (such a sealed instrument is often called a `specialty'), this is what Ames calls a `formal contract'; by a grant in exchange for a quid pro quo

(as when B buys A's

horse Dobbin and agrees to pay A 20 pounds in exchange), this is what Ames calls a `real contract'; by custom (for example, B might owe A 20 pounds in accordance with the custom of merchants); by statute (the Internal Revenue Code, for example); by a judgment or decree of a court (for example, a court

Unfortunately the word `debt' came to be applied to both the cause of action to recover

a specific sum of money owed by the defendant and to the obligation of the defendant to pay that sum of money to the plaintiff.

A quid pro quo is simply the Latin for a `this for that'.

260 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW might adjudge that B owes A 20 pounds as damages for injuries to A's nose caused by B 's negligence); or, in a few cases, in order to prevent the defendant from being unjustly enriched at the defendant's expense (according to Ames, as you will recall, these were cases where account would also lie). A debt that is created by a so-called `real' or `formal' contract can reasonably be considered as arising from a contract, as being ex contractu; a debt that is created by custom, by statute, by a judgment, or by a court in deference to the equitable principle of avoiding unjust enrichment obviously does not arise ex contractu, so such debts are said to arise quasi ex contractu and an action to recover such a debt is said to be quasi-contractual.

There was, however, one limitation that remained true of debt throughout its history. Debt could be brought only to recover a `sum certain', i.e., a spe- cific amount of money (or the value of a specific amount of fungible goods). There were two other limitations that made most actions in debt unattractive to plaintiffs and their lawyers: the defendant could insist on trial by wager of law and, because of the defendant's right to wage his law, the action did not survive the death of the debtor. There were apparently three exceptions where trial in an action of debt was not by wager of law: where the action was on a judgment, where the action was on a specialty, and where the action was on for rent. With the exception of those three exceptions, some form of the action of assumpsit eventually became available wherever debt was available.

Detinue was originally the action used to recover goods that had come into the defendant's possession rightfully, but belonged by right to the plaintiff. In form, as was the case with the writ of right for the recovery of real property, the defendant was ordered to make specific restitution; in practice, however, after the time of Glanvill, the successful plaintiff recovered a judgment for money against the defendant, not a judgment for specific restitution. It was this that kept detinue from being categorized as a real action.

The vendee of a chattel that remained in the possession of the vendor could recover the chattel in detinue and a bailor could recover the bailed chattel from the bailee; such actions were labeled `detinue sur bailment'. In time detinue became available in other cases and could be brought by the true owner against a finder or someone whom today we would classify as a converter; such actions were labeled `detinue sur trover '.

Detinue suffered from the same disadvantages as debt: (i) The defendant could wage his law and (ii) The action did not survive the death of the defen- dant.

The action of trover and conversion (also known simply as conversion)

became available in all cases where detinue could be brought. In the United States, replevin also became a possible substitute for detinue.

Account was another praecipe action, as old, or nearly as old, as debt and

This strikes me as rather silly, but it is the result of well intentioned efforts to categorize

actions that are uniquely part of the common law under headings that were uniquely adapted to descriptions of the Roman law.

That is illustrated by Hambly v. Trott.

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 261 detinue. It resembled debt in that it was an action to recover money owed to the plaintiff; but differed radically from debt in that the action did not have to be brought for a sum certain. Account was only available, however, when there was some sort of fiduciary relation--some sort of `privity'--between the plaintiff and the defendant. Originally it was available only in an action by a landlord against his bailiff-his farm manager and rental agent-, but eventually it was extended to cover other relationships including that between copartners and eventually, by statute, that between cotenants (where one cotenant could be required to account to the other for rents and profits received). It also became available in cases where money was paid by mistake or under duress to the defendant, and thus the action for money had and received was originally brought as an action for an account.

Account was a two-step process: first the matter was referred to auditors to determine exactly how much was owing from the defendant to the plaintiff and then the court entered a judgment for the amount that the auditors found to be due.

Account and debt were concurrent in those cases where account was available but the plaintiff sought a sum certain. In time, some form of an action in assumpsit became available wherever account was available. These concurrent forms of relief might have rendered account obsolete by themselves, but what really did it in

was the fact a far more versatile proceeding was available from

the courts of equity: the suit for an accounting.

Covenant was also a praecipe action, though probably not quite as old as the others. Its existence must be an embarrassment to anyone who believes that there is some sort of fundamental difference between a conveyance and a con- tract. Just as the action of debt was brought to recover a debt, and the action of account was brought to obtain an accounting, so the action of covenant was brought to enforce a covenant, i.e., a promise to do, or refrain from doing, some- thing in the future. Covenant was, in form, quite as restitutionary as debt or detinue--or as the real proprietary actions for that matter. On the other hand, one could hardly expect the sheriff to be able to enforce specifically every con- ceivable entitlement that might be created by a promise--consider, for example, a covenant to build a castle for the plaintiff.

It is therefore hardly surprising

that the successful plaintiff in covenant did not recover specific restitution of the performance promised by the defendant; instead, as was the case in detinue, the plaintiff recovered as so-called `damages' the value of the promised perfor- mance, that is, in modern terms, the plaintiff recovered `expectancy damages',

In some states account retains some importance as the only way in which one cotenant

can obtain an accounting for rents and profits received by another cotenant.

Suits for an accounting in equity often result in restitutionary relief: the imposition of a

constructive trust or an equitable lien upon certain property of the defendant's.

Later specific restitution and specific performance became available in equity; unlike the

sheriff, who was supposed to do the job himself, the court of chancery had little diAEculty in ordering the defendant to turn something over to the plaintiff or to keep his covenant to the plaintiff.

262 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW recovered the value of his expectancy.

It thus appears that the relief obtained in the action of covenant was identical to that recovered in a modern action for breach of contract (except that in the modern action the plaintiff can also recover special damages and the defendant may offset the value of any part performance). Covenant was never an important action, however. In part the infrequency of its use may be explained by the fact that the medieval common law courts were more concerned with feudal relations and land than they were with mercantile relations. Matters that today, and in the eighteenth century, would be handled by common law courts in actions for breach of contract, were in earlier times dealt with by the separate courts that enforced the law merchant. The greatest limitation on the availability of covenant, however, was that it could only be brought to enforce a promise made in a sealed writing;

oral contracts and written contracts not under seal did

not give rise to the action.

That is why Ames was able to dismiss covenants

as `formal contracts'.

A promise under seal to pay a sum certain of money was enforceable by an action of debt, rather than an action of covenant. Covenant was eventually superseded by the action of special assumpsit, the modern action for breach of an express contract, and, of course, in appropriate cases by the modern suit in equity for specific performance.

That exhausts the list of praecipe actions. Those actions taken all together, despite their procedural shortcomings, afforded a plaintiff adequate relief in any case where he claimed the right to restitution of property or of some other enti- tlement, even the expectancy created by a contract (provided that the contract was under seal). What is missing, of course, is any action in which the plaintiff could recover for injuries caused by the defendant:

trespass and the other tort

actions had not been invented in Glanvill's time.

The other group of writs listed by Maitland were the writs that began with the words si te fecerit securum, which writs we shall now consider. Maitland lists the writs that fall into this category: "the possessory assizes, trespass and all of the forms developed out of trespass, viz., case, assumpsit, trover." Of these actions only the Possessory Assizes existed at the time of Glanvill, and

This limitation may have been as much a product as a cause of the lack of demand in the

middle ages for an action for breach of covenant.

The major difference from a substantive point of view between covenant and the modern

action for breach of contract is that covenants were enforceable by virtue of being embodied in a writing under seal, while modern contracts are enforceable only if there is `consideration', whatever that may mean.

Today this point is to some extent obscured by the fact that actions for damages based

on tort are available, and have been for centuries. It is thus quite reasonable to say today that the plaintiff who has been assaulted is `entitled' to collect his damages. But it was not possible to say that in Glanvill's day, when damage actions had not yet been created. And even today there is a useful distinction between an action to recover something that you own (or that is owed to you--like the money that you have `in the bank') that is in the defendant's possession or control, on the one hand, and an action to recover damages for an injury that you have suffered on the other.

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 263 they had just been invented, probably with the assistance of Glanvill himself.

The first and best known of these actions--and probably the only one known in Glanvill's day was the `Assize of Novel Disseisin'. It was an action to recover the possession (seisin) of land. Described that way, it might seem that novel disseisin was a restitutionary action. It was, however, probably not thought of in that manner in Glanvill's time; the action that one used to recover an estate in land was the writ of right, or one of the other real proprietary actions. Those actions, however, were subject to innumerable delays

and, consequently, it

took an inordinately long time for a plaintiff to vindicate his right to the land. If A were disseised--i.e., forcibly dispossessed of his land--by B, it might take years before A would win--or lose--a real proprietary action against B, and in the meantime B would enjoy the possession of the land that he had acquired through an act that A and the king and the royal judges all considered to be wrongful. The assize of novel disseisin was created

to remedy such wrongs and

to restore the disseised plaintiff to the possession of his land without compelling him to prove that he had the right to possession.

It may be simplest to think of novel disseisin and the other possessory as- sizes

as interlocutory proceedings rather like preliminary injunctions intended

to preserve the status quo. But, for our purposes, considering the later avail- ability of trespass on the same facts, it is probably best to treat the possessory assizes as actions in which the relief granted the successful plaintiff was a spe- cific remedy, damages having not yet been invented.

The most important

characteristic of the possessory assizes was that trial was by that newfangled institution, the jury. The possessory assizes were ultimately superseded, as were the real proprietary actions, by the action of ejectment.

The possessory assizes are not important today except to the extent that they were ancestral to, or served as a model for, the action of Trespass, the first action known to the common law in which the plaintiff recovered damages for the loss or harm that he had suffered because of the wrongful act (i.e., the tort) of the defendant. I suspect that the slow development of the damage remedy in the common law resulted in part from conceptual limitations; in cases

And of these actions, it is only the possessory assizes that no longer exist.

For example, in the praecipe wroit of right the defendant could postpone answering for a

year and a day by the simple expedient of going to bed for that length of time.

By a deliberate act of legislation.

It was enough that the plaintiff's prior possession had been peaceful, even if it were

wrongfully acquired.

The other possessory assizes allowed the plaintiff to recover possession in cases where the

defendant had acquired seisin of the land irregularly, but not by disseising the plaintiff. Thus, for example, the assize called mort d'ancestor was available in the case where the plaintiff's ancestor was seised of the land and then died and the defendant snuck in and took possession of the land before the plaintiff was able to establish his own seisin.

Such a specific remedy, of course, cannot perform the primary function of damages, which

is to make good loses that cannot be repaired. One cannot go back and change the specifics of the past.

264 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW where restitution is possible one can, in a sense, undo what happened in the past. But if there is no possibility of undoing the past, how can one make the injured party whole?

The writ in trespass always contained the allegations that the defendant had acted with force and arms against the kings peace,vi et armis and contra pacem regis.

indicating that it is the defendant's wrongful act that is the basis of

the action; unlike the praecipe writs, the writ in trespass did not start with a command to the defendant to render something to the plaintiff that the plaintiff claimed of right.

There are three different types of trespass action: trespass to the person (which includes actions for assault, battery, etc.), trespass to land (where the traditional allegation was that the defendant had broken the plaintiff's `close',

the often imaginary enclosure that surrounded the plaintiff's land), and trespass to chattels (the tort was based on any interference with the plaintiff's possession of the chattel in question, but the standard allegation was that the plaintiff was complaining `of goods carried off'.

In a trespass action the `facts', including the amount of damages, were de- termined by a jury. In the case of trespass to the person it is extremely diAEcult to conceive of the damages as being in any sense restitutionary, for the success- ful plaintiff recovers damages equal to his pain and suffering,

not to anything

possessed or promised by the defendant. On the other hand, in the case of trespass to chattels, when the goods are actually carried off by the defendant, the damages for the loss of the goods will be equal to the value of the goods carried off by the defendant.

That value is equal to the amount that would

be recovered by the plaintiff in the restitutionary action of detinue.

It often

happens that the loss to the plaintiff equals the gain to the defendant; in such

These allegations were similar to the allegations made in the appeals of felony, which were

the predecessors of the modern criminal proceedings instituted by indictment.

The Latin for this allegation is quare clausum fregit, whence trespass to land is often

called `trespass q.c.f.'

In Latin: de bonis asportatis, whence the name trespass d.b.a. for trespass to chattels.

One may suspect that the idea of calculating the value of pain and suffering is nonsense,

and that that is why the responsibility of calculating damages is assigned to the jury. I doubt that the judges would have ever been very receptive to damage actions, were it not for the invention of the jury.

There may, of course, be some additional loss to the plaintiff that could be recovered in

trespass as part of the damages suffered, but that could not be recovered in detinue or any other restitutionary action. In the text, however, it is assumed that the only loss is the loss of the goods carried off.

I am not sure that the courts ever allowed an action of detinue to be brought against a

defendant who took the chattels with force and arms and against the king's peace, but there is no theoretical reason that detinue sur bailment would not have been available.

It perhaps should be noted that at some point the courts decided that the plaintiff in an action in detinue could recover incidental special damages as well as specific or value restitution. Those incidental damages were calculated by a jury, even though the issue of liability in detinue was normally determined by wager of law.

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 265 cases there is little reason to distinguish between damages and value restitu- tion.

On the other hand, when the amount of damages is not equal to the

recovery that would be available on a restitutionary theory, the distinction can be of critical importance.

Trespass has, of course, survived and flourished down to the present day even if some cases, which originally would have been brought in trespass, are now brought as actions on the case for negligence.

Over the centuries out of trespass grew the action known as Case.

closely resembles trespass and is a catch-all action for damages arising from any wrong that did not fall into one of the three categories of trespass. Thus case can be brought to recover damages for wrongs as diverse as deceit, private nuisance (a non-trespassory interference with the plaintiff's use and enjoyment of land), libel and slander, and negligence. Case probably got its name because it was the one writ in which the plaintiff had to plead the specific facts of his case, rather than merely filling in a few blanks in an otherwise standardized form. Trial in case, as in trespass and the possessory assizes, is by jury and the damages recoverable are the amount of the plaintiff's loss caused by the defendant's wrong: there is nothing restitutionary about case in its pure form.

Ejectment is a restitutionary action that rather surprisingly evolved out of trespass, the quintessential damage action. Originally ejectment was devel- oped to give a cause of action to termors

so that they could obtain specific

restitution of their estates, there being no way that a termor could bring a real proprietary action or even a possessory assize. The procedural advantages of ejectment were so great that, by use of a farrago of fictions, ejectment finally be- came available to freeholders and replaced both the real possessory actions and the possessory assizes. This replacement of many old actions by ejectment made plaintiffs' lives easier, but it did not make the law of real property any easier-- quite the contrary. The `rules' that had evolved separately with respect to each of the older writs remained the substantive law of real property; ejectment was in general available when, and only when, relief would have been available under one the earlier writs. Since the older writs have been abolished, or at least are not used any longer, it has become increasingly diAEcult to understand or apply the substantive law of real property that evolved as those writs evolved.

Trial in ejectment is by jury; the successful plaintiff obtains specific resti- tution of both the title and the possession of the contested land.

Ejectment

is the only action descended from trespass or case that results in specific resti-

Or between specific remedies and specific restitution.

A.k.a. `trespass on the case'.

`Termors', as you will recall, were tenants for a term of years and a term of years was not

classified as a freehold estate. Only freeholders--that is, tenants for life, in fee tail, and in fee simple--were able to bring one of the real proprietary actions or one of the possessory assizes.

After recovering the land, the successful plaintiff can recover from the defendant the

`mesne profits' from the land for the period that it was in the defendant's possession. The award of mesne profits takes the form of a judgment for money.

266 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW tution rather than in a judgment for the payment of money, but it does share the characteristic of being restitutionary with assumpsit and conversion, even though the latter action is still formally a tort.

The two remaining actions that we must consider both grew out of case. One is the action known as Conversion or, more long-windedly, `Trover and Conversion'. Conversion is in form an action for the damages suffered by the plaintiff because of the defendant's `wrongful' conversion

of the plaintiff's per-

sonal property

to the defendant's use; but you will recall that in Hambly v.

Trott Lord Mansfield indicated that conversion is in reality based on the right of property, that is, that it is a restitutionary action. The successful plaintiff in a conversion actions gets the value of the converted chattel--at the time of the conversion--as damages for the amount of his loss, but one can also say that such a plaintiff recovers the value of the chattel converted by the defen- dant as restitution of its value. A good reason for considering conversion as a restitutionary action is that it came to replace detinue, which was specific resti- tutionary in form and value restitutionary in substance. The major advantage that conversion had over detinue is that trial was by jury rather than wager of law.

The final cause of action to be discussed is Assumpsit. Like conversion the action of assumpsit evolved out of case; unlike conversion, however, assumpsit is no longer considered to be a tort action in form. On the other hand, some early types of assumpsit actions were, as Maitland points out, actions for dam- ages resulting from a tort committed by the defendant: e.g., an action against a blacksmith who undertook to do a workmanlike job of shoeing your horse and proceeded to lame it instead, or an action against a bailee for negligently damaging the bailed goods. Such cases may still be brought as assumpsit--or `contract'--actions, but that does not change the fact that they are indistin- guishable from other actions in tort. Most modern assumpsit actions, however, do not sound in tort; they are for `damages'

for breach of a contract or for the

restitution of some entitlement arising from a so-called quasi-contract.

As the action of assumpsit evolved, the allegation that the defendant `un- dertook' or `promised' took on an almost magical effect. Just as the action of

A conversion can be defined, roughly, as any act affecting a chattel that is inconsistent

with its owner's rights as owner. Buying, selling, and eating someone else's goods are all actionable conversions of those goods. One of the odd features of conversion is that, though it is treated as a tort, the converter can be--and often is--innocent of any wrongdoing. Anyone who buys goods runs the risk of being such an innocent converter--and will be one if the seller did not have title to the goods.

Conversion does not lie for real property and there is no action analogous to conversion of

real property. The underlying idea is that real property cannot be converted--or stolen; but whether this explains why an action like conversion is not available against a defendant who occupies and modifies real property of the plaintiff's is debatable. It is just as likely that we are under the impression that real property cannot be converted to a defendant's use because no action in the nature of conversion is available in such a case.

As we shall shortly see, most assumpsit `damages' are actually instances of value restitu-

tion.

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 267 covenant could not be brought unless there was a sealed writing containing the covenant, so the action of assumpsit could not be brought unless the defendant expressly said--or wrote--the words `I assume' or `I promise' or `I undertake' or their equivalents. The formal requirements in assumpsit were not as strict as those in covenant, but the plaintiff would lose his case unless the jury found that the defendant had expressly undertaken to do whatever it was that he allegedly did badly or failed altogether to do.

In time a new form of assumpsit action developed in which the plaintiff was not required to prove an actual express assumpsit. This lead the action of as- sumpsit to be divided into two classes, special assumpsit, where there was an express special promise--the assumpsit--to do or refraining from doing some- thing and general (or indebitatus) assumpsit, where there was no such special undertaking. Whichever form of assumpsit was brought, the trial was by jury, the cause of action survived the death of the party who made the assumpsit,

and plaintiffs were not plagued with the other petty technicalities that were characteristic of praecipe actions.

Special Assumpsit is the action that we think of as the action for breach of contract. You have undoubtedly already learned a great deal about the formation of contracts and the acts that amount to their breach, so we need not explore those matters here. Our concern is with the nature of the relief granted to the successful plaintiff in such an action.

One way to look at the action of special assumpsit is to see it as a func- tional replacement, and expansion,

of the old praecipe action of covenant. A

covenant, you will recall, was looked upon as a grant or conveyance of some- thing, and it is hard to conceive of that something as being anything other than an act (or forbearance) to be performed in the future. A lot of lawyers and legal academics have had diAEculty upon looking at modern contracts in that way; their diAEculty seems to be that they do not think that one can make a present conveyance of an entitlement that will not come into existence until some future time. But there should be no diAEculty in conceiving of the present creation and conveyance of a future interest. I submit that there is little conceptual differ- ence

between the creation and conveyance of an entitlement to have, say, a

house built in the future and the creation and conveyance of a springing execu- tory interest in a house that already exists. This way of looking at contractual obligations underlies the approach of courts of equity when they order specific performance of a contract while reciting the mantra `equity considers that to be done which ought to be done'; thus the buyer of a parcel of land pursuant to a specifically enforceable executory contract is considered to have `equitable title' to the land. On this view, the `expectancy damages' awarded to a plaintiff in an action of specific assumption correspond exactly to restitution of the value

This did not happen immediately, but, as Hambly v. Trott teaches us, it was true by the

time of Lord Mansfield.

The action of covenant was limited to sealed contracts.

Whatever the practical distinctions may be.

268 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW of the expectancy, of the entitlement.

The functional identity between the relief granted in covenant and that granted in special assumpsit is illustrated by the fact that historically one could not sue either in covenant or in special assumpsit to recover a debt, even though the debt was created by a covenant under seal or a promise supported by a quid pro quo or other consideration. A plaintiff who was owed a debt had an action in debt, not in covenant or assumpsit. Similarly a plaintiff who owned a chattel that was detained by the defendant had an action in detinue, not in assumpsit, even if the right to the chattel were created by a promise supported by a quid pro quo or other consideration.

The plaintiff's recovery in special assumpsit was not limited to value resti- tution of the plaintiff's expectancy, for special assumpsit has never totally lost its original connection with the tort action of case. The plaintiff in special as- sumpsit can recover not only `expectancy damages', i.e., value restitution, but also `special damages', which are not restitutionary, but are rather true dam- ages representing the loss to the plaintiff caused by the defendant's breach of his undertaking. On the other hand, in those cases where the plaintiff elects to recover the consideration that the plaintiff gave in return for the defendant's promised performance, rather than the performance itself, the plaintiff's action is not is special assumpsit, rather it is an action in indebitatus assumpsit based on a quasi-contract.

Indebitatus Assumpsit is not so easy to describe. It is rather a catch-all, an action supplying a restitutionary remedy in many different factual situations. Trial in indebitatus assumpsit is by jury and it has exactly the same procedural advantages as special assumpsit. As in special assumpsit, the relief obtained by the successful plaintiff is a judgment for money.

One form of indebitatus assumpsit is identical to special assumpsit, except that the defendant's undertaking was not express, but rather implied in fact; that is, the undertaking is implied by the defendant's conduct and the total sit- uation rather than by the defendant's words. Where the undertaking is implied in fact, rather than expressed in words, the agreement is not likely to be very lengthy. In particular, there would not be an express promise by the defendant to pay the plaintiff a certain amount. For this reason, among others, certain standard counts, such as money loaned, goods sold and delivered,

work, labor,

and services,

use and hire of goods, and use and occupation of land,

came

into common use, by which the plaintiff could recover the value of the goods, services, or whatever that he had supplied to the plaintiff. In such cases the plaintiff's recovery is clearly restitutionary, though whether it is restitution of

This count is also known as quantum valebat or quantum valebant, the Latin refers to the

value of the subject of the sale.

This count is sometimes also described as a quantum meruit, though we have seen Ames

use the term in connection with the count for use and occupation of land.

This particular count was authorized by statute and was only available between a landlord

and tenant; an issue in Raven Red Ash Coal Co. v. Ball was whether the count could be extended to cover the case where the defendant was not a tenant, but rather a trespasser.

September 11, 2000

1.18. FORMS OF ACTION AND THE SYSTEM OF WRITS IV 269 the plaintiff's expectancy under the contract or of the consideration that he supplied is a point not worth debating; even when the plaintiff could sue on a special contract, he had the option of suing instead in indebitatus assumpsit, though that would be a silly thing to do, since in such a count he could recover no more than the lesser of the value of the consideration that he had supplied or the amount that the defendant had specially promised to pay.

Indebitatus

assumpsit also, in many cases, became available as a replacement for the action of debt.

In some cases the debt was created by what Ames calls a `real contract'-- that is, a grant or conveyance. Originally, in such cases, the plaintiff had to prove that the defendant had undertaken to pay the debt after the debt itself had arisen, even if the defendant had expressly promised to pay the debt at the time of its creation.

Finally, in Slade's Case, it was held by all the judges

of England that a second undertaking was unnecessary, that an undertaking to pay the debt made before or contemporaneously with the creation of the debt was suAEcient to support an action in indebitatus assumpsit. In such cases there is, of course, an actual contract, or at least an actual promise.

There were, however, cases in which debt was available, but where there was no actual undertaking, express or implied, by the defendant to pay the debt. Examples are debt based on a statute and debt based on a custom.

In time indebitatus assumpsit became available as an alternative to debt in both those cases; the only problem was that such an action clearly was not based on a contract. The unfortunate solution to this problem was to label such actions in indebitatus assumpsit as `quasi-contractual'. It would have made much more sense to have recognized that the meaningful distinction was between restitutionary actions and damage actions, rather than trying to draw a line between contract actions (including quasi-contract actions), on the one hand, and tort actions (but excluding the recovery of special damages in a `contract' action), on the other.

There was one more--and, for our purposes, very important--type of quasi- contractual action that could be brought in indebitatus assumpsit, the action in which the defendant's obligation to make restitution arises ex aequo et bono, from equity and good conscience. Before indebitatus assumpsit became avail- able, such relief could sometimes be obtained in an action of account and, con-

Moses v. Macferlan may be analyzed as a case in which the plaintiff elected to sue in

indebitatus assumpsit rather than on the special contract. By doing that, Moses lost the opportunity to recover the costs of defending the suit in the Court of Conscience, amounts that he would have been entitled to recover if he had sued on the agreement to save him harmless.

That, in fact, is how `indebitatus assumpsit' got its name: the plaintiff had the plead that

the defendant `being indebted undertook' to pay the debt.

Another example would be debt based on a record, i.e., a judgment. One could not,

however, bring indebitatus assumpsit for debt based on a record.

An action against an endorser of a note or bill of exchange, such as the action brought by Macferlan against Moses in the Court of Conscience that is described in Moses v. Macferlan, is an example of debt based on a custom--the custom of merchants.

270 CHAPTER 1. AN OVERVIEW OF RESTITUTION--LAW currently, in an action of debt. In many cases, however,--Moses v. Macferlan may be an example--such an equitable action could only be brought in indebita- tus assumpsit. Such actions are often said to be based on the unjust enrichment of the defendant. The problem, of course, is to determine when a defendant is unjustly enriched; that problem, however, involves issues of substantive law that do not belong in a discussion of the evolution of the forms of action.

There were several common counts in indebitatus assumpsit that were espe- cially adapted for claims based on the theory of unjust enrichment: the most important is the count for money had and received ; another is the count for money paid by mistake. Other common counts, such as work, labor, and ser- vices or goods sold and delivered, are also often used in unjust enrichment actions.

September 11, 2000

Chapter 2 An Overview of Restitution--Equity

2.1 Introduction This chapter continues our overview of restitution, but the focus here is on the forms of restitutionary relief that are granted by courts of equity, in particu- lar the constructive trust and the equitable lien. It also deals with equitable accountings and the issue of tracing.

One should be aware, however, although we will not consider any cases illustrating this fact, that instead of using the legal remedy of replevin

one

cannot sometimes obtain a decree of specific restitution in equity, a form of relief that is sometimes called "equitable replevin".

And one should be aware that all the quasi-contractual actions that were discussed in the first chapter are "equitable in nature" even though they are administered by courts of law.

And I suppose that I should point out that at least one case that we studied in Chapter I is as much concerned with equitable as with legal relief: The Great Onyx Cave Case.

2.2 A Constructive Trust 2.2.1 Nebraska National Bank v. Johnson

Nebraska National Bank v. Johnson 1

See Livengood v. Markusson supra Section 1.2.1.

See, e.g., Moses v. Macferlan supra Section 1.10.1.

Edwards v. Lee's Administrator, supra Section 1.17.1.

271

272 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY

Supreme Court of Nebraska

51 Neb. 546, 71 N.W. 294

(1897)

Post, C.J. This was an action in the district court for Douglas county, whereby it was sought to impress with a trust in favor of the plaintiff, the Nebraska National Bank, certain property, to wit, lots 3 and 4 of block 3, Willis Park Place addition to the city of Omaha, the legal title of which was held by the defendant Brooks R. Johnson. The cause of action alleged is, in substance, that the defendant above named was, during the month of August, 1890, and for a long time prior thereto, in the employ of the plaintiff bank, his duties being, for a fixed compensation, to sweep the bank's oAEces, to arrange and care for the furniture therein, and, while in the discharge of his said duties, to watch over, guard, and preserve, to the extent of his ability, all property of the bank, including moneys, notes, and papers; that the said defendant, on the 13th day of August, 1890, while in the discharge of his said duties, and in violation of the trust imposed in him by the plaintiff, wrongfully took, carried away, and appropriated to his own use the sum of $5,000 in gold coin, the property of the said plaintiff; that the said defendant thereafter purchased and improved the property above described with plaintiff's said money so wrongfully taken and converted by him; and that said property is now, and has for a long time been, occupied and claimed as a homestead by the said defendant and his wife, Ellen Johnson. It was further charged that the said Brooks R. Johnson is wholly insolvent, having no property whatever aside from the real estate here in controversy. The prayer was that the defendants might be adjudged to hold said property in trust for the plaintiff for a decree confirming the title of the latter, and for general relief. The defendants answered, admitting that the said Brooks R. Johnson was employed by the plaintiffs as a janitor, in which capacity, and no other, he was acting at the time of the alleged conversion, and denying each and every other allegation of the petition. A final hearing resulted in a finding for the plaintiff, and a decree in accordance with the prayer of the petition, except that the defendant Brooks R. Johnson was found to have contributed the sum of $185 of his own funds to the purchase and improvement of said property, and which sum the plaintiff was required to pay to said defendant, as a condition to the granting of the relief sought, and from which judgment and decree the defendants have prosecuted an appeal to this court.

The first proposition argued on this appeal is that, inasmuch as plaintiff's right of action depends upon the alleged criminal conversion by the defendant, the same degree of proof is required in order to establish the commission of such act as would be necessary to sustain a conviction upon an indictment or information therefor. That the authorities bearing upon the subject are not altogether harmonious, we must confess. It is, for instance, said in 2 Greenl. Ev. x 408, on the authority of Thurtell v. Beaumont, 1 Bing. 339, that "where," in an action on a policy of insurance, "the defense is that the property was willfully burned by the plaintiff himself, the crime must be as fully and satisfactorily proved to the jury as would warrant them in finding him guilty on an indictment

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2.2. A CONSTRUCTIVE TRUST 273 for the same offense." It is, however, observed in a note to the thirteenth edition of that work that the doctrine of the text above quoted, if supported by the case cited, has been very generally disapproved. There are, it is conceded, American cases which tend to support the contention of counsel, although opposed to the overwhelming weight of authority in this country, and this is particularly true of recent utterances on the subject. As illustrating the trend of judicial opinion upon the question may be cited Welch v. Jugenheimer, 56 Iowa, 11, 8 N.W. 673, in which it is said referring to an earlier case in the same court: "A more careful examination of the books satisfies us that, whatever may be the rule in actions of slander or libel, where a crime is charged, and a justification is pleaded, the rule in Barton v. Thompson [46 Iowa, 30] is in conflict with the weight of authority, and cannot be sustained on principle, and is therefore overruled." And in Kane v. Insurance Co., 39 N.J. Law, 697, the court of errors and appeals, in reversing the judgment of the supreme court, declare that the decision in Thurtell v. Beaumont, supra, was made without much consideration, and has never received approval in the English courts. See, also, Monaghan v. Insurance Co., 53 Mich. 238, 18 N.W. 797; Finley v. Widner (Mich.) 70 N.W. 433; Thoreson v. Insurance Co., 29 Minn. 107, 12 N.W. 154; Express Co. v. Jenkins, 73 Wis. 471, 41 N. W. 957; 2 Whart. Ev. x 1246; Cooley, Torts, 208.

The evidence of the plaintiff, although mainly circumstantial, certainly tends to support the allegations of the petition, and is, we think, ample for that purpose. Respecting the loss of money, and the opportunity of defendant to take and appropriate it, there can upon the record be no room for controversy. Johnson, the defendant, appears to have been financially embarrassed, and, on one occasion or more, asked for and secured the payment in advance of his wages, to wit, $50 per month. He is also shown to have pleaded poverty, and to have solicited gratuities in the way of cast-off clothing. Yet, notwithstanding that fact, he is shown to have paid out on the lots in controversy, from August 22, 1890, to January 14, 1891, covering a period of less than five months, the sum of $1,635, a large per cent of which was in gold, in addition to which there was evidence tending to prove the expenditure by him, within a few months thereafter; of the remainder of the $5,000 in question. True, there was evidence offered, explanatory in character, and which, had it been credited, would have resulted in a decree for the defendant. But, as already intimated, the finding of the court adverse to his contention must be accepted as conclusive for the purpose of this proceeding.

The other questions discussed are (1) whether the relation of the parties towards each other was a fiduciary one, in the sense in which that term is un- derstood and employed by courts of equity; (2) whether assuming, as claimed, that the evidence fails to establish any such relation of trust and confidence, will equity interfere for the purpose of declaring, in favor of the injured party, a trust with respect to property purchased by a thief, with the fruits of his larceny? The propositions implied from the foregoing inquiries, although sep- arately treated by counsel for defendants, are in fact so nearly akin that they may with propriety be discussed together. It has been held that no trust results

274 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY in favor of the owner with respect to the proceeds of property stolen by a mere servant, and that the master is in such case restricted in his remedy to an action for damage, and to a prosecution of the thief in a court of criminal jurisdiction. A review of the cases tending to support that view will not be attempted in this connection. It is suAEcient that the doctrine therein asserted is, in our judgment, indefensible on authority, and opposed to the enlightened policy of modern eq- uity jurisprudence. The doctrine of constructive trusts, as developed by courts of equity, was intended primarily as a remedy for fraud in cases where the estab- lished rules had proved wholly inadequate; and larceny, under the circumstances here disclosed, is none the less a fraud upon the owner of the property stolen because committed by a servant, instead of one who is, in the technical sense of the term, a trustee. Speaking on that subject, it is said in a recent valuable work that "the subject of constructive trusts is intimately connected with that of frauds. Indeed, the basis of all such trusts is fraud, either actual or presumed. Rightly understood, a constructive trust is only a mode by which courts of eq- uity work out equity, and prevent or circumvent fraud and overreaching. There are therefore two well-defined classes of constructive trusts, corresponding with the two classes of fraud, viz: (1) Those which are raised in cases of actual fraud, and (2) those raised in cases of presumed or constructive fraud. Those of the first class are commonly called `trusts ex maleficio.' " l Beach. Mod. Eq. Jur. x 226. And in Fetter. Eq. (1895) 187, the rule is thus formulated. "When, on the grounds of justice and good conscience, without reference to the intention of the parties, equity considers the holder of the legal estate to be not entitled to enjoy the equitable or beneficial interest, it treats him as a trustee." See, also, 2 Pom. Eq. Jur. x 1053. In Newton v. Porter, 5 Lans. 416, which was an action in equity to compel the defendants to account for the proceeds of certain stolen bonds acquired by them with notice of the plaintiff's rights, Miller, P.J., said, in reversing the decree below, dismissing the complaint: "No exception is made in favor of a person who occupies no fiduciary relation to another, and the elementary books generally do not notice any exception from the rule where the money or property has been obtained by means of a felony. It would certainly be an anomaly in the history of legal proceedings, and a grave reflection upon the administration of justice, if a felon could invest the fruits of his crime, or dispose of them in such manner as to place them beyond the reach of the law." In the same case, Balcom, J., after a review of the authorities, said: "The court should not refuse to allow a party to recover the avails of property stolen from him on any technical grounds, when the merits of the case clearly require that he should recover, and the court should jump all the technicalities, and be as astute in discovering a remedy for upholding the rights of such a party as the thief is in contriving ways and means to cheat him out of his property and the avails of it, by changing the same from one kind to another, and placing it in the hands of third persons." And the court of appeals, in aAErming the judgment of the supreme court, use language equally empathic as that above quoted. New- ton v. Porter, 69 N.Y. 133. It will be observed from an examination of the cases cited in support of the opposing view that they depend, with few exceptions, upon Pascoag Bank v. Hunt, 3 Edw. Ch. 583, but which, as remarked by Irvine,

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2.2. A CONSTRUCTIVE TRUST 275 C., in Bank v. Russell, 50 Neb. 277, 69 N.W. 763, "is directly contrary to the ruling of the same vice chancellor in Bank v. Pollock, 4 Edw. Ch. 215, and * * * opposed to the well-settled principles governing similar cases." We are, from an examination of the entire record in this case, unable to perceive any ground for interference with the decree of the district court, which is accordingly aAErmed.

AAErmed.

2.2.2 Notes on Nebraska National Bank v. Johnson

1. Weren't there actions at law available to the plaintiff in Nebraska National

Bank? Could it have brought Conversion? Replevin? Debt? Detinue? Indebitatus Assumpsit?

If any of these actions were available, why did the plaintiff sue for an equitable remedy, a constructive trust? In most cases, to get an equitable remedy the plaintiff has to prove that the remedy at law is inadequate. Were the available remedies at law inadequate in this case?

2. Nebraska National Bank is a very simple example of a "tracing" case, the

bank traced its gold coins into the defendant's house.

276 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY 2.3 Can a Murderer Profit from his Crime? 2.3.1 Riggs v. Palmer

Philo Riggs v. Elmer E. Palmer

New York Court of Appeals

115 N.Y. 506

1889

Earl, J. On the 13th day of August 1880, Francis B. Palmer made his last will and testament, in which he gave small legacies to his two daughters, Mrs. Riggs and Mrs. Preston, the plaintiffs in this action, and the remainder of his estate to his grandson, the defendant, Elmer E. Palmer, subject to the support of Susan Palmer, his mother, with a gift over to the two daughters, subject to the support of Mrs. Palmer, in case Elmer should survive him and die under age, unmarried and without any issue. The testator at the date of his will owned a farm and considerable personal property. He was a widower, and thereafter, in March 1882, he entered into an ante-nuptial contract in which it was agreed that, in lieu of dower and all other claims upon his estate in case she survived him, she should have her support upon his farm during her life, and such support was expressly charged upon the farm. At the date of the will, and, subsequently, to the death of the testator, Elmer lived with him as a member of his family, and at his death was sixteen years old. He knew of the provisions made in his favor in the will, and, that he might prevent his grandfather from revoking such provisions, which he had manifested some intention to do, and to obtain the speedy enjoyment and immediate possession of his property, he willfully murdered him by poisoning him. He now claims the property, and the sole question for our determination is, can he have it? The defendants say that the testator is dead; that his will was made in due form and has been admitted to probate, and that, therefore, it must have effect according to the letter of the law.

It is quite true that statutes regulating the making, proof and effect of wills, and the devolution of property, if literally construed, and if their force and effect can in no way and under no circumstances be controlled or modified, give this property to the murderer.

The purpose of those statutes was to enable testators to dispose of their estates to the objects of their bounty at death, and to carry into effect their final wishes legally expressed; and in considering and giving effect to them this purpose must be kept in view. It was the intention of the law-makers that the donees in a will should have the property given to them. But it never could have been their intention that a donee who murdered the testator to make the will operative should have any benefit under it. If such a case had been present to their minds, and it had been supposed necessary to make some provision of law to meet it, it cannot be doubted that they would have provided for it. It is a familiar canon of construction that a thing which is within the intention of

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2.3. CAN A MURDERER PROFIT FROM HIS CRIME? 277 the makers of a statute is as much within the statute as if it were within the letter; and a thing which is within the letter of the statute is not within the statute, unless it be within the intention of the makers. The writers of laws do not always express their intention perfectly, but either exceed it or fall short of it, so that judges are to collect it from probable or rational conjectures only, and this is called rational interpretation; and Rutherforth, in his Institutes (p.407), says: "When we make use of rational interpretation, sometimes we restrain the meaning of the writer so as to take in less, and sometimes we extend or enlarge his meaning so as to take in more than his words express."

Such a construction ought to be put upon a statute as will best answer the intention which the makers had in view, for qui haeret in litera, haeret in cor- tice. In Bacon's Abridgment (Statutes I, 5); Puffendorf (book 5, chapter 12), Rutherforth (pp. 422, 427), and in Smith's Commentaries (814), many cases are mentioned where it was held that matters embraced in the general words of statutes, nevertheless, were not within the statutes, because it could not have been the intention of the law-makers that they should be included. They were taken out of the statutes by an equitable construction, and it is said in Bacon: "By an equitable construction, a case not within the letter of the statute is sometimes holden to be within the meaning, because it is within the mischief for which a remedy is provided. The reason for such construction is that the law-makers could not set down every case in express terms. In order to form a right judgment whether a case be within the equity of a statute, it is a good way to suppose the law-maker present, and that you have asked him this ques- tion, did you intend to comprehend this case? Then you must give yourself such answer as you imagine he, being an upright and reasonable man, would have given. If this be that he did mean to comprehend it, you may safely hold the case to be within the equity of the statute; for while you do no more than he would have done, you do not act contrary to the statute, but in conformity thereto." In some cases the letter of a legislative act is restrained by an equi- table construction; in others it is enlarged; in others the construction is contrary to the letter. The equitable construction which restrains the letter of a statute is defined by Aristotle, as frequently quoted, in this manner: Aequitas est cor- rectio legis generaliter latae qua parti deficit. If the law-makers could, as to this case, be consulted, would they say that they intended by their general language that the property of a testator or of an ancestor should pass to one who had taken his life for the express purpose of getting his property? In 1 Blackstone's Commentaries (91) the learned author, speaking of the construction of statutes, says: "If there arise out of them any absurd consequences manifestly contradic- tory to common reason, they are, with regard to those collateral consequences, void. * * * When some collateral matter arises out of the general words, and happen to be unreasonable, then the judges are in decency to conclude that the consequence was not foreseen by the parliament, and, therefore, they are at liberty to expound the statute by equity and only quoad hoc disregard it;" and he gives as an illustration, if an act of parliament gives a man power to try all causes that arise within his manor of Dale, yet, if a cause should arise in

278 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY which he himself is party, the act is construed not to extend to that because it is unreasonable that any man should determine his own quarrel.

There was a statute in Bologna that whoever drew blood in the streets should be severely punished, and yet it was held not to apply to the case of a barber who opened a vein in the street. It is commanded in the Decalogue that no work shall be done upon the Sabbath, and yet, giving the command a rational interpretation founded upon its design, the Infallible Judge held that it did not prohibit works of necessity, charity or benevolence on that day.

What could be more unreasonable than to suppose that it was the legislative intention in the general laws passed for the orderly, peaceable and just devolu- tion of property, that they should have operation in favor of one who murdered his ancestor that he might speedily come into the possession of his estate? Such an intention is inconceivable. We need not, therefore, be much troubled by the general language contained in the laws.

Besides, all laws as well as all contracts may be controlled in their operation and effect by general, fundamental maxims of the common law. No one shall be permitted to profit by his own fraud, or to take advantage of his own wrong, or to found any claim upon his own iniquity, or to acquire property by his own crime. These maxims are dictated by public policy, have their foundation in universal law administered in all civilized countries, and have nowhere been superseded by statutes. They were applied in the decision of the case of the New York Mutual Life Insurance Company v. Armstrong (117 U.S. 591). There it was held that the person who procured a policy upon the life of another, payable at his death, and then murdered the assured to make the policy payable, could not recover thereon. Mr. Justice Field, writing the opinion, said: "Independently of any proof of the motives of Hunter in obtaining the policy, and even assuming that they were just and proper, he forfeited all rights under it when, to secure its immediate payment, he murdered the assured. It would be a reproach to the jurisprudence of the country if one could recover insurance money payable on the death of a party whose life he had feloniously taken. As well might he recover insurance money upon a building that he had willfully fired."

These maxims, without any statute giving them force or operation, fre- quently control the effect and nullify the language of wills. A will procured by fraud and deception, like any other instrument, may be decreed void and set aside, and so a particular portion of a will may be excluded from probate or held inoperative if induced by the fraud or undue influence of the person in whose favor it is. (Allen v. M'Pherson, 1 H.L. Cas. 191; Harrison's Appeal, 48 Conn. 202.) So a will may contain provisions which are immoral, irreligious or against public policy, and they will be held void.

Here there was no certainty that this murderer would survive the testator, or that the testator would not change his will, and there was no certainty that he would get this property if nature was allowed to take its course. He, therefore, murdered the testator expressly to vest himself with an estate. Under such circumstances, what law, human or divine, will allow him to take the estate and enjoy the fruits of his crime? The will spoke and became operative at the

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2.3. CAN A MURDERER PROFIT FROM HIS CRIME? 279 death of the testator. He caused that death, and thus by his crime made it speak and have operation. Shall it speak and operate in his favor? If he had met the testator and taken his property by force, he would have had no title to it. Shall he acquire title by murdering him? If he had gone to the testator's house and by force compelled him, or by fraud or undue influence had induced him to will him his property, the law would not allow him to hold it. But can he give effect and operation to a will by murder, and yet take the property? To answer these questions in the aAErmative, it seems to me, would be a reproach to the jurisprudence of our state, and an offense against public policy.

Under the civil law evolved from the general principles of natural law and justice by many generations of jurisconsults, philosophers and statesmen, one cannot take property by inheritance or will from an ancestor or benefactor whom he has murdered. (Domat, part 2, book 1, tit. 1, x 3; Code Napoleon, x 727; Mackeldy's Roman Law, 530, 550.) In the Civil Code of Lower Canada the provisions on the subject in the Code Napoleon have been substantially copied. But, so far as I can find, in no country where the common law prevails has it been deemed important to enact a law to provide for such a case. Our revisers and law-makers were familiar with the civil law, and they did not deem it important to incorporate into our statutes its provisions upon this subject. This is not a casus omissus. It was evidently supposed that the maxims of the common law were suAEcient to regulate such a case and that a specific enactment for that purpose was not needed.

For the same reasons the defendant Palmer cannot take any of this property as heir. Just before the murder he was not an heir, and it was not certain that he ever would be. He might have died before his grandfather, or might have been disinherited by him. He made himself an heir by the murder, and he seeks to take property as the fruit of his crime. What has before been said as to him as legatee applies to him with equal force as an heir. He cannot vest himself with title by crime.

My view of this case does not inflict upon Elmer any greater or other pun- ishment for his crime than the law specifies. It takes from him no property, but simply holds that he shall not acquire property by his crime, and thus be rewarded for its commission.

Our attention is called to Owens v. Owens (100 N.C. 240), as a case quite like this. There a wife had been convicted of being an accessory before the fact to the murder of her husband, and it was held that she was, nevertheless, entitled to dower. I am unwilling to assent to the doctrine of that case. The statutes provide dower for a wife who has the misfortune to survive her husband and thus lose his support and protection. It is clear beyond their purpose to make provision for a wife who by her own crime makes herself a widow and willfully and intentionally deprives herself of the support and protection of her husband. As she might have died before him, and thus never have been his widow, she cannot by her crime vest herself with an estate. The principle which lies at the bottom of the maxim, volenti non fit injuria, should be applied to such a case, and a widow should not, for the purpose of acquiring, as such, property rights,

280 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY be permitted to allege a widowhood which she has wickedly and intentionally created.

The facts found entitled the plaintiffs to the relief they seek. The error of the referee was in his conclusion of law. Instead of granting a new trial, therefore, I think the proper judgment upon the facts found should be ordered here. The facts have been passed upon twice with the same result, first upon the trial of Palmer for murder, and then by the referee in this action. We are, therefore, of opinion that the ends of justice do not require that they should again come in question.

The judgment of the General Term and that entered upon the report of the referee should, therefore, be reversed and judgment should be entered as follows: That Elmer E. Palmer and the administrator be enjoined from using any of the personalty or real estate left by the testator for Elmer's benefit; that the devise and bequest in the will to Elmer be declared ineffective to pass the title to him; that by reason of the crime of murder committed upon the grandfather he is deprived of any interest in the estate left by him; that the plaintiffs are the true owners of the real and personal estate left by the testator, subject to the charge in favor of Elmer's mother and the widow of the testator, under the ante-nuptial agreement, and that the plaintiffs have costs in all the courts against Elmer.

Gray, J. (dissenting). This appeal presents an extraordinary state of facts, and the case, in respect of them, I believe, is without precedent in this state.

The respondent, a lad of sixteen years of age, being aware of the provisions in his grandfather's will, which constituted him the residuary legatee of the testator's estate, caused his death by poison in 1882. For this crime he was tried and was convicted of murder in the second degree, and at the time of the commencement of this action he was serving out his sentence in the state reformatory. This action was brought by two of the children of the testator for the purpose of having those provisions of the will in the respondent's favor canceled and annulled.

The appellants' argument for a reversal of the judgment, which dismissed their complaint, is that the respondent unlawfully prevented a revocation of the existing will, or a new will from being made, by his crime, and that he terminated the enjoyment by the testator of his property and effected his own succession to it by the same crime. They say that to permit the respondent to take the property willed to him would be to permit him to take advantage of his own wrong.

To sustain their position the appellants' counsel has submitted an able and elaborate brief, and, if I believed that the decision of the question could be affected by considerations of an equitable nature, I should not hesitate to assent to views which commend themselves to the conscience. But the matter does not lie within the domain of conscience. We are bound by the rigid rules of law, which have been established by the legislature, and within the limits of which the determination of this question is confined. The question we are dealing with is, whether a testamentary disposition can be altered, or a will revoked,

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2.3. CAN A MURDERER PROFIT FROM HIS CRIME? 281 after the testator's death, through an appeal to the courts, when the legislature has, by its enactments, prescribed exactly when and how wills may be made, altered and revoked, and, apparently, as it seems to me, when they have been fully complied with, has left no room for the exercise of an equitable jurisdiction by courts over such matters. Modern jurisprudence, in recognizing the right of the individual, under more or less restrictions, to dispose of his property after his death, subjects it to legislative control, both as to extent and as to mode of exercise. Complete freedom of testamentary disposition of one's property has not been and is not the universal rule; as we see from the provisions of the Napoleonic Code, from those systems of jurisprudence in other countries which are modeled upon the Roman law, and from the statutes of many of our states. To the statutory restraints, which are imposed upon the disposition of one's property by will, are added strict and systematic statutory rules for the execution, alteration and revocation of the will; which must be, at least, substantially, if not exactly, followed to insure validity and performance. The reason for the establishment of such rules, we may naturally assume, consists in the purpose to create those safeguards about these grave and important acts, which experience has demonstrated to be the wisest and surest. That freedom, which is permitted to be exercised in the testamentary disposition of one's estate by the laws of the state, is subject to its being exercised in conformity with the regulations of the statutes. The capacity and the power of the individual to dispose of his property after death, and the mode by which that power can be exercised, are matters of which the legislature has assumed the entire control, and has undertaken to regulate with comprehensive particularity.

The appellants' argument is not helped by reference to those rules of the civil law, or to those laws of other governments, by which the heir or legatee is excluded from benefit under the testament, if he has been convicted of killing, or attempting to kill, the testator. In the absence of such legislation here, the courts are not empowered to institute such a system of remedial justice. The deprivation of the heir of his testamentary succession by the Roman law, when guilty of such a crime, plainly, was intended to be in the nature of a punishment imposed upon him. The succession, in such a case of guilt, exchequer to the exchequer. (See Domat's Civil Law, pt. 2, book 1, tit. 1, x 3.)

I concede that rules of law, which annul testamentary provision made for the benefit of those who have become unworthy of them, may be based on principles of equity and of natural justice. It is quite reasonable to suppose that a testator would revoke or alter his will, where his mind has been so angered and changed as to make him unwilling to have his will executed as it stood. But these principles only suggest suAEcient reasons for the enactment of laws to meet such cases.

The statutes of this state have prescribed various ways in which a will may be altered or revoked; but the very provision, defining the modes of alteration and revocation, implies a prohibition of alteration or revocation in any other way. The words of the section of the statute are: "No will in writing, except in the cases hereinafter mentioned, nor any part thereof, shall be revoked or

282 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY altered otherwise," etc. Where, therefore, none of the cases mentioned are met by the facts, and the revocation is not in the way described in the section, the will of the testator is unalterable. I think that a valid will must continue as a will always, unless revoked in the manner provided by the statutes. Mere intention to revoke a will does not have the effect of revocation. The intention to revoke is necessary to constitute the effective revocation of a will; but it must be demonstrated by one of the acts contemplated by the statute. As Woodworth, J., said in Dan v. Brown (4 Cow. 490): "Revocation is an act of the mind, which must be demonstrated by some outward and visible sign of revocation." The same learned judge said in that case: "The rule is that if the testator lets the will stand until he dies, it is his will; if he does not suffer it to do so, it is not his will." (Goodright v. Glasier, 4 Burr. 2512, 2514; Pemberton v. Pemberton, 13 Ves. 290.)

The finding of fact of the referee, that, presumably, the testator would have altered his will, had he known of his grandson's murderous intent, cannot affect the question. We may concede it to the fullest extent; but still the cardinal objection is undisposed of, that the making and the revocation of a will are purely matters of statutory regulation, by which the court is bound in the determination of questions relating to these acts. Two cases in this state and in Kentucky, at an early day, seem to me to be much in point. Gains v. Gains (2 Marshall, 190), was decided by the Kentucky Court of Appeals in 1820. It was there urged that the testator intended to have destroyed his will, and that he was forcibly prevented from doing so by the defendant in error or devisee, and it was insisted that the will, though not expressly, was thereby virtually revoked. The court held, as the act concerning wills prescribed the manner in which a will might be revoked, that as none of the acts evidencing revocation were done, the intention could not be substituted for the act. In that case the will was snatched away and forcibly retained. In 1854, Surrogate Bradford, whose opinions are entitled to the highest consideration, decided the case of Leaycraft v. Simmons (3 Bradf. 35). In that case the testator, a man of eighty- nine years of age, desired to make a codicil to his will, in order to enlarge the provisions for his daughter. His son having the custody of the instrument, and the one to be prejudiced by the change, refused to produce the will, at testator's request, for the purpose of alteration. The learned surrogate refers to the provisions of the civil law for such and other cases of unworthy conduct in the heir or legatee, and says, "our statute has undertaken to prescribe the mode in which wills can be revoked (citing the statutory provision). This is the law by which I am governed in passing upon questions touching the revocation of wills. The whole of this subject is now regulated by statute, and a mere intention to revoke, however well authenticated, or however defeated, is not suAEcient." And he held that the will must be admitted to probate. I may refer also to a case in the Pennsylvania courts. In that state the statute prescribed the mode for repealing or altering a will, and in Clingan v. Mitcheltree (31 Pa. State Rep. 25) the Supreme Court of the state held, where a will was kept from destruction by the fraud and misrepresentation of the devisee, that to declare it canceled as

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2.3. CAN A MURDERER PROFIT FROM HIS CRIME? 283 against the fraudulent party would be to enlarge the statute.

I cannot find any support for the argument that the respondent's succession to the property should be avoided because of his criminal act, when the laws are silent. Public policy does not demand it, for the demands of public policy are satisfied by the proper execution of the laws and the punishment of the crime. There has been no convention between the testator and his legatee, nor is there any such contractual element in such a disposition of property by a testator, as to impose or imply conditions in the legatee. The appellants' argument practically amounts to this: That as the legatee has been guilty of a crime, by the commission of which he is placed in a position to sooner receive the benefits of the testamentary provision, his rights to the property should be forfeited and he should be divested of his estate. To allow their argument to prevail would involve the diversion by the court of the testator's estate into the hands of persons, whom, possibly enough, for all we know, the testator might not have chosen or desired as its recipients. Practically the court is asked to make another will for the testator. The laws do not warrant this judicial action, and mere presumption would not be strong enough to sustain it.

But more than this, to concede appellants' views would involve the imposi- tion of an additional punishment or penalty upon the respondent. What power or warrant have the courts to add to the respondent's penalties by depriving him of property? The law has punished him for his crime, and we may not say that it was an insuAEcient punishment. In the trial and punishment of the respondent the law has vindicated itself for the outrage which he committed, and further judicial utterance upon the subject of punishment or deprivation of rights is barred. We may not, in the language of the court in People v. Thornton (25 Hun, 456), "enhance the pains, penalties and forfeitures provided by law for the punishment of crime."

The judgment should be aAErmed, with costs. All concur with Earl, J.,except Gray, J., who reads dissenting opinion, and Danforth, J., concurring.

Judgment in accordance with the prevailing opinion.

2.3.2 Notes on Riggs v. Palmer

1. Unlike some murderers with a better press--Crippen,

for example--

Elmer Palmer did not become famous in his own right. On the other hand, the case of Riggs v. Palmer, one of the products of Elmer's crime, is famous, or infamous, as a "Hard Case." Professor Dworkin, perhaps our best known writer on jurisprudential subjects, has written extensively about "Elmer's Case,"

. treating it as a paradigmatic example of a case

See, e.g., Filson Young, Hawley Harvey Crippen: 1910 in Famous Trials at 52 (1984).

See, e.g. R. Dworkin, Law's Empire 15-20 (1986); R. Dworkin, Taking Rights Seri-

ously 23 (1977)

284 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY

where principles--which are good things--triumphed over rules--which are not so good. For example:

In 1889 a New York court, in the famous case of Riggs v. Palmer, had to decide whether an heir named in the will of his grandfa- ther could inherit under that will, even though he had murdered his grandfather to do so. The court began its reasoning with this admission: `It is quite true that statutes regulating the making, proof and effect of wills, and the devolution of property, if lit- erally construed, and if their force and effect can in no way and under no circumstances be controlled or modified, give this property to the murder.' But the court continued to note that `all laws as well as all contracts may be controlled in their oper- ation and effect by general, fundamental maxims of the common law. No one shall be permitted to profit by his own fraud, or to take advantage of his own wrong, or to found any claim upon his own iniquity, or to acquire property by his own crime.' The murderer did not receive his inheritance.

Unfortunately, viewing Riggs as a case in which maxims--or principles-- triumphed over the literal language of a statute, is more an evidence of our modern inability to understand how courts of law and equity perform their traditional roles than an explanation of the outcome of that case. Of course, it is true that the majority in Riggs did explain their decision on that basis, but the majority were doing things the hard way.

2. In Ellerson v. Westcott, 148 N.Y. 149, 42 N.E. 540 (1896) the New York

Court of Appeals explained the actual holding in Riggs v. Palmer, saying:

The plaintiff relies upon the case of Riggs v. Palmer (115 N.Y. 514) as establishing that where a legatee or devisee under a will, to prevent a revocation or to anticipate the enjoyment of the benefit conferred, puts the testator to death, the felonious act makes the legacy or devise void. We think this contention is not justified by that case. That was an action by an heir at law of a testator against a devisee and legatee who had murdered the testator to obtain the possession of the property given him by the will, to cancel the provisions for his benefit and to have it adjudged that he was not entitled to take under the will or to share, as distributee or otherwise, in the estate of the testator, and the relief was granted. But the court did not decide that the will was void. . . .

R. Dworkin, Taking Rights Seriously 23 (1977).

148 N.Y. at 153-54, 42 N.E. at 542. [emphasis supplied]

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2.3. CAN A MURDERER PROFIT FROM HIS CRIME? 285

. . . . If the fact sought to be incorporated in the complaint can be established, Riggs v. Palmer is an authority that a court of equity will intervene and deprive her

of the benefit of the

devise. It will defeat the fraud by staying her hand and enjoining her from claiming under the will. But the devise took effect on the death of the testator and transferred the legal title and right given her by the will. The relief which may be obtained against her is equitable and injunctive. The court in a proper action will, by forbidding the enforcement of a legal right, prevent her from enjoying the fruits of her iniquity. It will not and cannot set aside the will. That is valid, but it will act upon facts arising subsequent to its execution and deprive her of the use of the property.

In other words, the will leaving his grandfather's property to Elmer was valid. All that happened in Riggs v. Palmer was that young Elmer was enjoined from enjoying the benefits of his ill-gotten gains. This amounts to saying--even though the court in Ellerson did not use the term--that Elmer took the property subject to a constructive trust in favor of his aunts.

3. Perhaps the court in Ellerson v. Westcott was right in not using the term

`constructive trust' to describe the result relief granted in Riggs. The relief was actually an injunction against Elmer (and against the executor of the estate of Elmer's grandfather) to prevent Elmer's being unjustly enriched, to prevent his profiting from his wrong. This seems to me to be exactly what happens in the case of a constructive trust, but there are those--those who give more credit to labels than to the way judicial relief functions--who would distinguish between them. See, for example, Annotation, Homicide as Precluding Taking Under Will or by Intestacy, 25 A.L.R.4th 787, where it is said in Section 2a that:

Courts have long wrestled with the problem of whether a slayer can inherit from his victim or take as beneficiary under his victim's will. The high incidence of intrafamily violence in- sures that this issue regularly appears before the courts. Yet it appears that a number of states still have no express exclu- sions covering slayers either in their statutes of wills or in their statutes of descent and distribution. Traditionally, the absence of such an exclusion has caused courts great diAEculty, and they have generally taken one of three approaches: (1) Some have permitted the slayer to benefit from his crime, on the theory

I.e., the defendant in Ellerson who allegedly, by the exercise of undue influence, induced

the testator in that case to leave his property to her.

148 N.Y. at 154, 42 N.E. at 542.

286 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY

that they are powerless to "amend" by judicial enlargement positive indications of the legislature's intent with regard to this matter. These courts reject the notion that they should embrace considerations of public policy to alter the effect of statutes unambiguous on their faces, on the theory that a leg- islature's positive enactments are the best expression of public policy. (2) Another group of courts has taken the view that the slayer is barred by equitable principles from taking under the will of his victim or from inheriting from a victim who dies in- testate. These courts claim not to enlarge the scope of the silent statutes, but rely instead on the notion that public policy and principles of equity, particularly those flowing from the maxim that no one should be permitted to profit from his own wrong, compel a just result which undoubtedly would have been em- braced by the legislature had it only thought of it at the time it passed the particular statutes. (3) A third group views both of the first two solutions without enthusiasm. This group gener- ally regards the first approach as too abhorrent to tolerate and the second as intellectually disreputable. Their solution is to permit the slayer to take initially under the will of the victim or pursuant to the statutes of descent and distribution, but pre- vent the slayer from using or enjoying the property so acquired, instead raising a constructive trust in favor of the victim's other lawful heirs, for whom the slayer holds the property as trustee.

A growing number of jurisdictions, however, have attempted to avoid this dilemma by enacting statutes that expressly pre- clude certain classes of slayers from taking under the wills of their victims or inheriting under the statutes of descent and distribution. This approach creates a host of new problems, however, just as any statute creates problems of ambiguity and interpretation.

2.4 Excerpts from F.W. Maitland, Equity

Lecture I The Origin of Equity. (I.)

During the present term I intend to give a course of lectures of an elementary character upon some of the main doctrines of Equity. I intend to speak of Equity as of an existing body of rules administered by our courts of justice. But for reasons which you will easily understand a brief historical prelude seems necessary. For suppose that we ask the question--What is Equity? We can only answer it by giving some short account of certain courts of justice which

September 11, 2000

2.4. EXCERPTS FROM F.W. MAITLAND, EQUITY 287 were

abolished over thirty years ago. In the year 1875 we might have said

`Equity is that body of rules which is administered only by those Courts which are known as Courts of Equity.' The definition of course would not have been very satisfactory, but now-a-days we are cut off even from this unsatisfactory definition We have no longer any courts which are merely courts of equity. Thus we are driven to say that Equity is now that body of rules administered only by those courts which would be known as Courts of Equity.

This, you may well say, is but a poor thing to call a definition. Equity is a certain portion of our existing substantive law, and yet in order that we may describe this portion and mark it off from other portions we have to make reference to courts that are no longer in existence. Still I fear that nothing better than this is possible. The only alternative would be to make a list of the equitable rules and say that Equity consists of those rules. This, I say, would be the only alternative, for if we were to inquire what it is that all these rules have in common and what it is that marks them off from all other rules administered by our courts, we should by way of answer find nothing but this, that these rules were until lately administered, and administered only, by our courts of equity.

Therefore for the mere purpose of understanding the present state of our law, some history becomes necessary. . . .

In Edward I's day, at the end of the thirteenth century, three great courts have come into existence, the King's Bench, the Common Bench or Court of Common Pleas and the Exchequer. Each of these has its own proper sphere, but as time goes on each of them attempts to extend its sphere and before the middle ages are over a plaintiff has often a choice between these three courts and each of them will deal with his case in the same way and by the same rules. The law which these courts administer is in part traditional law, in part statute law. Already in Edward I's day the phrase `common law' is current. It is a phrase that has been borrowed from the canonists--who used `jus commune' to denote the general law of the Catholic Church; it describes that part of the law that is unenacted, non-statutory, that is common to the whole land and to all Englishmen. It is contrasted with statute, with local custom, with royal prerogative. It is not as yet contrasted with equity, for as yet there is no body of rules which bears this name.

One of the three courts, namely, the Exchequer, is more than a court of law. From our modern point of view it is not only a court of law but a `government of- fice,' an administrative or executive bureau; our modern Treasury is an offshoot from the old Exchequer. What we should call the `civil service' of the country is transacted by two great oAEces or `departments'; there is the Exchequer which is the fiscal department, there is the Chancery which is the secretarial department, while above these there rises the king's permanent Council. At the head of the Chancery stands the Chancellor, usually a bishop; he is we may say the king's secretary of state for all departments, he keeps the king's great seal and all the already great mass of writing that has to be done in the kings's name has to be

Maitland last gave this lecture in 1906. [pdj]

288 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY done under his supervision.

He is not yet a judge, but already he by himself or his subordinates has a great deal of work to do which brings him into a close connexion with the administration of justice. One of the duties of that great staff of clerks over which he presides is to draw up and issue those writs whereby actions are begun in the courts of law--such writs are sealed with the king's seal. A man who wishes to begin an action must go to the Chancery and obtain a writ. Many writs there are which have been formulated long ago; such writs are writs of course (brevia de cursu), one obtains them by asking for them of the clerks-- called Cursitors--and paying the proper fees. But the Chancery has a certain limited power of inventing new writs to meet new cases as they arise. That power is consecrated by the famous clause of the Second Statute of Westminster authorising writs in consimili casu. Thus the Chancellor may often have to consider whether the case is one in which some new and specially worded writ should be framed. This however is not judicial business. The Chancellor does not hear both sides of the story, he only hears the plaintiff's application, and if he grants a writ the courts of law may afterwards quash that writ as being contrary to the law of the land.

But by another route the Chancellor is brought into still closer contact with the administration of justice. Though these great courts of law have been es- tablished there is still a reserve of justice in the king. Those who can not get relief elsewhere present their petitions to the king and his council praying for some remedy. Already by the end of the thirteenth century the number of such petitions presented in every year is very large, and the work of reading them and considering them is very laborious. In practice a great share of this labour falls on the Chancellor. He is the king's prime minister, he is a member of the council, and the specially learned member of the council. It is in dealing with these petitions that the Chancellor begins to develop his judicial powers.

. . . .

Very often the petitioner requires some relief at the expense of some other person. He complains that for some reason or another he can not get a remedy in the ordinary course of justice and yet he is entitled to a remedy. He is poor, he is old, he is sick, his adversary is rich and powerful, will bribe or will intimidate jurors, or has by some trick or some accident acquired an advantage of which the ordinary courts with their formal procedure will not deprive him. The petition is often couched in piteous terms, the king is asked to find a remedy for the love of God and in the way of charity. Such petitions are referred by the king to the chancellor. Gradually in the course of the fourteenth century petitioners, instead of going to the king, will go straight to the Chancellor, and will address their complaints to him and adjure him to do what is right for the love of God and in the way of charity. Now one thing that the Chancellor may

At this point Maitland points out that there were two sides to what became known as

the Court of Chancery, the Latin side which was actually a common law court, much like our federal Court of Claims, that heard claims against the King, and the English side, with which we are concerned, that developed into a court of equity. [pdj]

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2.4. EXCERPTS FROM F.W. MAITLAND, EQUITY 289 do in such a case is to invent a new writ and so provide the complainant with a means of bringing an action in a court of law. But in the fourteenth century the courts of law have become very conservative and are given to quashing writs which differ in material points from those already in use. But another thing that the Chancellor can do is to send for the complainant's adversary and examine him concerning the charge that has been made against him. Gradually a procedure is established. The Chancellor having considered the petition, or `bill' as it is called, orders the adversary to come before him and answer the complaint. The writ whereby he does this is called a subpoena--because it orders the man to appear upon pain of forfeiting a sum of money, e.g. subpoena centum librarum. It is very different from the old writs whereby actions are begun in the courts of law. They tell the defendant what is the cause of action against him--he is to answer why he assaulted and beat the plaintiff, why he trespassed on the plaintiff's land, why he detains a chattel which belongs to the plaintiff. The subpoena, on the other hand, will tell him merely that he has got to come before the Chancellor and answer complaints made against him by A.B. Then when he comes before the Chancellor he will have to answer on oath, and sentence by sentence, the bill of the plaintiff. This procedure is rather like that of the ecclesiastical courts and the cannon law rather than like that of our old English courts of law. It was in fact borrowed from the ecclesiastical courts, not from their ordinary procedure but from the summary procedure of those courts introduced for the suppression of heresy. The defendant will be examined upon oath and the Chancellor will decide questions of fact as well as questions of law.

I do not think that in the fourteenth century the Chancellors considered that they had to administer any body of substantive rules that differed from the ordinary law of the land. They were administering the law but they were administering it in cases which escaped the meshes of the ordinary courts. The complaints that come before them are in general complaints of indubitable legal wrongs, assaults, batteries, imprisonments, disseisins and so forth--wrongs of which the ordinary courts take cognizance, wrongs which they ought to redress. But then owing to one thing and another such wrongs are not always redressed by courts of law. In this period one of the commonest of all the reasons that complainants will give for coming to the Chancery is that they are poor while their adversaries are rich and influential--to rich, too influential to be left to the clumsy processes of the old courts and the verdicts of juries. However this sort of thing cannot well be permitted. The law courts will not have it and parliament will not have it. Complaints against this extraordinary justice grow loud in the fourteenth century. In history and in principle it is closely connected with another kind of extraordinary justice which is yet more objectionable, the extraordinary justice that is done in criminal cases by the king's council. Parliament at one time would gladly be rid of both--of both the Council's interference in criminal matters, and the Chancellor's interference with civil matters. And so the Chancellor is warned off the field of common law--he is not to hear cases which might go to the ordinary courts, he is not to make himself a judge of torts and contracts, of property in lands and goods.

290 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY

But then just at this time it is becoming plain that the Chancellor is doing some convenient and useful works that could not be done, or could not easily be done by the courts of common law. He has taken to enforcing uses or trusts. Of the origin of uses or trusts you will have read . . . . No doubt they were trou- blesome things, things that might be used for fraudulent purposes, and statutes were passed against those who employed them for the purpose of cheating their creditors or evading the law of mortmain. but I have not a doubt that they were very popular, and I think we may say that had there been no Chancery, the old courts would have discovered some method of enforcing these fiduciary obligations. That method however must have been a clumsy one. A system of law which will never compel, which will never even allow, the defendant to give evidence, a system which sends every question of fact to a jury, is not com- petent to deal adequately with fiduciary relationships. On the other hand the Chancellor had a procedure which was very well adapted

to this end. To this

we may add that very possibly the ecclesiastical courts (and the Chancellor you will remember was almost always an ecclesiastic) had for a long time past been punishing breaches of trust by spiritual censures, by penance and excommuni- cation. And so by general consent, we may say, the Chancellor was allowed to enforce uses, trusts or confidences.

Thus one great field of substantive law fell into his hand--a fruitful field, for in the course of the fifteenth century uses became extremely popular. Then, as we all know, Henry VIII--for it was rather the king than his subservient parliament--struck a heavy blow at uses. The king was the one man in the kingdom who had everything to gain and nothing to lose by abolishing uses, and as we all know he merely succeeded in complicating the law, for under the name of `trusts' the Chancellors still reigned over their old province. And then there were some other matters that were considered to be fairly within his jurisdiction. An old rhyme

allows him `fraud, accident, and breach of

confidence'--there were many frauds which the stiff old procedure of the courts of law could not adequately meet, and `accident,' in particular the accidental loss of a document, was a proper occasion for the Chancellor's interference. No one could set any very strict limits to his power, but the best hint as to its extent that could be given in the sixteenth century was given by the words `fraud, accident and breach of confidence.' On the other hand he was not to interfere where a court of law offered an adequate remedy. A bill was `demurrable for want of equity' on that ground.

In the course of the sixteenth century we begin to learn a little about the rules that the Chancellors are administering in the field that is thus assigned to them. They are known as `the rules of equity and good conscience.' As

Notice that Maitland too finds it useful to use the terminology of evolution to describe

the development of our legal system. [pdj]

`These three give place in court of conscience, Fraud, accident, and breach of confidence.'

[Footnote by Maitland, renumbered]

September 11, 2000

2.4. EXCERPTS FROM F.W. MAITLAND, EQUITY 291 to what they have done in remoter times we have to draw inferences from very sparse evidence. One thing seems pretty plain. They had not considered themselves strictly bound by precedent. . . . In their treatment of uses or trusts the Chancellors stick close, marvellously close, to the rules of the common law-- they often consulted the judges, and the lawyers who pleaded before them were common lawyers, for there was as yet no `Chancery Bar.' On the whole my notion is that with the idea of a law of nature in their minds they decided cases without much reference to any written authority, now making some use of some analogy drawn from the common law, and now of some great maxim of jurisprudence which the have borrowed from the canonists or the civilians.

In the second half of the sixteenth century the jurisprudence of the court is becoming settled. The day for ecclesiastical Chancellors is passing away. . . . In James I's day occurred the great quarrel between Lord Chancellor Ellesmere and Chief Justice Coke which finally decided that the Court of Chancery was to have the upper hand over the courts of law. If the Chancery was to carry out its maxims about trust and fraud it was essential that it should have a power to prevent men from going into the courts of law and to prevent men from putting in execution the judgments that they had obtained in courts of law. In fraud or in breach of trust you obtain a judgment against me in a court of law; I complain to the Chancellor, and he after hearing what you have to say enjoins you not to put in force your judgment, says in effect that if you do put your judgment in force you will be sent to prison. Understand well that the Court of Chancery never asserted that it was superior to the courts of law; it never presumed to send to them such mandates as the Court of King's Bench habitually sent to the inferior courts, telling them that they must do this or must not do that or quashing their proceedings--the Chancellor's injunction was in theory a very different thing from a mandamus, a prohibition, a certiorari, or the like.

was addressed not to the judges, but to the party. You in breach of trust have obtained a judgment--the Chancellor does not say that this judgment was wrongly granted, he does not annul it, he tells you that for reasons personal to yourself it will be inequitable for you to enforce that judgment, and that you are not to enforce it. For all this, however, it was natural that the judges should take umbrage at this treatment of their judgments. . . . King James had now a wished-for opportunity of appearing as supreme over all his judges, and all his courts, and acting on the advice of Bacon and other great lawyers he issued a decree in favour of the Chancery. From this time forward the Chancery had the upper hand. It did not claim to be superior to the courts of law, but it could

Mandamus, prohibition, and certiorari are examples of the so-called prerogative (or ex-

traordinary) writs that were issued the Court of King's Bench and that are often still issued by law courts in the United States. These writs, though issued by the law courts, have nothing to do with the traditional civil and criminal actions at law. They are issued in the name of the King (or other sovereign) and are used only against those who are--or, as in the case of quo warranto, were once considered to be--oAEcers or agencies of the government. The prerogative writs thus supply much of the common law basis for modern administrative law and the law regulating the activities of local governments. They are also often issued by higher courts against lower ones, usually in order to protect the former's jurisdiction. [pdj]

292 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY prevent men from going to those courts, whereas those courts could not prevent men from going to it.

Its independence being thus secured, the court became an extremely busy court. . . . Bacon said that he had made 2000 orders in a year, and we are told that as many as 16,000 causes were pending before it at one time: indeed it was hopelessly in arrear of its work. Under the Commonwealth some vigorous attempts were made to reform its procedure. Some were for abolishing it al- together. It was not easily forgotten that the Court of Chancery was the twin sister of the Court of Star Chamber. The projects for reform came to an end with the Restoration. Still it is with the Restoration or thereabouts--of course a precise date cannot be fixed--that we may regard the equity administered in the Chancery as a recognised part of the law of the land. . . .

Lecture II The Origin of Equity. (I.)

We have brought down our brief sketch of English Equity to the time of Blackstone. Let us now look at the matter through the eyes of the great com- mentator. He is concerned to show that the so-called equity of the Court of Chancery is in reality law, and he also considers himself concerned to show that the so-called law of the three old courts is in a sense equity. I shall read a somewhat long excerpt from him because it contains some valuable illustrations. He begins by asserting that every definition or illustration which draws a line between the two jurisdictions, by setting law and equity in opposition to each other, will be found either totally erroneous, or erroneous to a certain degree.

1. `Thus in the first place it is said that it is the business of a court of equity in England to abate the rigour of the common law. But no such power is contended for. Hard was the case of bond-creditors, whose debtor devised away his real estate; rigorous and unjust the rule which put the devisee in a better condition to the heir:

yet a court of equity had now power to interpose.

Hard is the common law still subsisting, that land devised, or descending to the heir, shall not be liable to simple contract debts of the ancestor or devisor. . . and that the father shall never immediately succeed to the real estate of the son: but a court of equity can give no relief; though in both these instances the artificial reason of the law, arising from feudal principles, has long ago entirely ceased.' He gives other instances of hard and antiquated rules, for the rigour of which equity has no mitigation.

2. `It is said that a court of equity determines according to the spirit of the rule and not according to the strictness of the letter. But so also does a court of law. Both for instance are equally bound and equally profess, to interpret statutes according to the true intent of the legislature'. . . .

I take it that this refers to the fact that only personal property passed to the next of kin;

if real property were devised (i.e., `willed') it went directly to the devisee and was not subject to the claims of the creditors of the decedent. [pdj]

Reread this passage in light of Riggs v. Palmer. [pdj]

September 11, 2000

2.4. EXCERPTS FROM F.W. MAITLAND, EQUITY 293

3. `Again, it hath been said, that fraud, accident and trust are the proper and peculiar objects of a court of equity.' But, he urges, all frauds are equally cognizable by a court of law and some are only cognizable there. Many accidents are relieved against in courts of law. And, though it is true that the courts of law will not take notice of what is technically called a trust--created by a limitation of a second use

--still it takes notice of bailments and a bbailment, e.g. a deposit,

is in fact a trust.

4. `Once more; it has been said that a court of equity is not bound by rules or precedents, but acts from the opinion of the judge founded on the circumstances of every particular case. Whereas the system of our courts of equity is a laboured, connected system governed by precedents, from which they do not depart, although the reason of some of them may perhaps be liable to objection. Thus the refusing a wife her dower in a trust estate, yet allowing the husband his curtesy'

--and he gives several other illustrations oof rules which

are but questionably just--`all these, and other cases that might be instanced are plainly rules of positive law.'

He sums up: `The systems of jurisprudence in our courts both of law and equity are now equally artificial systems, founded in the same principles of justice and positive law; but varied by different usages in the forms and mode of their proceedings: the one being originally derived (though much reformed and improved) from the feudal customs, as they prevailed in different ages in Saxon and Norman judicatures; the other (but with equal improvements) from the imperial and pontifical formularies, introduced by their clerical chancellors.'

You will see what this comes to. Equity is now, whatever it may have been in past times, a part of the law of our land. What part? That part which is administered by certain courts known as courts of equity. We can give no other general answer. We can give a historical explanation. . . . [B]ut in no general terms can we describe either the field of equity or the distinctive character of equitable rules. Of course we can make a catalogue of equitable rules, and we can sometimes point to an institution, such as the trust strictly so called, which is purely equitable, but we can make no generalization.

[Maitland then discusses the development of the law relating to the courts of equity in England during the first three-quarters of the nineteenth century.]

. . . . Then as to the substantive law the Judicature Act of 1873 took occasion to make certain changes. In its 25th section it laid down certain rules about

This seems to be a reference to the peculiar fact that `a use on a use' of land is not

executed by the statute of uses. [pdj]

This is one of the outstanding examples of the misogyny of the common law system

(including equity). [pdj]

Blackstone III 429 et seq. [Footnote by Maitland, renumbered]

[Maitland himself would not have agreed that the sources of the procedures used in Chancery were to any large extent the `imperial and pontifical formularies,' i.e., the forms of action of the Roman law. --pdj]

294 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY the administration of insolvent estates, about the application of statutes of limitation, about waste, about merger, about mortgages, about the assignment of choses in action, and so forth, and then it ended with these words:

`Generally in all matters not hereinbefore particularly mentioned, in which there is any conflict or variance between the rules of equity and the rules of the common law with reference to the same matter, the rules of equity shall prevail.'

Now it may well seem to you that those are very important words, for perhaps you may have fancied that at all manner of points there was a conflict between the rules of equity and the rules of the common law, or at all events a variance. But the clause that I have just read has been in force now for over thirty years, and if you will look at any good commentary upon it you will find that it has done very little--it has been practically without effect. You may indeed find many cases in which some advocate, at a loss for other arguments, has appealed to the words of this clause as a last hope; but you will find very few cases indeed in which that appeal has been successful. I shall speak of this more at large at another time, but it is important that even at the very outset of our career we should form some notion of the relation which existed between law and equity in the year 1875. And the first thing that we have to observe is that this relation is not one of conflict.

Equity had come not to destroy the law, but to fulfil it.

Every jot and every title of the law was to be obeyed, but when all this had been done something might yet be needful, something that equity would require. Of course now and again there had been conflicts: there was an open conflict, for example, when Coke was for indicting a man who sued for an injunction. But such conflicts as this belong to the old days, and for two centuries before the year 1875 the two systems had been working together harmoniously.

Let me take an instance or two in which something that may for one moment look like a conflict becomes no conflict at all when it is examined. Take the case of a trust. An examiner

will sometimes be told that whereas the common

law said that the trustee was the owner of the land, equity said that the cestui que trust was the owner. Well here in all conscience there seems to be conflict enough. Think what this would mean were it really true. There are two courts of co-ordinate jurisdiction--one says that A is the owner, the other says that B is the owner of Blackacre. That means civil war and utter anarchy. Of course the statement is an extremely crude one, it is a misleading and a dangerous statement--how misleading, how dangerous, we shall see when we come to ex- amine the nature of equitable estates. Equity did not say that the cestui que trust was the owner of the land, it said that the trustee was the owner of the land, but added that he was bound to hold the land for the benefit of the cestui que trust. There was no conflict here. Had there been a conflict here the clause of the Judicature Act which I have lately read would have abolished the whole

This point is extremely important with respect to the `merger' of law and equity in the

United States, even though that merger has taken place in varying degrees and at differing times. Lord Chief Justice Coke may have abominated Lord Chancellor Bacon, but in modern times the relation between law and equity has not been one of conflict. [pdj]

I.e., someone grading a law school examination. [pdj]

September 11, 2000

2.4. EXCERPTS FROM F.W. MAITLAND, EQUITY 295 law of trusts. Common law says that A is the owner, equity says that B is the owner, but equity is to prevail, therefore B is the owner and A has no right or duty of any sort or kind in or about the land. Of course the Judicature Act has not acted in this way; it has left the law of trusts just where it stood, because it found no conflict, no variance even, between the rules of the common law and the rules of equity.

Other instances might easily be taken. As a remedy for a breach of contract a court of law could give damages; as a remedy for a breach of contract a court of equity could grant a decree of specific performance. In many cases it would happen that a man would have his choice between the two remedies--he could go to law for damages, he could ask the Court of Chancery to compel his adversary to do just what he had promised to do.

In many other cases he had

no choice, the one remedy open to him was an action for damages; equity would give him no help. In yet other cases the converse was true, he had no action for damages, but he could none the less obtain a decree for specific performance. Here again there is no conflict. There is nothing absurd, nothing contradictory in the statement `You are entitle to damages for the breach of this contract, but no court will compel your adversary to perform it specifically'; nor in the statement `You can not obtain damages for the breach of this contract, and yet you may have a decree for specific performance.' There is here no room for the play of these words in the Judicature Act about the prevalence of equity.

Or take a case of tort, a case of nuisance. There is no absurdity, no self- contradiction in this statement: `X by building that wall has done you a wrong for which he can be compelled to pay you damages, but all the same the case is not one in which he ought to be enjoined to pull the work down on pain of going to prison.'

No, we ought to think of equity as supplementary law, a sort of appendix added on to our code, or a sort of gloss written round our code, an appendix, a gloss, which used to be administered by courts specially designed for that purpose, but which is now administered by the High Court of Justice as part of the code. The language which equity held to law, if we may personify the two, was not `No, that is not so, you make a mistake, your rule is an absurd, an obsolete one'; but `Yes, of course that is so, but it is not the whole truth. You say that A is the owner of this land; no doubt that is so, but I must add that he is bound by one of those obligations which are known as trusts.'

ought not to think of common law and equity as two rival systems. Equity was not a self-suAEcient system, at every point it presupposed the existence of common law. Common law was a self-suAEcient system. I mean this: that if the legislature had passed a short act saying `Equity is hereby abolished,' we might still have got on fairly well; in some respects our law would have been

Note that if that promise is looked upon as creating an entitlement in A, then the decree

of specific performance is restitutionary. (Of course, if the promise is looked upon as being purely executory, then the decree of specific performance will be preventative, rather than remedial, for--if obeyed--it will prevent a breach from occurring.) [pdj]

Does this help you in understanding what was `really going on' in Riggs v. Palmer? [pdj]

296 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY barbarous, unjust, absurd, but still the great elementary rights, the right to immunity form violence, the right to one's good name, the rights of ownership and of possession would have been decently protected and contract would have been enforced. On the other hand had the legislature said, `Common Law is hereby abolished,' this decree if obeyed would have meant anarchy. At every point equity presupposed the existence of common law. Take the case of the trust. It's of no use for Equity to say that A is a trustee of Blackacre for B, unless there be some court that can say that A is the owner of Blackacre. Equity without common law would have been a castle in the air, an impossibility.

For this reason I do not think that any one has expounded or ever will expound equity as a single, consistent system, an articulate body of law. It is a collection of appendixes between which there is no very close connexion. If we suppose all our law put into systematic order, we shall find that some chapters of it have been copiously glossed by equity, while others are quite free from equitable glosses. Since the destruction of the Star Chamber we have had no criminal equity.

The Court of Chancery kept very clear of the province of

crime, and since the province of crime and the province of tort overlap, it kept very clear of large portions of the province of tort.

For example, before 1875

it would grant no injunction to restrain the publication of a libel,

for normally

the libel which is a tort is also a crime and it was thought, and rightly thought, that such a matter should not be brought before a court where a judge without any jury tried both fact and law. Indeed if you will look at your books on tort you will find that on the whole--if we except the province of fraud--equity has had little to do with tort, though it has granted injunctions to restrain the commission of nuisances and the like. The law of contract has been more richly provided with equitable appendixes. The power of the Chancery to compel specific performance, and its power to decree the cancellation or rectification of agreements

brought numerous cases of contract before it, and then it had

special doctrines about mortgages, and penalties, and stipulations concerning time. Property law was yet more richly glossed.

One vast appendix was added

to it under the title of trusts. The bond which kept those various together under

And there are thus no punitive equitable remedies. [pdj]

Thus we may conclude, correctly, that the courts of equity stay clear of cases where the

plaintiff's claim is based on a wrong--a tort or crime committed by the defendant--and that equitable relief is based on rights, i.e., that equitable relief tends to be restitutionary.

And in the United States it certainly will not do so, not only because of the equity's

traditional reluctance to deal with wrongs, but also because of the freedoms of speech and press protected by the First Amendment. See, e.g., Near v. Minnesota, 283 U.S. 697 (1931). [pdj]

This description of the powers of the Chancery may mislead the unwary. The Chancery

has the power compel--i.e., to order, under threat of punishment for contempt--a defendant to perform or cancel or rectify (i.e., reform) an agreement; the chancery did not, however, traditionally have the power to make its orders self-effectuating, a limitation on its power that is summed up in the maxim that equity acts in personam, not in rem. [pdj]

The forms of judicial relief most closely associated with property, particularly ejectment

and replevin, are entirely restitutionary. [pdj]

September 11, 2000

2.4. EXCERPTS FROM F.W. MAITLAND, EQUITY 297 the head of Equity was the jurisdictional and procedural bond. All these matters were within the cognizance of the courts of equity, and they were not within the cognizance of the courts of common law.

. . . . In my view equity has added to our legal system, together with a number of detached doctrines, one novel and fertile institution, namely the trust; and three novel and fertile remedies, namely the decree for specific performance, the injunction, and the judicial administration of estates. . . .

Lecture III Uses and Trusts

Of all the exploits of Equity the largest and the most important is the in- vention and development of the Trust.

It is an `institute' of great elasticity and generality; as elastic, as general as contract.

This perhaps forms the most distinctive achievement of English lawyers. It seems to us almost essential to civilization, and yet there is nothing quite like it in foreign law. Take up for instance the B"urgerliches Gesetzbuch--the Civil Code of Germany; where is the trust? Nowhere. This in the eyes of an English practitioner is a big hole.

Foreigners don't see that there is any hole. `I can't understand your trust,' said Gierke

to me. We must ask why this is so. Well, the trust does not fit

easily into what they regard as the necessary scheme of jurisprudence.

Let me explain a little; for this will be of service in practical consideration of the nature of equitable rights.

Jurists have long tried to make a dichotomy of Private Rights: they are either in rem or in personam. The types of these two classes are, of the former, dominium, ownership; of the latter the benefit of contract--a debt.

Now under which head does trust--the right of cestui que trust [sic] fall? Not easily under either. It seems to be a little of both. The foreigner asks--where do we place it in our code--under Sachenrecht

or under Obligationenrecht?

Dr. Otto Friedrich von Gierke, 1841-1921. [pdj]

Another common way of phrasing this somewhat muddy distinction is to say that rights in

rem are rights against the whole world, while rights in personam are rights against one person or, at most, a small number of persons. Rights in rem and rights in personam should not be confused with actions in rem and actions in personam; the former are usually considered to be actions brought against the thing that is the subject matter of the action, like the land that was the subject of suit in one of the old real actions, while the latter are considered to be actions, like an action for damages or an injunction, that are brought against the person of the defendant. That last pair of definitions does not, however, quite allow one to give a satisfactory explanation of what one means by the phrase: "equity acts in personam." [pdj]

The law of property. (The term in German literally refers to the `law of things.') [pdj]

The `law of obligations.' [pdj]

298 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY

The best answer may be that in history, and probably in ultimate analysis, it is jus in personam; but that it is so treated (and this for many important purposes) that it is very like jus in rem. A right good against certa persona,

viz. the trustee, but so treated as to be almost equivalent to a right good against all

--a dominium, ownership, which however existts only in equity. And this is

so from a remote time.

The modern trust developed from the ancient `use.' Therefore we must speak briefly of uses and of the famous Statute of Uses, not for antiquarian purposes, but in order to throw light on the juristic nature of the modern trust.

First as to words.

The term `use' is a curious one; it has, if I may say so,

mistaken its own origin. You may think that it is the Latin usus,

but that is

not so; it is the Latin opus.

From remote times--in the seventh and eighth

centuries in barbarous or vulgar Latin you find `ad opus' for `on his behalf.' It is so in Lombard and Frank legal documents. In Old French (see Godefroy)

this becomes al oes, ues. In English mouths this becomes confused with `use.' In record Latin it remains ad opus. If I hold land ad opus Johannis, this of course means that I hold it on behalf of John. Sometimes you get ad opus et ad usum Johannis, and sometimes a pedantic re-introduction of the Latin `p'--`oeps' and `eops.' If the sheriff seizes land ad opus domini Regis this means that he seizes land on behalf of the king, that he is acting as the king's agent. Now this phrase thus used we can trace back far in our legal history--certainly it appears in Domesday Book; one man is constantly doing things, ad opus another man. In particular the sheriff is always making seizures ad opus Regis, as os le Roy. Thus from 1224 we get this phrase,

commisit terram suam

custodiendam Wydoni fratri suo ad opus puerorum suorum--he committed his land to his brother Guy to be kept to the use of his children. So also we can trace back into the thirteenth century the conveyance of villain land by surrender and admittance. The seller comes into court and surrenders the land ad opus, to the use (we must say) of the purchaser. There is as yet no law, no equity of `uses'; but in many cases this term ad opus points to a legal relationship.

In the

`Against a certain person.' [pdj]

See supra Note 21. [pdj]

It might seem best that I skip this material on the etymology and evolution of the word

`use.' I have, however, left it as an illustration how the language of the law evolved with, and around, the forms of action. We have, after all, not only the `use' that became the trust, but also conversion to the `use' of the defendant, money had and received to the `use' of the plaintiff, and the bargain and sale to the `use' of the purchaser. [pdj]

C. Lewis, An Elementary Latin Dictionary the word `usus' is translated as `use,

practice, employment, exercise, enjoyment.' (It also corresponds to the masculine participle of `utor,' a deponent verb meaning `to use, make use of, employ, profit by, take advantage of, enjoy, serve oneself with.') [pdj]

According to Lewis this word means `work, labor, toil.' [pdj]

Dictionnaire de l'Anc. Langue Fran,caise. [Footnote by Maitland, renumbered]

Bracton's Note Book, pl. 999. [Footnote by Maitland, renumbered]

This suggests--I think correctly--that some, perhaps most, legal relationships start as

September 11, 2000

2.4. EXCERPTS FROM F.W. MAITLAND, EQUITY 299 fourteenth century (which for us is the important time) it has long been used currently to describe cases of agency and bailment. My agent receives money to my use. This leaves its mark in such phrases as `convert to his use'--`goods received to his use.' If I seize land to your use, or to the use of the king, that means that I have acted as your agent or the king's agent. Then again we find the same phrase employed in cases which are more akin to those which beget the law, or rather the equity uses of a later day. Already in the thirteenth century a landowner will sometimes want to make a settlement.

Perhaps he is tenant

in fee simple and desires to become tenant in tail. In order that this may be accomplished--for he cannot enfeoff himself--he will enfeoff some friend to the use (ad opus) that the friend shall re-enfeoff him in tail. The law will enforce such a bargain for as yet the use, if we may already so call it, can be regarded as a condition: to enfeooff X.Y. to the use that he shall make a feoffment is the same thing as enfeoAEng him upon condition that he shall make a feoffment.

So far as I am aware however the first occasion on which we find that land is being permanently held by one man to the use (ad opus) of another man, or rather, by one set of men to the use of another set is this. In the second quarter of the thirteenth century came hither the Franciscan friars. The rule of their order prescribes the most perfect poverty: they are not to have any wealth at all. They differ from monks. The individual monk can own nothing, but a community of monks, an abbey, a priory, may own land and will often be very rich.

On the other hand, friars' priories are not to have property

either individually or collectively. Still, despite this high ideal, it becomes plain that they must have at least some dormitory to sleep in. They have come as missionaries to the towns. The device is adopted of having land conveyed to the borough community

to the use of the friars. Thus in a MS. at Oxford

Ricardus le Muliner contulit aream et domum communitati villae Oxoniae ad opus fratrum.

Very soon in various towns in England a good deal of land is

held thus. . . .

But in the fourteenth century this old phrase is being used to express a substantially new relationship in connexion with the holding of land.

We find the landowner conveying his land to his friends ad opus suum. Why? Unquestionably the main reason is in order that he may in effect make a will. He will have the benefit and the profits while he lives, and after his death his

social (or cultural), rather than as legal, institutions. [pdj]

The idea here is that the land owner wants to tie up the land so that his descendants

cannot dispose of it. [pdj]

The abbey or priory would be treated as corporations. The modern institution of the

business corporation is descended from such ecclesiastical corporations (and from municipal corporations). [pdj]

Which itself can be seen as a `municipal corporation.' [pdj]

See History of English Law, 2nd edn. vol . II, pp. 237, 238. [Footnote by Maitland,

renumbered]

[The Latin phrase says that Ricardus le Muliner "conferred a lot and house upon the community of the borough (or village) of Oxford to the use of the friars. --pdj]

300 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY friends will convey the land according to his direction.

[Maitland then describes in some detail the various advantages that one could obtain by enfeoAEng someone to hold land to one's use.] . . . .

You will see that the success of this scheme would have been marred if the courts of law had compelled the feoffees to fulfil the honourable understanding by virtue of which they had acquired the land.

If they had begun to say `After

all this land is the feoffor's land; the feoffees are a mere screen, or the feoffees are merely the feoffor's agents,' then the whole scheme would have broken down-- wardships, marriages, forfeitures, escheats

would have followed as a matter

of course. But the common law was not prepared to do this. It had no forms of procedure, no forms of thought, which would serve for these cases. They could not extend the law of conditional feoffments to meet these uses, for the uses were too vague. The feoffees are not enfeoffed upon condition that they shall do just some one definite act; a prolonged course of conduct active and passive is required of them. But you may say--Why at all events should not the courts of law treat this bargain as a contract? An agreement there certainly is. In consideration of a conveyance made by A to X, Y, Z, the said X, Y, Z, agree that they will hold the land for the behoof of A, will allow him to enjoy it and will convey it as he shall direct. Now I think it very right that we should observe how a use, or in modern terms, a trust generally has its origin in something that we can not but call an agreement. The feoffee to uses did agree, the modern trustee does agree

that he will deal with the land or goods

in a certain way. If therefore in the fourteenth century our law of contract had taken its modern form, I think that the courts of law would have been compelled to say `Yes, here is an agreement; therefore it is a legally enforceable contract, and if it be broken an action for damages will lie against the infringer.' . . . . But then we have to remember that in the fourteenth century--and that in the present context is the important century--the common law had not yet begun to enforce `the simple contract'--it had not yet evolved the action of assumpsit out of the action of trespass. . . . In the fifteenth century the courts of common law acquired the action of assumpsit and it may be a little diAEcult for us to understand why they did not then begin to enforce the agreements . . . in which uses have their origin. The answer, I think, is that by this time they had missed their opportunity once and for all--the Chancellor was already in possession, was already enforcing uses by means of a procedure far more eAEcient and far more flexible than any which the old courts could have employed.

. . . .

That is, you will see that the advantages of giving land to someone one to hold to your use

would have disappeared if the law had actually enforced the terms of the `trust' by compelling the feoffee to reconvey the land to the grantor while he was still alive. [pdj]

I.e., all the bad consequences of land ownership that the use of the use was supposed to

prevent. [pdj]

This refers to actual trustees, but not, of course, to `constructive trustees,' the type of

trustees that one is most likely to encounter in a course in restitution.

The flexibility and eAEciency are a direct consequence of the ways that equitable decrees

are enforced. Unlike judgments--which, unless they are merely declarations of matters of

September 11, 2000

2.5. A CONSTRUCTIVE TRUST WITH NO WRONGDOING 301

. . . .

2.5 A Constructive Trust with No Wrongdoing 2.5.1 Chinchurreta v. Evergreen Management, Inc.

Chinchurreta v. Evergreen Management, Inc.

Court of Appeals of Idaho 117 Idaho 591, 790 P.2d 372

1989

Appeal from the District Court of the Fifth Judicial District, State of Idaho, Twin Falls County. Honorable Daniel B. Meehl, District Judge.

Order releasing attached funds, in debt collection action, aAErmed. Before Walters, C.J., Burnett, J. and Bengtson, J. Pro Tem. Per Curiam

This is a companion case to Chinchurreta v. Christensen, 117 Idaho 588, 790 P.2d 369, decided today. Like that case, this one involves a dispute over entitlement to Medicaid funds that were attached in a debt collection suit. Unlike the companion case, however, the funds were ordered to be released, not to the plaintiff, David Chinchurreta, but to the intervenors, Lowell and Paul Christensen. The dispositive question here is whether the Christensens were oAEcious intermeddlers in the operation of a health care facility and, therefore, were not entitled to the Medicaid funds. We aAErm the district court's order.

As noted in the companion case, Chinchurreta loaned $110,000 to Evergreen Management, Inc., and to Evergreen's controlling shareholder, Miles Taggart. Evergreen did business as the Homedale Care Center, a health care facility. Evergreen and Taggart had a health care provider contract with the Department of Health and Welfare. Consequently, their facility was partially funded by payments from the Department of Health and Welfare for services provided to Medicaid recipients. The facility was located on property rented from the Christensens. It was managed by a health care administrator, Keith Holloway.

Evergreen and Taggart ultimately defaulted on their debt to Chinchurreta. In July, 1987, Chinchurreta filed a complaint to recover the money owed. In November, the district court ordered that a writ of attachment be issued to the

fact, can only be enforced by the sheriff--equitable decrees are commands--orders--of the chancellor running directly to the defendant; if the defendant does not obey, then he will end up in jail for contempt (until such time as he changes his mind and does obey the decree). The flexibility of the equitable decree follows from the fact that the chancellor's could--and did-- tailor their decrees, their orders, their commands to fit the particular facts of the particular case before them. The inflexibility of legal judgments, on the other hand, is a necessary consequence of the fact that there were only a limited number of forms of action--causes of action--and that each of these forms had its own associated form of judgment--usually a judgment for a sum of money as damages or restitution. [pdj]

302 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY county sheriff requiring that all funds due and owing Evergreen be deposited with the district court. Chinchurreta obtained a default judgment in his favor on January 4, 1988.

During this time, Taggart and Evergreen evidently failed to pay rent to the Christensens. On December 8, 1987, the Christensens terminated their lease with Taggart. Taggart subsequently left the state. Although the Department of Health and Welfare continued to regard Taggart and Evergreen as the only con- tractually authorized health care providers at the facility, no patients were with- drawn. The facility stayed open until February 11, 1988, when a new provider, Rodney Roe, signed a contract with Health and Welfare. During the two-month hiatus, when Roe had yet to sign a contract and Taggart was nowhere to be found, the Christensens stepped in and kept the facility running. They paid the labor costs, bought the food, admitted patients, etc. Ultimately they sank about $40,000 of their own funds into the facility's operation. The Department of Health and Welfare disbursed $24,688 to the facility for its January services to patients. When Chinchurreta attached the money, the Christensens inter- vened. The Christensens argued that they, and not Chinchurreta, were entitled to this money because they had been the de facto health care providers during January.

After a hearing, the district court decided that the health care provider during January, 1988, was Taggart and Evergreen, Inc., not the Christensens. However, the judge also concluded the Christensens had an equitable right to the funds, since they had operated the facility during January. Rather than releasing the attached funds to Chinchurreta, the district judge set up a constructive trust, recognizing legal title to the funds in Taggart but granting an equitable title to the Christensens. Chinchurreta has appealed.

Chinchurreta argues that the Christensens were mere volunteers. It is well settled that a person cannot--by way of set-off, counterclaim or direct action-- recover money which he or she "has voluntarily paid with full knowledge of all the facts, and without any fraud, duress or extortion, although no obligation to make such payment existed." McEnroe v. Morgan, 106 Idaho 326, 335, 678 P.2d 595, 604 (Ct. App. 1984). This rule, which at first blush appears harsh, exists to protect persons who have had unsolicited "benefits" thrust upon them. Restatement of Restitution x 2 (1937).

Here, however, the persons directly benefited by the Christensens' actions have not suffered the imposition of unwarranted or uninvited financial burdens. The owner and manager of the Homedale facility have not appeared to object to the Christensens' services nor to challenge the Christensens' request for the money. So far as the record shows, the patients at the Homedale facility have not suffered any financial burdens. If any burden has arisen from continued op- eration of the facility, it has been willingly borne by the Department of Health and Welfare, which disbursed the January payment. The person seeking to in- voke the rule against mere volunteers or oAEcious intermeddlers, Chinchurreta, has not been subjected to a financial burden. Although he claims to be disad- vantaged by the Christensens' claim to the January payment, the disadvantage

September 11, 2000

2.5. A CONSTRUCTIVE TRUST WITH NO WRONGDOING 303 is illusory because the payment could not have been made at all if the Chris- tensens had not kept the facility in operation. Accordingly, we hold that this case falls outside the purpose of the oAEcious intermeddler rule, and that the rule will not be applied for the benefit of Chinchurreta.

Chinchurreta also contends that the district court misapplied the doctrine of a constructive trust. Chinchurreta asserts that a constructive trust may be imposed only as a remedy for wrongdoing, such as obtaining property by fraud or misrepresentation. It is true, of course, that the constructive trust is available as a remedy in such cases. However, it is not invariably so limited.

A constructive trust is a remedial device created primarily to pre- vent unjust enrichment; equity compels the restoration to another of property to which the holder thereof is not justly entitled. (Citations omitted) [A] constructive trust may be imposed in practically any case where there is a wrongful acquisition or detention of property to which another is entitled.

Taylor v. Polackwich, 194 Cal. Rptr. 8, 13 (Cal. App. 2 Dist. 1983). As noted in G. Bogert, Handbook of the Law of Trusts (5th ed. 1973), at 290, "[t]he only problem of great importance in the field of constructive trusts is to decide whether, in the numerous and varying fact situations presented to the courts, there is a wrongful holding of property and hence a potential unjust enrichment of the defendant."

In this case, Chinchurreta has no claim to the January money except by way of attachment to collect a debt owed by Evergreen and Taggart. However, Evergreen and Taggart have no substantively cognizable claim to the money. Although they were the nominally contracting parties with the Department of Health and Welfare in January, they did not operate the facility and they performed no services for which compensation was due. The services for which the money has been disbursed were performed by the Christensens. The district court determined that releasing the January money to Chinchurreta rather than to them would create an unjust enrichment. The constructive trust was imposed upon the funds in order to prevent this result. We find no error.

Chinchurreta further asserts that the constructive trust violates certain pro- visions of the Idaho statutes relating to trusts. However, those statutes regulate the operation of ordinary trusts in law; they do not purport to govern the use of constructive trusts as a broad remedial tool by courts in equity.

Accordingly, the order of the district court, directing that the attached funds be released to the Christensens, is aAErmed. Costs to the respondents, Chris- tensen. No attorney fees on appeal.

304 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY 2.5.2 Notes on Chinchurreta v. Evergreen Management,

Inc.

1. In Nebraska National Bank v. Johnson, Johnson was a thief and a con-

structive trust was imposed on his ill-gotten gains. In Riggs v. Palmer, Elmer Palmer was a murder and a constructive trust--or something very much like a constructive trust--was imposed to keep him from profiting from the murder. As Chinchurreta illustrates, however, constructive trusts are not imposed only on wrongdoers. As is true in so many restitution cases, there are no wrongdoers in Chinchurreta.

2. Chinchurreta illustrates the importance of constructive trusts in situations

where a debtor--like Evergreen--does not have suAEcient funds to pay its debts. The creditor who can impose a constructive trust on some of the assets of the debtor will obtain all of those assets, not having to save them with the other creditors. In the terminology of the bankruptcy courts, the creditor who becomes the beneficiary of a constructive trust receives a preference, a preference that cannot be reached by the other creditors even in bankruptcy.

3. Note the claim that Christensens were `volunteers'--or even `oAEcious in-

termeddlers.' This defense is often raised--often successfully raised--in actions where the plaintiff claims to have paid money to, or performed services for, the defendant and then sues counting for money had and received or for work, labor, and services.

4. The procedural posture of Chinchurreta is complex because Chinchurreta

was attempting to attach debts owing, and debts paid, to Evergreen. If Chinchurreta had not brought that action, what proceedings could the Christensens have brought against Evergreen? Against the Department of Health and Welfare? (The next case may assist you in answering that question.)

2.6 Subrogation 2.6.1 American Ins. Co. v. City of Milwaukee

American Ins. Co. v. City of Milwaukee

Supreme Court of Wisconsin 51 Wis. 2d 346; 187 N.W.2d 142

1971

Facts.

On May 2, 1968, plaintiffs-respondents, three insurance companies, caused a summons and complaint to be served on the defendant-appellant, city of Mil- waukee. The insurers' complaint alleged that, beginning on the night of July 30,

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2.6. SUBROGATION 305 1967, widespread rioting occurred in a section of the city of Milwaukee; that, as a direct result of the rioting, stock and merchandise of the Eloise Evans School of Cosmetology sustained damage; that, prior to July 30, 1967, the insurers had issued policies of indemnity insurance to said school, insuring against damage to property as the result of riot; that thereafter the insurers were obliged to pay and did pay to the insured school the loss in the amount of $752; and that the insurers thereupon became subrogated to the rights of the school against the city to the extent of the payments so made, said rights based upon sec. 66.091, Stats., the mob damage statute.

On May 22, 1968, the parties entered into a stipulation extending the city's time to answer to twenty days after this court's decision on the appeal in In- terstate Fire & Casualty Co. v. Milwaukee (1970), 45 Wis.2d 331, 173 N.W.2d 187, this court there holding that subrogation was not available to the insurers on an identical fact situation.

On March 19, 1970, the plaintiffs-respondents secured an order to show cause why a proposed amended complaint should not stand as and for the complaint in the action. Insofar as is material on this appeal, this amended complaint included the allegation that:

"The plaintiffs in exercise of the right and privilege given and granted to them under their respective policies, more specifically the above quoted pro- vision set forth at Lines 162 to 165, Wisconsin Standard Policy [sec. 203.06, Stats.], required said insured to assign to the plaintiffs, in consideration of the determined loss resulting from riot in the amount of Seven Hundred Fifty-two ($752.00) Dollars, all right of recovery and all of the rights, claims and interest which said Eloise Evans School of Cosmetology then had against any person or corporation liable for the loss and damage so caused and that such assignment, in writing, was thereupon executed and delivered to the respective plaintiffs.

". . . "By reason of the foregoing, the plaintiffs, as assignees of Eloise Evans School of Cosmetology, possess and are the sole owners of all right, title and interest of said Eloise Evans School of Cosmetology in the amount of Seven Hundred Fifty-two ($752.00) Dollars."

On May 27, 1970, the circuit court entered an order granting plaintiffs- respondents' motion to amend the complaint. On June 17, 1970, the city de- murred to the amended complaint on the ground that it failed to state facts suAEcient to constitute a cause of action. On August 3, 1970, an order over- ruling the city's demurrer was entered. From the order granting the motion to amend the complaint and from the order overruling the demurrer, this appeal is taken.

Robert W. Hansen, J. This case is almost a rerun of the appeal involving other insurance carriers similarly situated and the city of Milwaukee. What is different is that the insurers then sought reimbursement from the city as sub- rogees. Now they seek such reimbursement as assignees. They have changed costumes. Where earlier they appeared in the garments of equity-seeking subro-

306 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY gees, they return clad in the armor plate of assignees. Their claim, with which the trial court agreed, is that the change in attire entitles them to receive at law exactly what they were denied in equity. However, what was intended as a change in role, on analysis turns out to be no more than a change in outer dress, leaving unchanged their role, their rights and the result.

This second time around appears based upon an assumption that subroga- tion is subrogation, entirely a creature of equity, and assignment is assignment, entirely a consequence of contract, and never the twain shall meet. The fault with such "either-or" oversimplification is that it ignores the fact that there are two types of subrogation.

Subrogation is either "legal" or "conventional." What is almost misleadingly termed "legal" subrogation has its source in equity and arises solely by operation and application of equitable principles. It derives from an equitable doctrine, that of preventing unjust enrichment, and is not dependent upon contract or privity. For example, it is applied when a person other than a mere volunteer pays a debt which in equity and good conscience should be satisfied by another.

However, there is a second type of subrogation, conventionally termed "con- ventional subrogation," which does arise from the acts of the parties, and does rest on contract. One example of "conventional subrogation" is involved where health insurance contracts contain provisions for subrogation of payments made to the insured, when the insured is injured by the negligent acts of a third person. Another example of "conventional subrogation" is presented by the pleadings and record in this case, for the insurers set forth and rely upon the statute, prescribing a standard fire insurance policy and specifically providing:

"Subrogation. This Company may require from the insured an assignment of all right of recovery against any party for loss to the extent that payment therefor is made by this Company."

Respondents contend that the heading of this section, "subrogation," is a leg- islative error or aberration. On the contrary, the section, heading and content, clearly establish a "conventional subrogation" with the right to require from the insured an "assignment of all right of recovery," the opportunity to establish the contractual basis upon which a "conventional subrogation" is based.

In the Interstate Case this court held that the "subrogation" clause of the standard fire insurance policy did not authorize recovery by insurers from an innocent person or party who did not cause the loss or damages involved. The element of "wrongful act of another," not being present, as it usually is in subro- gation claims in insurance cases,

the insurers, seeking equitable relief as "legal

. . . As a general rule, therefore, applicable to insurance and indemnity contracts of all

kinds, the insurer, on paying to the insured the amount of the loss on the property insured, is subrogated in a corresponding amount to the insured's right of action against any other person responsible for the loss. Likewise, where the tortious conduct of a third person is the cause of a loss covered by an insurance policy, the insurer, upon payment of the loss, becomes subrogated pro tanto by operation of law to whatever right the insured may have against the wrongdoer. The theory is that to permit the insured to receive payment from both the wrongdoer and the insured would be to give him a double compensation for his loss . . . .' "

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2.6. SUBROGATION 307 subrogees," were held not entitled to subrogation against the city. The rea- soning and result are no different with the insurers returning as "conventional subrogees" seeking the same reimbursement on an identical set of facts. Subro- gation is recognized or denied upon equitable principles, without differentiation between "legal subrogation," arising by application of equity, or "conventional subrogation," arising from contracts or acts of the parties.

In point of fact, the denial of the claim of right to subrogation in the In- terstate Case was based on three grounds: (1) equitable principles;

(2) public

policy; and (3) statutory construction. All three barriers to reimbursement stand as to a "conventional subrogee," his status based on contract, as well as to a "legal subrogee," his claim of right based on equity. In fact, the last two grounds--public policy and statutory construction--would bar reimburse- ment even if the insurers here had entirely escaped the status of subrogees and appeared here only as assignees, that and nothing more. Assignments, when against public policy, have been held void by this court. In D'Angelo v. Cornell Paperboard Products Co., supra, an assignment of a $300,000 personal injury claim to an insurer upon payment of $120,000 was voided as against sound public policy, the court quoting from an earlier case stating:

" `Contracts are against public policy when they tend to injure the state or the public. "Public policy is that principle of law which holds that no subject or citizen can lawfully do that which has a tendency to be injurious to the public or against the public good." ' "

Additionally, with the statute being construed as intended and enacted solely for "compensating unfortunate citizens" who are victims of riots, the door seems closed to reimbursement to insurers under any theory or approach.

The Inter-

state Fire & Casualty Co. decision closed the door; this decision securely locks

(Emphasis supplied.) 8 Couch, Insurance (1st ed.), p. 6590, sec. 1997 . . . . [footnote by Court, renumbered]

"Moreover, subrogation is to be accorded upon equitable principles even though the right

thereto, as authorized by statute in respect of policies of insurance (Act of April 25, 1945, P.L. 307, sec. 1, 40 PS sec. 657), is contractually declared. . . . the right of subrogation exists wholly apart from contractual provision and, in any instance, is to be enforced equitably." Roberts v. Fireman's Ins. Co. of N.J. (1954), 376 Pa. 99, 107, 101 Atl.2d 747, 750, 751.

" . . . In paying the losses the respondents merely discharged their own obligation and

not an obligation for which the city was primarily liable as a tort-feasor.

"As stated earlier, an absolute liability statute such as sec. 66.091, by its very nature and definition, does not render one a wrongdoer since liability is imposed without fault.

" . . . we do not infer that subrogation is unavailable in all cases in which insurance companies have received premiums, but merely deny its application where, as here, the party against whom subrogation is sought is not a wrongdoer. . . . " Interstate Fire & Casualty Co. v. Milwaukee, supra, at pages 338, 339. [footnote by Court, renumbered]

"If Insurers have no right to subrogation, their position is not improved by the assignments

to them of insured's claim. . . . " American Surety Co. v. Bank of California (9th Cir. 1943), 133 Fed.2d 160, 164, cited with approval in Bank of Fort Mill v. Lawyers Title Ins. Corp. (4th Cir. 1959), 268 Fed.2d 313, 316, as making clear the "fallacy in this reasoning" that the "assignment converted the right to a legal right and prevented the Court from applying equitable principles. . . . " [footnote by Court, renumbered]

308 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY it against chance of reimbursement for the insurers from the city on this set of facts.

We see no merit in the city's contention that the filling of the amended complaint was barred by sec. 62.25(1) (e), Stats. We would find sec. 269.44 permitting the amending of pleadings, to apply, along with sec. 269.52 allowing amended pleadings where demurrer has been sustained or remedy mistaken. Remedial statutes of this type are to be liberally construed. The trial court acted properly in permitting the filing of an amended complaint by the plaintiffs- respondents in this proceeding. The same is not to be said of the trial court overruling the demurrer of defendant-appellant. The demurrer to the complaint should have been sustained.

By the Court.--Order granting motion of plaintiffs-respondents to amend pleadings is aAErmed. Order overruling demurrer of defendant-appellant is re- versed, with costs to the defendant-appellant.

2.6.2 Notes on American Ins. Co. v. City of Milwaukee

1. American Ins. Co. contains an excellent explanation of subrogation, and

of the distinction between `legal subrogation' and `conventional subroga- tion'. It does not, however, explain the historical development of the subrogation remedies.

Subrogation developed in equity in the good old days when causes of ac- tions--including causes of action based on contract--were not assignable at law. In those days, a person who paid a valuable consideration for the assignment of a claim lost the consideration and did not receive the right to enforce the claim at law. In these circumstances the purported assignor was obviously unjustly enriched.

In the case of such unjust enrichment, the courts of equity could prevent the unjust enrichment in one of two ways: they could order the purported assignor to return the consideration to the plaintiff (the assignee), a rem- edy that is clearly restitutionary, or they could order the assignor to sue on the claim at law for the plaintiff 's benefit. In the latter case one could say that the assignment was enforceable in equity (though not in law); the assignor was treated as the trustee of the claim for the benefit of the assignee.

Even when most legal claims became assignable at law--that is, even when the law courts came to recognize the validity of the assignment of most legal claims--the law courts still for a time would not recognize the assignment of a claim that did not exist at the time of the assignment. Thus an assignment of an inheritance before the death of the ancestor, or the assignment of a tort claim before the tort had been committed, would not be recognized by the law courts. In such cases the courts of equity would (often) enforce the assignment.

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2.6. SUBROGATION 309

It is not usual, but it seems to me that it is helpful, to consider conventional subrogation as an example of the latter type of assignment, one that is (or was) not enforceable at law but is enforceable in equity. Legal subrogation then can be described as a quasi-assignment (or a constructive assignment) in equity by operation of law in order to prevent unjust enrichment.

2. Most insurance policies today include subrogation clauses. This means

that in most personal injury cases a settlement must be approved not only by the parties, but by the defendant's insurance company.

It is beyond the scope of these materials to discuss whether the enforce- ment of such subrogation clauses is a good thing.

3. Here is some background material on subrogation:

x 1 Definition of Subrogation.--Subrogation is a doc- trine primarily of equity jurisprudence, although its principles are now often applied in courts of common law, especially in those States in which equitable reme- dies are administered through the forms of law. It is a substitution, ordinarily the substitution of another person in the place of a creditor, so that the person in whose favor it is exercised succeeds to the rights of the creditor in relation to the debt. More broadly, it is the substitution of one person in the place of an- other, whether as a creditor or as the possessor of any other rightful claim. The substitute is put in all re- spects in the place of the party to whose rights he is subrogated. It has been adopted from the civil law by courts of equity. In this country, under the initial guid- ance of Chancellor Kent, its principles have been more widely developed, and its doctrines more generally ap- plied, than in England. It is treated as the creature of equity, and is so administered as to secure real and essential justice without regard to form, independent of any contractual relations between the parties to be affected by it. It is broad enough to include every in- stance in which one party pays a debt for which another is primarily answerable, and which, in equity and good conscience,

should have been discharged by the latter;

but it is not to be applied in favor of one who has, oAEciously and as a mere volunteer, paid the debt of another, for which neither he nor his property was an- swerable, and it is not allowed where it would work any injustice to the rights of others.

Where have you seen that phrase before?

310 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY

x 2. Definition in the Civil Law.--In the civil law, the definitions of which have in the main been followed by our courts, subrogation has been defined as that change by which another person is put into the place of a creditor, so that the rights and securities of the creditor pass to the person who, by being subrogated to him, enters into his right. It is a legal fiction, by force of which an obligation extinguished by a pay- ment made by a third person is treated as still subsisting for the benefit of this third person, who is thus substituted to the rights, remedies, and securities of another. The party who is subrogated is regarded as entitled to the same rights, and in- deed as constituting one and the same person with the creditor whom he succeeds. It takes place for the benefit of a person who, being himself a creditor, pays another creditor whose debt is preferred to his by reason of privileges or mortgages, being obliged to make the payment, either as standing in the situation of a surety, or that he may remove a prior incumbrance from the property on which he relies to secure his payment.

x 3. Who will be subrogated.--Subrogation, as a mat- ter of right, independently of agreement, takes place for the benefit of insurers; of one who, being himself a creditor, has extinguished an incumbrance upon the estate which he has pur- chased; of a co-obligor or surety who has paid the debt which ought, in whole or in part, to have been met by another; of an heir who has paid the debts of the succession; of one who has paid his own debt, the burden of which has, for a valuable consideration, been assumed by another; or of a creditor, who is thereby enabled to subject to the payment of his demand securities or remedies held for its payment by those who are under merely a subsidiary liability to himself. And there will be no subrogation unless the payment was made either under compulsion, or for the protection of some interest of the party making the payment, and is the discharge of an existing liabil- ity. The demand of a creditor which is paid with the money of a third person, without any agreement that the security shall be assigned or kept on foot for the benefit of such third person, is absolutely extinguished; but the doctrine of subrogation will be applied to reimburse one who has been compelled to pay the debt of a third person in order to protect his own rights or to save his own property. It will not be used to reimburse a father for the expense of supporting and educating his own children. And it will be applied only if favor of one who has actually per- formed the obligations of another, and thereby entitled himself to the rights and advantages incident to the discharge of such obligations. The mere extinguishment of another's right by legal means is not enough. Consequently, a prior mortgagee acquires

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2.6. SUBROGATION 311

no right, by the foreclosure of his mortgage, to redeem from a lien subsequent to his own, or to hold the surplus proceeds on the foreclosure of a junior mortgage.

x 4. It is a Mode of Equitable Relief.--Subrogation is an exercise of the equitable powers of the court, to relieve a meritorious creditor, who might otherwise be subjected to loss by his funds being applied to pay another's debt, or by the operation of proceedings at law against the estate or funds of one who is indebted both to him and to others. This remedy is allowed only when it does not conflict with the legal or equitable rights of other creditors of the common debtor; and the principle is one of equity merely, and will be carried out in the exercise of a proper equitable discretion, with a due regard to the legal and equitable rights of others. . . .

H.N. Sheldon, The Law of Subrogation 1-6 (2d ed., 1893).

312 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY 2.7 A Case of Getting One's Just Desserts 2.7.1 Norton v. Haggett

Norton v. Haggett Supreme Court of Vermont

117 Vt. 130, 85 A.2d 571

1952

Present Sherburne, C.J., and Jeffords, Cleary, Adams and Black- mer, JJ.

Bill in Chancery seeking relief from mistake. After a hearing findings of fact were filed and decree entered dismissing the bill. In Chancery, Orange County, Chase, Chancellor. AAErmed.

BLACKMER, Justice. The plaintiff, N. E. Norton, seeks equitable relief because he paid and dis- charged a note and the mortgage securing it. The bill alleges that the payment was made under a mutual mistake, and that the defendants, Roy M. and Hazel C. Haggett and the Northfield Savings Bank are guilty of fraud and conspir- acy. The case was heard by the chancellor, facts found, and a decree entered dismissing the bill; it is here on the plaintiff's exceptions.

So far as it is necessary to state them, the chancellor found these facts. The bank held a note and mortgage given to it by the Haggetts. On November 30, 1948, the plaintiff went to the bank for the purpose of securing possession of this note and mortgage. He told the clerk on duty that he wanted to "take up" the Haggett note and mortgage. Whereupon the clerk asked the plaintiff if he wanted to pay off the note, and the plaintiff replied "yes". The amount due was computed, and the plaintiff gave the bank his check for that amount. The clerk made the proper entries to cover the transaction; he stamped the note "Paid" with a large stamp with red ink, and prepared a discharge for the signature of the bank's president. As the president executed the discharge he said to the plaintiff "You junk men must be making plenty of money in order to be paying someone's else mortgage;" the plaintiff made no reply. The cancelled note and discharged mortgage were handed to the plaintiff, the clerk telling him to be sure to have the mortgage discharge recorded. The plaintiff made no examination of either the note or the mortgage when he received them from the clerk. The plaintiff was well acquainted with notes and mortgages; he understood the process of executing and discharging mortgages, and the meaning of a stamp "paid" on a note. Both the clerk and the president understood that the plaintiff desired to pay the debt. On the same day the plaintiff wrote Roy M. Haggett that he had purchased the note and mortgage. This was the first dealing about the note and mortgage between the plaintiff and the Haggetts. Roy M. Haggett was much disturbed, because the plaintiff had had recent arguments with him on two occasions, and was apparently desirous of harming him. On December 1, Roy M. Haggett communicated with the bank, which told him the note had been paid,

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2.7. A CASE OF GETTING ONE'S JUST DESSERTS 313 not sold. The bank furnished the Haggetts a second discharge of the mortgage, which discharge was recorded. The plaintiff interfered in the business relation between the bank and the Haggetts without any occasion, reason or inducement on the part of the Haggetts. As between the plaintiff and the Haggetts there has never been any indebtedness based on the note and mortgage; the debt due and evidenced by the note and mortgage has been paid and discharged.

On these findings we are dealing with a unilateral mistake, not a mutual mistake as claimed in the bill. It is quite safe to infer from the findings that the plaintiff intended to purchase the note and mortgage, and not to pay the note and discharge the mortgage. But the bank did not share in the plaintiff's mistake. It understood and acted in accordance with the plaintiff's expressed wish, which was to pay. The bank cannot be charged with a mistake simply because it did not know that the plaintiff entertained an unexpressed intent which was the opposite of his mistakenly expressed desire.

Insofar as the plaintiff's mistake is involved, the bank can be removed im- mediately from the picture. A person who confers a benefit upon another, manifesting that he does so as an offer of a bargain which the other accepts, is not entitled to restitution because of a mistake which the other does not share and the existence of which the other does not suspect. Restatement, Restitu- tion, x 12. The equitable principle by which a person is entitled to restitution for what he has transferred to another by mistake is modified by the principle that a person is entitled to the benefit of a bargain made by him without fraud or duress. Ordinarily, therefore, a person entering into a transaction in which another gives or promises consideration is not entitled to the return of what he gives merely because he is mistaken as to the nature of what he gives or receives, or as to other facts which cause him to enter into the transaction. A contracting party who is unaware of and does not share the mistake made by the transferor, is entitled to retain that which he has received if what he gives is suAEcient consideration for a simple contract * * * * * Idem, Comment pp. 47, 48.

The situation as to the Haggetts stands differently. They were not a party to the bargain; they have not changed their position, they parted with no con- sideration; they will gain an unearned benefit if the plaintiff is refused relief. However, whether a mistake is to be corrected depends always upon the cir- cumstances of the case. Ward v. Lyman, 108 Vt. 464, 472, 188 A. 892. On the other side of it there is a compelling combination of circumstances. (1) The plaintiff has no one and nothing to blame except his own negligence and inattention. See Sparrow v. Cimonetti, 115 Vt. 292, 301, 58 A.2d 875; Ward v. Lyman, 108 Vt. 464, 471-472, 188 A. 892; New York Life Ins. Co. v. Kimball, 93 Vt. 147, 153-154, 106 A. 676. (2) He was an intermeddler, and oAEciousness is not to be encouraged. (3) His good faith was apparently questionable. (4) He had no motive of self-interest; he was not protecting any interest which he had or thought he had; nor was he discharging any duty which he owed or thought he owed. (5) He was not related to, nor even friendly with the Haggetts, nor was he protecting any interest of theirs. (6) To give the plaintiff restitution

314 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY from the Haggetts would be to substitute him for the bank as creditor of the Haggetts without the consent of either the bank or the Haggetts. No protection is deserved by one who intermeddles by paying another's debt either without reason or to secure rights against the debtor without the consent of the creditor. Restatement, Restitution, Comment on s 43, p. 173. These latter considera- tions weigh more than the former, and dictate that the loss remain where it has fallen.

. . . . No error has been made to appear. Decree aAErmed.

2.8 Tracing in Equity This section is concerned with restitutionary relief in equity, and especially with problems associated with the concept of `tracing.' Historically, if tracing occurred in equity, it was as the outcome of an equitable proceeding for an accounting. If the tracing was successful a constructive trust would then be imposed on the `product' into which the original assets were traced. Today, however, at least in simpler cases, the accounting procedures may merge into the discovery procedures permitted under the Federal Rules and similar systems of procedure. This should not be surprising, modern discovery procedures have evolved from the procedures that were available in equity; common law courts had no provisions for discovery.

It should be noted that in many cases where assets are converted into money, equitable tracing is not necessary. If I steal your horse and sell it for $100, you can `trace' the horse into the $100, and you can recover the $100, in an action at law: an action of indebitatus assumpsit for money had and received; but if I then use part of the $100 to buy a lottery ticket at a church bazaar, and the lottery ticket is a winner--I win the new 10 speed bicycle--the only way you are going to recover that bicycle

is by tracing the horse into the money and

the money into the ticket and the ticket into the bicycle in an equitable tracing proceeding.

In that hypothetical example the defendant may be entitled to have some of the issues--the legal issues, particularly the issue of whether the defendant actually did steal your horse--tried to a jury. You should be aware of this issue, though it will not be discussed further in these materials.

Excluding self help, which would amount to a trespass even though in equity you may be

entitled to the bicycle.

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2.8. TRACING IN EQUITY 315 2.8.1 Mass. Bonding & Ins. Co. v. Josselyn

Massachusetts Bonding & Insurance Co. v. Josselyn

Supreme Court of Michigan

224 Michigan 159

1923

Sharpe, J. Albert J. Reeber, an attorney of Detroit, the former husband of defendant Rose Reeber Josselyn, was appointed administrator of the estate of Albert Zeitz on August 30, 1916, and gave the usual bond, in which the plaintiff was surety, in the sum of $6,000. On December 21st of the same year, he was appointed administrator with the will annexed of the estate of John A. Moeller and gave a similar bond, in which plaintiff was also a surety, in the sum of $50,000. He administered these estates until his death on October 11, 1917. The Detroit Trust Company was appointed administrator of his estate. It presented final accounts in both estates, which were duly allowed, showing an indebtedness by him to the Zeitz estate in the sum of $5,147.91 and to the Moeller estate in the sum of $26,000. These sums the plaintiff company paid to the duly appointed administrators of said estates and assignments of their respective claims against the estate of Reeber and such other persons as might be in possession of trust funds or property were duly made to plaintiff.

At the time of his first appointment, Reeber had a checking account in the Central Savings Bank at Detroit, showing a balance of $33.69. He deposited substantially all of the moneys received by him belonging to these estates in such account, thus commingling the funds belonging to the two estates with his personal funds. At the time of his death, there was a balance of $742.19 to his credit in the bank. During this period, Reeber had made deposits of large sums received by him from other sources, the amount of which seems to be somewhat in dispute.

Previous to his appointment as administrator of either estate, Reeber had caused his life to be insured by three policies issued by the John Hancock Mutual Life Insurance Company, each in the sum of $5,000, payable in the event of his death to his wife. The last premium on one of these policies, amounting to $138.60, the last two premiums on another, amounting to $320.20, and the last premium on the third policy, amounting to $139.10, were paid by him in 1916 and 1917, after the commingling of such funds, by check on the bank in which they were deposited. After such appointments, he caused his life to be insured by policies payable to his wife in the sum of $60,000. The premiums on all of these policies were paid by checks drawn on the bank in which the estate moneys were deposited. After his death, the defendant, Rose Reeber Josselyn, received as beneficiary under the policies first referred to $15,106.03, and under the latter $47,054.50.

It is plaintiff's claim that each and every of the premiums paid on these policies after Reeber's appointment as administrator was paid at a time when he had no money other than that belonging to these estates in the bank and

316 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY that consequently they were paid out of the funds of the estates. Plaintiff, in this proceeding, seeks to impress upon the properties in which the defendant, Rose Reeber Josselyn, has invested these insurance moneys, one parcel of which is in the name of her present husband, Henry E. Josselyn, the other defendant, and herself, and on the moneys not invested but deposited by her in certain banks, the trust arising from the use of the moneys of the estates in paying the premiums on such policies to the extent to which the beneficiary in the several policies benefited by such payments.

It appears clearly from Reeber's bank account that the balances on deposit at the time the several checks for premiums were paid were less than the amount of the moneys of the estates which had been theretofore deposited and not withdrawn. It will serve no useful purpose to insert in this opinion a copy of the entries in the books of the bank or the summary compiled by an accountant and appearing in the record establishing this fact.

The trial court determined that the sums received on policies issued prior to Reeber's appointment as administrator should be prorated "in the proportion that the trust funds and private funds invested therein bore to each other," and concluded that of the total insurance moneys received, $62,180.53, $54,471.80 thereof "belonged to and was the property of the two said estates, and by virtue of the assignment hereinbefore mentioned became and was the property of the said plaintiff herein."

It is an elementary rule that a trustee may make no profit out of the handling of a trust estate. It is also well settled that where money held upon trust is misapplied by the trustee and traced into an unauthorized investment in property of any nature, the investment thus made, in the absence of a claim of bona fide ownership by a third person, may be treated by the cestui que trust as made for his benefit. . . . The consideration for the investment is trust money and the cestui que trust becomes the equitable owner of the property purchased therewith. His right thereto is a property right, not one created by any preference or favoritism shown by a court of equity.

As before stated, it clearly appears that the trust moneys were used in the payment of insurance premiums. Had such moneys been used in the purchase of real estate or personal property of any kind and title thereto taken in the name of Reeber or his wife or any other person except a bona fide purchaser for value, any such property, irrespective of whether it had increased or decreased in value, would have been the property of these estates. The contingency of gain would enure to their benefit just as the contingency of loss would have to be borne by them unless able to collect any deficiency from the trustee. In law they would be the equitable owners of any property in which their moneys had been invested.

We are unable by any process of reasoning to apply any different rule to trust moneys used in the payment of life insurance premiums. The investment

I think that this statement is very important; at the same time, I am not quite sure what

it means. [pdj]

September 11, 2000

2.8. TRACING IN EQUITY 317 thus made might or might not have proved productive. Had the insured or the beneficiary permitted the policies to lapse by nonpayment of the premiums, the estates would have lost the moneys so invested, unless otherwise able to secure payment. By the use of their money, the policies were kept alive and in full force at the time of Reeber's death. Having furnished the consideration therefor, the proceeds thereof are impressed with the trust which follows the misapplication of the trust funds.

The fact that the wife of Reeber, instead of his estate, was named as benefi- ciary cannot affect plaintiff's rights. She paid no part of the premiums. While the statute (2 Comp. Laws 1915, x9345) provides that moneys payable under policies in which the wife is named as beneficiary are not subject to the claims of creditors,

the question here presented is not one of preference. Her right

under the statute must yield to the paramount right of the estates, the moneys of which furnished the consideration for the investment.

We think the trial court was right in prorating as he did the proceeds of the policies in which but partial payments of premiums were made out of the moneys of the estates. The decree limited recovery to the amount of the actual shortage as determined by the probate court. This we think plaintiff was clearly entitled to.

The conclusion reached is in accord with that expressed in Holmes v. Gilman, 138 N.Y. 369 (34 N.E. 205, 20 L.R.A. 566, 34 Am. St. Rep. 463). Defendant's husband became a member of a firm of copartners in 1880. He had exclusive charge of its oAEce affairs, its banking and the making of notes issued in its business. He died pending an audit of the firm's books, which disclosed that he had wrongfully appropriated large sums of money belonging to the firm to his own use. After his death, it was discovered that he had paid considerable sums in securing life insurance payable to his wife, the premiums on which had been paid with the moneys of the firm. It was held that the proceeds of the policies could be recovered from the wife, as beneficiary, to the amount, at least, of his indebtedness to the firm. In the opinion, written by Mr. Justice Peckham, in which many authorities are discussed, it is said:

"It has been said that the husband, when he procures an insurance for his wife's benefit, acts as her agent, or represents her, and that she has a vested interest in the policies the moment they are delivered by force of the statute permitting them to be made in this form.

Compare the effects of this statute with the effects of the `homestead act' in Nebraska

National Bank v. Johnson.

This avoids the interesting question of whether the estates would have been entitled to

more than the `actual shortage' if the insurance policies were in a greater amount than the shortage. The authorities for the most part agree that the full amount of the insurance should be paid over to the beneficiaries of the constructive trust, even of the insurance exceeds the loses that led to the imposition of the trust. There are, however, as far as I can tell, no reported cases in which a beneficiary of a constructive trust of the proceeds of a life insurance policy has actually made such a profit. [pdj]

318 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY

Whitehead v. Insurance Co., 102 N.Y. 143 (6 N.E. 267, 55 Am. Rep. 787). This is doubtless true in the case of the husband procuring the insurance with funds which belong to him or to his wife, but where the premiums are paid with moneys which in truth do not belong to him, and which the husband misapplies in so paying, and by which he violates his obligation to the true owner of the moneys thus used, the wife in such case must claim the policy subject to the means by which the husband procured it, and she must adopt all his methods. The moneys in the hands of the company could not be recovered back by the cestui que trust if received by the company in good faith, because it would stand in the position of a bona fide purchaser, yet the policy itself would stand as the representative of these trust moneys, and the right of the wife would be to that extent subordinate. * * * The cestui que trust is entitled to follow his funds and to take the moneys or the policy at his option."

The right to prorate where but a part of the premiums is paid out of the trust fund is also discussed.

In Shaler v. Trowbridge, 28 N.J. Eq. 595, where it was sought to impress a trust upon the proceeds of a life insurance policy, it was said:

"It is urged that a life policy should be exempt from the equitable rule which applies to other transactions, because it differs in its character from ordinary investments, and is a beneficent provision for the family, which should be favored.

"Public policy clearly forbids the adoption of this suggestion; it would invite the commission of the wrong by assuring the wrong- doer that there is one mode in which he could surely profit by his turpitude, in securing a provision for his family. The policy is the thing which the partnership money purchased, and it stands in the place of what was corruptly abstracted. Whether the policy would be productive, when terminated by death, of more or less than the premiums paid upon it, would depend upon the length of the life insured. The fact that it has a contingent value does not distinguish it, in principle, from an investment in the purchase of stock, or of an annuity, and can give no support to the claim of the widow, that nothing should be exacted of her beyond the amount of premiums paid upon it out of the firm funds."

The decree is aAErmed, with costs to appellee.

Wiest, C.J., and Fellows, McDonald, Clark, Bird, Moore, and Steere, JJ., concurred.

September 11, 2000

2.8. TRACING IN EQUITY 319 2.8.2 Note to Mass. Bonding v. Josselyn Josselyn is a classic example of a tracing case arising after a fiduciary has com- mingled funds. (In a surprising number of those cases the unfaithful fiduciary has been a lawyer.) But the court in Josselyn appears to have overlooked one important point, the point that is the major issue in the next case. Was there any evidence that between the dates on which Reeber commingled the estates' moneys with moneys of his own and those on which he withdrew moneys to pay the insurance premiums, the balance in the account had not fallen to nothing-- or at least to less than the amount of the premiums?

As the next case indicates, this is a very important issue.

2.8.3 Republic Supply Co. v. Richfield Oil Co.

Republic Supply Co. v. Richfield Oil Co.

Circuit Court of Appeals, Ninth Circuit

79 F.2d 375

1935

Before Wilbur and Mathews, Circuit Judges, and Sure, District Judge. Sure, District Judge. From a decree of the District Court, adopting and confirming findings and conclusions of a special master concerning a claim of Universal Consolidated Oil Company (hereinafter called Universal) against the receiver of the Richfield Oil Company of California (hereinafter called Richfield) and the Security First National Bank of Los Angeles (hereinafter called the bank) appeal and cross- appeal have been prosecuted.

At the time of the commencement of this proceeding Richfield was in eq- uitable receivership. Universal filed a bill in intervention against the receiver and the bank, as trustee under a mortgage and trust indenture of Richfield, whereby it was sought to establish a prior lien upon certain assets of Richfield then in the hands of its receiver. The gist of the bill was that Richfield, with knowledge that Universal had a cash balance in bank amounting to $1,625,000, deliberately purchased suAEcient Universal stock to procure control of Universal through the election of Richfield oAEcers and attaches to the board of directors of Universal; misappropriated the amount named and commingled same with Richfield's general checking account in the bank; and thereafter invested the funds in certain assets which had passed into the hands of Richfield's receiver. The prayer was for a prior and superior lien upon the properties purchased in favor of Universal and against the bank and the receiver.

The matter was referred to a special master, who sustained the allegations of the bill in intervention, found that Universal had successfully traced part of its funds into specific properties which passed into the hands of the receiver, and that Universal was entitled to prior liens upon those designated parcels in

320 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY the sum of $403,993.92. A general claim for the balance of $779,154.31, which the master found had not been properly traced, was allowed Universal.

The proceeding was instituted, and the master and District Court rested their conclusion upon the theory that recovery was limited to the lowest balance reached by the commingled account between the dates of misappropriations and the dates of acquisition of the specified pieces of property.

The question on appeal is whether a trust may be declared upon the low balance theory.

Preliminarily, it is admitted by appellants that Universal's funds were mis- appropriated, and that the misappropriations constituted Richfield's receiver the trustee of a constructive trust of which Universal was the beneficiary.

Appellants urge that the evidence is insuAEcient to show a tracing of trust funds, and argue that in order to recover trust funds the injured cestui que trust must prove that "actual trust funds, as distinguished from a presumptive substitute therefor, were employed in the purchase of specific property," in fewer words, that unless the trust funds are clearly traced into money, plaintiff must fail.

That strict rule has long since been supplanted by a more liberal one, mod- ern only in the sense of its being a logical extension of an equitable principle underlying the idea of trusts, which has been evolved by courts of equity in or- der to obviate serious injustice--if not penalties--upon the innocent cestui que trust in his efforts to recover that to which he may be, on the merits, rightfully entitled. It is established beyond debate that no change of form can divest a trust fund of its trust character, and that the cestui may follow and reclaim his funds so long as he is able to trace and identify them, not as his original dollars or necessarily as any dollars, but through and into any form into which his dollars may have been converted. . . . The underlying principle of this rule is that the cestui que trust has been wrongfully deprived of that which belongs to him; that his right to his funds has not been lost or destroyed by the mis- appropriation; and that if, and to the extent, the cestui is able to follow and identify the amount of the misappropriated funds as having been used in the acquisition of other property, he may recover.

The presumptive substitute referred to in appellant's argument apparently originated in Knatchbull v. Hallett (In re Hallett's Estate), 13 Ch. Div. 696, wherein it was held that where one in a fiduciary capacity mingles money be- longing to another with his own, the whole will be treated as trust property except so far as the tort-feasor may be able to distinguish his own funds.

This

rule was enlarged later in Re Oatway (Hertslet v. Oatway), [1903] 2 Ch. Div. 356. In that case Oatway, acting in a fiduciary capacity, deposited funds be- longing to his cestui in his personal bank account, and from the blended account

Since Knatchbull v. Hallett was decided by Sir George Jessel, Master of the Rolls, and

since Sir George explained the case by giving the example of a fiduciary who has a bag containing a hundred guineas and who adds to the bag another hundred guineas taken from his beneficiary in breach of trust, the rule in Knatchbull v. Hallett has come to known as The Rule of Jessel's Bag. [pdj]

September 11, 2000

2.8. TRACING IN EQUITY 321 purchased shares of stock in the Oceana Company. Subsequently the blended account was dissipated. At page 360 of [1903] 2 Ch. Div., Joyce, J., said: "It is, in my opinion, equally clear that when any of the money drawn out has been invested, and the investment remains in the name or under the control of the trustee, the rest of the balance having been afterwards dissipated by him, he cannot maintain that the investment which remains represents his own money alone, and that what has been spent and can no longer be traced and recovered was the money belonging to the trust. In other words, * * * in order to deter- mine to whom any remaining balance on any investment that may have been paid for out of the account ought to be deemed to belong, the trustee must be debited with all the sums that have been withdrawn and applied to his own use so as to be no longer recoverable, and the trust money in like manner debited with any sums taken out and duly invested in the names of the proper trustees. The order of priority in which the various withdrawals and investments may have been respectively made is wholly immaterial."

Upon a showing that at the time of the purchase of the Oceana stock the commingled account had a balance in excess of the amount claimed as a trust fund, it was argued that the trustee should be permitted to retain the stock because the excess could have been used to purchase the stock. The judge emphatically refuted that argument by holding that the tortfeasor never was entitled to withdraw the trust funds from the account and hold them with the investment made therewith free of the charge in favor of the trust, unless and until the trust money had been restored, which never was done.

The contention of appellant in the instant case that the rule laid down in the Oatway Case has never been followed in our federal courts is not sustained by the authorities. Brennan v. Tillinghast, [(C.C.A.) 201 F. 609]; Primeau v. Granfield (C.C.) 184 F. 480; In re Pacat Finance Corporation (C.C.A.) 27 F.(2d) 810, 813; Fiman v. State of South Dakota (C.C.A.) 29 F.(2d) 776, certiorari denied 279 U.S. 841, 49 S. Ct. 254, 73 L. Ed. 987. See, also, 82 A.L.R. 160. Nor is any distinction to be made, as argued by appellant, between those cases wherein the trust funds remained money (Brennan v. Tillinghast, supra, and In re Pacat Finance Corporation, supra), and those in which the trust funds had been changed into property.

No useful purpose would be served by reciting the facts and reasoning in detail in each of the cases just above cited. It is suAEcient to say that in Bren- nan v. Tillinghast, supra, the Court of Appeals of the Sixth Circuit analyzed, discussed, and followed the rule of the Oatway Case, since which it has been a guide in subsequent litigation with relation to the presumption referred to in tracing funds. In the Brennan Case it was held that where a wrongdoer mingles another's money with his own, from which commingled account withdrawals are from time to time made, there is a presumption of law that the sums first with- drawn were moneys belonging to the tort-feasor which he had a right to expend, and that which remained included the trust fund which he had no right to use; but that the presumption could not stand against evidence to the contrary, cit- ing Board of Commissioners of Crawford County v. Strawn [(C.C.A.) 157 F. 49,

322 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY 15 L.R.A. (N.S.) 1100]. It was further held that where the evidence showed that the first moneys withdrawn from the blended account by the tort-feasor were not in fact dissipated, but were merely transferred in another form of property to another fund retained by the tort-feasor, the presumption had no applica- tion; that under such evidence a trust attaches to the substituted form in which the money is retained, and that the right to follow the trust fund in such form is not lost by reason of the fact that the tort-feasor thereafter withdraws and spends for his own purposes the balance of the fund in which the trust money was originally mingled, citing In re Oatway.

In Re Pacat Finance Corporation, supra, the Court of Appeals of the Sec- ond Circuit held that while the trust money in that case could not be literally traced in lire credits, "the applicable principle is that stated by Joyce, J., in Re Oatway."

A careful consideration of the authorities cited bearing upon the question in- volved, leads us to the conclusion that when Universal proved with precision, as it did, the misappropriation of its funds, the commingling thereof in Richfield's account, the acquisition of certain properties between the dates of misappro- priations and the exhaustion of the account, no intervening exhaustion of the account, and the intervening low balance, the exhaustion of the account prior to receivership

and the passing of the designated acquired properties into the

hands of the receiver, a strong prima facie showing of tracing was made . . . , whereupon the burden of proof shifted, temporarily, to the defendants to estab- lish, if they could, what amount, if any, of Richfield's funds contributed to the purchase of the properties specified. . . . Defendant having failed to make any showing upon this point, we conclude that the impressment of the lien upon the entire mass or property was proper, in a sum not exceeding the smallest amount contained in the commingled fund subsequent to misappropriation. Brennan v. Tillinghast, supra.

We pass to a consideration of the question presented by the cross-appeal, that is, whether the master and the District Court pursued the correct method in determining the lowest intermediate balance.

In this connection it may be stated that David R. Faries, as amicus curiae, filed a brief in behalf of Universal, arguing the case from the standpoint of the minority stockholders.He adopts the errors assigned by cross-appellant and also attacks the method followed in arriving at the amount of the liens.

In attaching the liens, the master had three alternatives or theories before him for computing the amounts thereof:

1. The daily closing balance, after crediting the opening balance and all deposits during the day and charging all withdrawals for the day, without regard to the order in point of time in which deposits and withdrawals were made.

Was this exhaustion a necessary predicate for Universal's recovery? In re Oatway was

another case in which there was complete exhaustion of the assets in the original account, but is this similarity between the two cases essential? Or accidental? [pdj]

September 11, 2000

2.8. TRACING IN EQUITY 323

2. The balance shown during the day as a result of periodical posting of deposits and withdrawals, after crediting the opening balance, with or without regard to the order in point of time of the transactions, observing or neglecting to observe the true balance, according to the arbitrary inclination of the posting clerk.

3. The balance shown by deducting all withdrawals posted during the day from the opening balance without crediting deposits for the day; disregarding the true order of transactions and assuming an order in point of time which would produce the lowest possible balance during the day.

The third alternative was used. It is urged by Universal that the method followed limits its recovery to the lowest possible figure, and that the daily closing balances should have been the basis of recovery; if not that, at least the lowest daily intermediate posted balances.

No case to which we have been cited really answers the question before us, namely: How is the lowest intermediate balance to be determined? We must, therefore, reach our conclusion upon the basis of equity with due regard, however, to the well-established rules of law and known business practices.

If the lowest intermediate balance between the misappropriations and the purchases is to be taken literally, that is to say at any moment of any day, it is obvious that the order in which deposits and withdrawals were made would be indispensable to proof. None of the three alternatives pretend to show sequence of transactions. It is a matter of common knowledge and, indeed, of record, that the volume and complexity of business and banking practice do not permit of keeping an accurate momentary balance current with deposits and withdrawals in large commercial accounts, for the reason that banks have various depart- ments and many tellers, and the credit and debit transactions react upon one another in rapid succession.

The evidence in this case establishes that the daily intermediate posted bal- ances are merely working balances in the bank; that they do not necessarily represent the actual balance resulting from all transactions in the account up to the time of posting. They represent only the balance of the deposits and withdrawals actually posted, and whether all transactions up to the time of posting shall be included in the intermediate balance is left to the arbitrary inclination of the posting clerk. To illustrate, a check coming to the desk of the posting clerk at 8:15 a.m. from the clearing house may not be posted until after a deposit made at 2:30, notwithstanding the clerk may have posted the account one or more times in the meantime; or a check cashed at 11 o'clock may be posted ahead of one which came in at 8:15. Likewise, a deposit coming into the bank at the opening hour may not be posted until after the closing hour. "The chances are that it would not be posted until after three o'clock." (Master's report.) From this it is apparent that the intermediate posted balance theory was not reliable as showing the true state of the commingled account, and was, therefore, properly discarded.

324 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY

We are not persuaded, however, that the method adopted by the master and the District Court is any more applicable, for it assumes an order of transactions which is wholly unsupported by evidence or reason, and disregards entirely a most essential element of any bank account, namely, credits. The adoption of this method was based upon the premise that the order in point of time of deposits and withdrawals was essential to proof, and that the burden was upon claimant; and upon the reasoning that claimant must fail unless there is a minimum situation which "assumes an order of deposits and withdrawals which, at the worst, must have occurred." We are not in accord with that view.

The evidence discloses that the bank itself, which handles both deposits and withdrawals, and the bookkeeping of the account, cannot, in ordinary cases (and in this case did not), prove accurately the chronology of transactions in large commercial accounts. Why, then, should that insuperable burden penalize the cestui que trust whose funds have been wrongfully taken from it?

Notwithstanding the established doctrine that subsequent deposits in a com- mingled account such as the one herein does not restore a trust fund once ex- hausted

(Schulyer v. Littlefield, 232 U.S. 707, 34 S. Ct. 466, 58 L. Ed. 806;

Board of Commissioners of Crawford County v. Strawn [C.C.A.] 157 F. 49, 15 L.R.A. [N.S.] 1100), and that the burden of proof is upon claimant to show that its funds purchased the property upon which it is sought to fasten a lien (Empire State Surety Co. v. Carroll County [C.C.A.] 194 F. 593, 604), under the facts in this case we are disinclined to follow either rule to the extent of defeating recov- ery, or even limiting recovery to the lowest possible figure, upon an unwarranted assumption of the chronology of transactions and a disregard of the credit side of the bank account. The facts disclosed by the record prompt the observation that if any assumption is to be indulged in, it should not favor Richfield or its creditors, for the reason that Universal's funds were surreptitiously abstracted and deposited in Richfield's account, out of which, the evidence shows, all of the properties involved were wholly or in part paid for, and the account was completely exhausted prior to receivership. From this it is apparent that Uni- versal's claim is superior in right and time to the creditors of Richfield. Under these circumstances, we know of no equitable principle which would entitle the creditors to equal or greater consideration than is due Universal.

No citation of authority is necessary to support the statement that the daily closing balance is the one which reflects the actual state of the ordinary com- mercial bank account, and is the only one accepted and used by both bank and customer in ordinary business transactions. For obvious reasons, heretofore ad- verted to, it disregards the chronological order of deposits and withdrawals. It does not, however, disregard any transaction on either side of the ledger.

It seems perfectly clear to us that under the prevailing system of bookkeep-

This point is extremely important; once the funds in the account are withdrawn, latter

amounts that may be deposited in the account will not be subject to the trust. That is why there is a question as to whether Josselyn was correctly decided, even though there was enough money in the account to pay the premiums at the time that the premiums were paid. [pdj]

September 11, 2000

2.8. TRACING IN EQUITY 325 ing in the bank the essential elements for determining the lowest intermediate balances are not ascertainable with accuracy until the close of the banking day, when all transactions for that day are posted. If in the interim between daily closing balances there was a transgression of the rule with reference to subse- quent deposits not restoring trust funds once exhausted, and the balance did in fact fall below the amount of the trust funds then in the account, the burden was upon defendants to show that fact with accuracy. Under the evidence in the case before us, such liability as might have resulted therefrom should be borne by the tort-feasor, not the innocent cestui. Concisely stated, the equities not being equal, proof of the lowest daily closing balances between misappro- priations and purchases of the identified properties constituted a prima facie showing of the lowest intermediate balances, which, for reasons already stated, was not overcome by defendants' evidence of daily intermediate posted balances.

It follows from what we have said that Universal is entitled to prior liens in the amounts and upon the properties shown in Schedules A and B respectively in the record, under the column headed Daily Closing Balances, which figures may be summarized as follows:

Delaney Producing Property, $150,000.00 Rioco refinery storage tanks, 183,287.57 Watson refinery storage tanks, 115,367.07 106,000 shares Universal stock, certificates LX 26, 27, 28, 32 199,500.00 5,100 shares Universal stock, certificate LX 31, 10,625.00 Tanker, Kekoskee, 35,421.75 Service station at Franklin and Vermont Streets, L.A., 8,500.00 Land, Sacramento distributing plant, 5,000.00 Tankers Larry Doheny, Pat Doheny, and Richmond marine terminal $849,864.25

This allowance reduces Universal's general claim to $333,283.98. The order and decree appealed from to the extent that it impressed a trust upon all of the properties designated is aAErmed. So much of the order and decree as allowed liens on specific properties in the amounts determined by the method adopted by the master and District Court is modified as immediately above stated, and, as so modified, is aAErmed.

The case is remanded to the District Court for further proceedings in accor- dance with the views herein expressed.

2.8.4 Notes to Republic Supply Co. v. Richfield Oil Co.

1. In re Oatway and In re Hallett are the leading cases on the so-called

tracing `fictions'. But do those cases establish fictions? If one hundred guineas of yours and a hundred guineas of mine are commingled in Jessel's

326 CHAPTER 2. AN OVERVIEW OF RESTITUTION--EQUITY

Bag (or, even worse, in Reeber's bank account) there is no way to tell whether a particular guinea originally belonged to you, or to me. This being so, it would seem that the application of the rules in those cases creates the fact--not the fiction--the guinea belongs to you--or that it belongs to me, or that it belongs to each of us, share and share alike.

2. Are there two different rules in In re Oatway and In re Hallett or do the

two cases simply apply the same rule to different situations? I tend to hold the latter view. It seems to me that the rule in both cases is--and Republic Supply Co. supports this reading--that the burden of proof on the tracing issue should be placed on the constructive trustee, the trustee ex maleficio, the wrongdoer, simply because the constructive trustee is a wrong doer. If one takes this viewpoint, the constructive trustee is always going to lose, whenever it is impossible to determine where the traced assets actually ended up.

3. But in many cases, including Republic Supply Co. there is something a lit-

tle strange about allowing the beneficiaries to win because the constructive trustee is a wrongdoers. The constructive trustee--Richfield--was broke and could have cared less whether Universal got liens in the amount of $849,864.25 on the properties or whether those properties were used in the entirety to pay off Richfield's general creditors. The actual dispute was between Universal and Richfield's general creditors. And why should Universal win out over the innocent creditors because Richfield was a wrongdoer? (Perhaps the answer is that those who extended credit to Richfield did willing accept the risk that Richfield might be unable to pay, whereas Universal did not accept that risk.)

September 11, 2000

Chapter 3 Restitution and Government

3.1 Introduction Restitution is usually considered to be part of the private law, far removed from such subjects as Constitutional and Administrative Law. Governments, however, often have occasion to seek restitutionary relief and private persons have at times sought restitution from the government.

In this chapter we shall look at restitution in cases where a government is one of the parties. The major justification for dealing with Restitution in a gov- ernmental context is to show how it cuts across every recognized legal category (with the possible exception of Criminal Law). In this chapter we shall be con- cerned, among other matters, with issues of Constitutional Law, Administrative Law, International Relations, Indian Law, Taxation, and Energy Law--areas of the law where you might not have expected a knowledge of Restitution to be helpful.

Some of the issues that we will study in this chapter can arise only in a public law context; the majority, however, have their cognates in private law.

One of the better reasons for studying Restitution is to break the hold that the traditional legal categories have upon our minds. You may have a Torts case or a Contracts case, a Private Law case or a Public Law case, or a case that simply cannot be categorized, and yet the case may be susceptible to restitution- ary analysis. So this chapter is intended to demonstrate the underlying unity of public and private law when looked at from the viewpoint of restitutionary relief.

327

328 CHAPTER 3. RESTITUTION AND GOVERNMENT 3.2 Indian Land Claims 3.2.1 Oneida Indian Nation of New York v. County of

Oneida

Oneida Indian Nation of New York v. County of Oneida

Supreme Court of the United States

414 U.S. 661

1974

Mr. Justice White delivered the opinion of the Court. Both x 1331 and x 1362 of Title 28 of the United States Code confer juris- diction on the district courts to hear cases "aris[ing] under the Constitution, laws, or treaties of the United States." Section 1331 requires that the amount in controversy exceed $ 10,000. Under x 1362, Indian tribes may bring such suits without regard to the amount in controversy. The question now before us is whether the District Court had jurisdiction over this case under either of these sections.

I The complaint was filed in the United States District Court for the Northern District of New York by the Oneida Indian Nation of New York State and the Oneida Indian Nation of Wisconsin against the Counties of Oneida and Madison in the State of New York. The complaint alleged that from time immemorial down to the time of the American Revolution the Oneidas had owned and occupied some six million acres of land in the State of New York. The complaint also alleged that in the 1780's and 1790's various treaties had been entered into between the Oneidas and the United States confirming the Indians' right to possession of their lands until purchased by the United States and that in 1790 the treaties had been implemented by federal statute, the Nonintercourse Act, 1 Stat. 137, forbidding the conveyance of Indian lands without the consent of the United States. It was then alleged that in 1788 the Oneidas had ceded five million acres to the State of New York, 300,000 acres being withheld as a reservation, and that in 1795 a portion of these reserved lands was also ceded to the State. Assertedly, the 1795 cession was without the consent of the United States and hence ineffective to terminate the Indians' right to possession under the federal treaties and the applicable federal statutes. Also alleging that the 1795 cession was for an unconscionable and inadequate price and that portions of the premises were now in possession of and being used by the defendant counties, the complaint prayed for damages representing the fair rental value of the land for the period January 1, 1968, through December 31, 1969.

The District Court ruled that the cause of action, regardless of the label given it, was created under state law and required only allegations of the plaintiffs' possessory rights and the defendants' interference therewith. The possible ne- cessity of interpreting a federal statute or treaties to resolve a potential defense

September 11, 2000

3.2. INDIAN LAND CLAIMS 329 was deemed insuAEcient to sustain federal-question jurisdiction. The complaint was accordingly dismissed for want of subject matter jurisdiction for failure of the complaint to raise a question arising under the laws of the United States within the meaning of either x 1331 or x 1362.

The Court of Appeals aAErmed, with one judge dissenting, ruling that the jurisdictional claim "shatters on the rock of the `well-pleaded complaint' rule for determining federal question jurisdiction." 464 F. 2d 916, 918 (CA2 1972). Although "[d]ecision would ultimately turn on whether the deed of 1795 com- plied with what is now 25 U.S.C. x 177 and what the consequences would be if it did not," id., at 919, this alone did not establish "arising under" jurisdiction because the federal issue was not one of the necessary elements of the complaint, which was read as essentially seeking relief based on the right to possession of real property. The Court of Appeals thought Taylor v. Anderson, 234 U.S. 74 (1914), directly in point. There, a complaint in ejectment did not state a claim arising under the laws of the United States even though it alleged that the defendants were claiming under a deed that was void under acts of Congress restraining the alienation of lands allotted to Choctaw and Chickasaw Indians. The Court applied the principle that whether a case arises under federal law for purposes of the jurisdictional statute "must be determined from what necessar- ily appears in the plaintiff's statement of his own claim in the bill or declaration, unaided by anything alleged in anticipation of avoidance of defenses which it is thought the defendant may interpose." Id., at 75-76. Because the only essential allegations were plaintiffs' rights to possession, defendants' wrongful holding and the damage claim, the complaint did not properly assert a federal issue, however likely it might be that it would be relevant to or determinative of a defense. In the present case, noting that the District Judge was correct in hold- ing that under New York law these allegations would suAEce to state a cause of action in ejectment, the Court of Appeals considered Taylor to be dispositive.

Both the District Court and the Court of Appeals were in error, and we reverse the judgment of the Court of Appeals.

II Accepting the premise of the Court of Appeals that the case was essentially a possessory action, we are of the view that the complaint asserted a current right to possession conferred by federal law, wholly independent of state law.

The threshold allegation required of such a well-pleaded complaint--the right to possession--was plainly enough alleged to be based on federal law. The federal law issue, therefore, did not arise solely in anticipation of a defense. Moreover, we think that the basis for petitioners' assertion that they had a federal right to possession governed wholly by federal law cannot be said to be so insubstantial, implausible, foreclosed by prior decisions of this Court, or otherwise completely devoid of merit as not to involve a federal controversy within the jurisdiction of

The common law possessory actions have, as you know, been replaced by the action called

`ejectment.' But is the action that the plaintiff is bringing one of ejectment? Or is it for rent? Or is it some sort of unique, and as yet unnamed, federal common law action? [pdj]

330 CHAPTER 3. RESTITUTION AND GOVERNMENT the District Court, whatever may be the ultimate resolution of the federal issues on the merits. . . . Given the nature and source of the possessory rights of Indian tribes to their aboriginal lands, particularly when confirmed by treaty, it is plain that the complaint asserted a controversy arising under the Constitution, laws, or treaties of the United States within the meaning of both x 1331 and x 1362.

It very early became accepted doctrine in this Court that although fee title to the lands occupied by Indians when the colonists arrived became vested in the sovereign--first the discovering European nation and later the original States and the United States--a right of occupancy in the Indian tribes was nevertheless recognized. That right, sometimes called Indian title and good against all but the sovereign, could be terminated only by sovereign act. Once the United States was organized and the Constitution adopted, these tribal rights to Indian lands became the exclusive province of the federal law. Indian title, recognized to be only a right of occupancy, was extinguishable only by the United States. The Federal Government took early steps to deal with the Indians through treaty, the principal purpose often being to recognize and guarantee the rights of Indians to specified areas of land. This the United States did with respect to the various New York Indian tribes, including the Oneidas. The United States also asserted the primacy of federal law in the first Nonintercourse Act passed in 1790, 1 Stat. 137, 138, which provided that "no sale of lands made by any Indians. . . within the United States, shall be valid to any person. . . or to any state. . . unless the same shall be made and duly executed at some public treaty, held under the authority of the United States." This has remained the policy of the United States to this day. See 25 U.S.C. x 177.

In United States v. Santa Fe Pacific R. Co., 314 U.S. 339, 345 (1941), a unanimous Court succinctly summarized the essence of past cases in relevant respects:

" `Unquestionably it has been the policy of the Federal Govern- ment from the beginning to respect the Indian right of occupancy, which could only be interfered with or determined by the United States.' Cramer v. United States, 261 U.S. 219, 227. This policy was first recognized in Johnson v. M'Intosh, 8 Wheat. 543, and has been repeatedly reaAErmed. . . . As stated in Mitchel v. United States, supra, p. 746, Indian `right of occupancy is considered as sacred as the fee simple of the whites.' "

The Santa Fe case also reaAErmed prior decisions to the effect that a tribal right of occupancy, to be protected, need not be "based upon a treaty, statute, or other formal government action." Id., at 347. Tribal rights were nevertheless entitled to the protection of federal law, and with respect to Indian title based on aboriginal possession, the "power of Congress. . . is supreme." Ibid.

As indicated in Santa Fe, the fundamental propositions which it restated were firmly rooted in earlier cases. In Johnson v. M'Intosh, 8 Wheat. 543 (1823), the Court refused to recognize land titles originating in grants by Indians

September 11, 2000

3.2. INDIAN LAND CLAIMS 331 to private parties in 1773 and 1775; those grants were contrary to the accepted principle that Indian title could be extinguished only by or with the consent of the general government. The land in question, when ceded to the United States by the State of Virginia, was "occupied by numerous and warlike tribes of Indians; but the exclusive right of the United States to extinguish their title, and to grant the soil, has never, we believe, been doubted." Id., at 586. See also id., at 591-597, 603. The possessory and treaty rights of Indian tribes to their lands have been the recurring theme of many other cases.

The rudimentary propositions that Indian title is a matter of federal law and can be extinguished only with federal consent apply in all of the States, including the original 13. It is true that the United States never held fee title to the Indian lands in the original States as it did to almost all the rest of the continental United States and that fee title to Indian lands in these States, or the pre-emptive right to purchase from the Indians, was in the State, Fletcher v. Peck, 6 Cranch 87 (1810). But this reality did not alter the doctrine that federal law, treaties, and statutes protected Indian occupancy and that its termination was exclusively the province of federal law.

For example, in Worcester v. Georgia, 6 Pet. 515 (1832), the State of Georgia sought to prosecute a white man for residing in Indian country contrary to the laws of the State. This Court held the prosecution a nullity, the Chief Justice referring to the treaties with the Cherokees and to the

"universal conviction that the Indian nations possessed a full right to the lands they occupied, until that right should be extinguished by the United States, with their consent: that their territory was sepa- rated from that of any state within whose chartered limits they might reside, by a boundary line, established by treaties: that, within their boundary, they possessed rights with which no state could interfere: and that the whole power of regulating the intercourse with them, was vested in the United States." Id., at 560.

The Cherokee Nation was said to be occupying its own territory "in which the laws of Georgia can have no force. . . ." The Georgia law was declared unconstitutional because it interfered with the relations "between the United States and the Cherokee nation, the regulation of which, according to the settled principles of our constitution, are committed exclusively to the government of the union." Id., at 561.

There are cases of similar import with respect to the New York Indians. These cases lend substance to petitioners' assertion that the possessory right claimed is a federal right to the lands at issue in this case. . . .

. . . There being no federal statute making the statutory or decisional law of the State of New York applicable to the reservations, the controlling law remained federal law; and, absent federal statutory guidance, the governing rule of decision would be fashioned by the federal court in the mode of the

332 CHAPTER 3. RESTITUTION AND GOVERNMENT common law.

III Enough has been said, we think, to indicate that the complaint in this case asserts a present right to possession under federal law. The claim may fail at a later stage for a variety of reasons; but for jurisdictional purposes, this is not a case where the underlying right or obligation arises only under state law and federal law is merely alleged as a barrier to its effectuation, as was the case in Gully v. First National Bank, 299 U.S. 109 (1936). There, the suit was on a contract having its genesis in state law, and the tax that the defendant had promised to pay was imposed by a state statute. The possibility that a federal statute might bar its collection was insuAEcient to make the case one arising under the laws of the United States.

Nor in sustaining the jurisdiction of the District Court do we disturb the well-pleaded complaint rule of Taylor v. Anderson, supra, and like cases. Here, the right to possession itself is claimed to arise under federal law in the first instance. Allegedly, aboriginal title of an Indian tribe guaranteed by treaty and protected by statute has never been extinguished. In Taylor, the plaintiffs were individual Indians, not in Indian tribe; and the suit concerned lands allocated to individual Indians, not tribal rights to lands. . . . Individual patents had been issued with only the right to alienation being restricted for a period of time. . . . Insofar as the underlying right to possession is concerned, Taylor is more like those cases indicating that "a controversy in respect of lands has never been regarded as presenting a Federal question merely because one of the parties to it has derived his title under an act of Congress." Shulthis v. McDougal, 225 U.S. 561, 570 (1912). Once patent issues, the incidents of ownership are, for the most part, matters of local property law to be vindicated in local courts, and in such situations it is normally insuAEcient for "arising under" jurisdiction merely to allege that ownership or possession is claimed under a United States patent. . . . As the Court stated in Packer v. Bird, 137 U.S. 661, 669 (1891):

"The courts of the United States will construe the grants of the general government without reference to the rules of construction adopted by the States for their grants; but whatever incidents or rights attach to the ownership of property conveyed by the govern- ment will be determined by the States, subject to the condition that their rules do not impair the eAEcacy of the grants or the use and enjoyment of the property by the grantee."

In the present case, however, the assertion of a federal controversy does not rest solely on the claim of a right to possession derived from a federal grant of title whose scope will be governed by state law. Rather, it rests on the not insubstantial claim that federal law now protects, and has continuously protected from the time of the formation of the United States, possessory right

That's right: federal common law. [pdj]

September 11, 2000

3.2. INDIAN LAND CLAIMS 333 to tribal lands, wholly apart from the application of state law principles which normally and separately protect a valid right of possession.

. . . .

IV This is not to ignore the obvious fact that New York had legitimate and far-reaching connections with its Indian tribes antedating the Constitution and that the State has continued to play a substantial role with respect to the Indians in that State. There has been recurring tension between federal and state law; state authorities have not easily accepted the notion that federal law and federal courts must be deemed the controlling considerations in dealing with the Indians. Fellows v. Blacksmith, The New York Indians, United States v. Forness, and the Tuscarora litigation are suAEcient evidence that the reach and exclusivity of federal law with respect to reservation lands and reservation Indians did not go unchallenged; and it may be that they are to some extent challenged here. But this only underlines the legal reality that the controversy alleged in the complaint may well depend on what the reach and impact of the federal law will prove to be in this case.

. . . . The judgment of the Court of Appeals is reserved and the case is remanded for further proceedings consistent with this opinion.

It is so ordered. Mr. Justice Rehnquist, with whom Mr. Justice Powell joins, concur- ring.

The majority opinion persuasively demonstrates that the plaintiffs' right to possession in this case was and is rooted firmly in federal law. Thus, I agree that this is not a case which depends for its federal character solely on possible federal defenses or on expected responses to possible defenses. . . . However, I think it worth-while to add a brief concurrence to emphasize that the majority opinion does not disturb the long line of this Court's cases narrowly applying the principles of 28 U.S.C. x 1331 and the well-pleaded complaint rule to possessory land actions brought in federal court.

As the majority seems willing to accept, the complaint in this action is basically one in ejectment. Plaintiffs are out of possession; the defendants are in possession, allegedly wrongfully; and the plaintiffs claim damages because of the allegedly wrongful possession. These allegations appear to meet the pleading requirements for an ejectment action as stated in Taylor v. Anderson, 234 U.S. 74 (1914). Thus the complaint must be judged according to the rules applicable to such cases.

The federal courts have traditionally been inhospitable forums for plaintiffs asserting federal-question jurisdiction of possessory land claims. The narrow view of the scope of federal-question jurisdiction taken by the federal courts in such cases probably reflects a recognition that federal issues were seldom

334 CHAPTER 3. RESTITUTION AND GOVERNMENT apt to be dispositive of the lawsuit. Commonly, the grant of a land patent to a private party carries with it no guarantee of continuing federal interest and certainly carries with it no indefinitely redeemable passport into federal court. On the contrary, as the majority points out, the land thus conveyed was generally subject to state law thereafter.

Thus, this Court's decisions have established a strict rule that mere allega- tion of a federal source of title does not convert an ordinary ejectment action into a federal case. As the Court noted in Shoshone Mining Co. v. Rutter, 177 U.S. 505, 507 (1900), "a suit to enforce a right which takes its origin in the laws of the United States is not necessarily one arising under the Constitution or laws of the United States, within the meaning of the jurisdiction clauses, for if it did every action to establish title to real estate (at least in the newer States) would be such a one, as all titles in those States come from the United States or by virtue of its laws." This rule was even applied to cases in which land grants to Indians, subject to limited restrictions on alienation, were involved. See Taylor, supra.

The majority today finds this strict rule inapplicable to this case, and for good reason. In contrast to the typical instance in which the Federal Govern- ment conveys land to a private entity, the Government, by transferring land rights to Indian tribes, has not placed the land beyond federal supervision. Rather the Federal Government has shown a continuing solicitude for the rights of the Indians in their land. The Nonintercourse Act of 1790 manifests this concern in statutory form. Thus, the Indians' right to possession in this case is based not solely on the original grant of rights in the land but also upon the Federal Government's subsequent guarantee. Their claim is clearly distinguish- able from the claims of land grantees for whom the Federal Government has taken no such responsibility.

The opinion for the Court today should give no comfort to persons with garden-variety ejectment claims who, for one reason or another, are covetously eyeing the door to the federal courthouse. The general standards for determining federal jurisdiction, and in particular the standards for evaluating compliance with the well-pleaded complaint rule, will retain their traditional vigor tomorrow as today.

3.2.2 Notes on Oneida Indian Nation

1. The County of Oneida is a government, so the Oneida case fits comfortably

within this chapter about restitution and government--at least it fits if Oneida has something to do with restitution. But the County of Oneida is not the only government involved. Indian nations (or tribes) are also governments: in fact they are sovereigns; as was said in United States v. Wheeler, 435 U.S. 313 (1978):

The powers of Indian tribes are, in general, "inherent pow- ers of a limited sovereignty which has never been extinguished."

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3.2. INDIAN LAND CLAIMS 335

F. Cohen, Handbook of Federal Indian Law 122 (1945) (emphasis in original). Before the coming of the Europeans, the tribes were self-governing sovereign political communities. See McClanahan v. Arizona State Tax Comm'n, 411 U.S. 164, 172. Like all sovereign bodies, they then had the inherent power to prescribe laws for their members and to punish infractions of those laws.

Indian tribes are, of course, no longer "possessed of the full attributes of sovereignty." United States v. Kagama, [118 U.S. 375] at 381. Their incorporation within the territory of the United States, and their acceptance of its protection, necessarily divested them of some aspects of the sovereignty which they had previously exercised. By specific treaty provision they yielded up other sovereign powers; by statute, in the exercise of its plenary control, Congress has removed still others.

But our cases recognize that the Indian tribes have not given up their full sovereignty. We have recently said: "Indian tribes are unique aggregations possessing attributes of sovereignty over both their members and their territory. . . . [They] are a good deal more than `private, voluntary organizations.' " United States v. Mazurie, 419 U.S. 544, 557. . . .

Thus, in the Oneida case, both the plaintiff and the defendant were gov- ernments.

2. What was the plaintiff's cause of action in Oneida? Justice Rehnquist

said: "As the majority seems willing to accept, the complaint in this action is basically one in ejectment." But can that be right? According to the majority, after all, "the complaint prayed for damages representing the fair rental value of the land for the period January 1, 1968, through December 31, 1969." That doesn't sound like ejectment, does it? That sounds like an action for use and occupation, the type of restitutionary action that the plaintiff brought in Raven Red Ash Coal Co. v. Ball, supra Section 1.17.2.

One thing that is clear is that the plaintiff's are not in possession of [all of] the disputed lands. Notice that, if they had been in possession of the lands, they would have had no cause of action at law, but could have brought a suit in equity to remove the cloud on their title. Is such an equitable suit restitutionary in nature?

3. For further information about aboriginal title, see Annotation, Proof and

Extinguishment of Aboriginal Title to Indian Lands, 41 A.L.R. Fed. 425 (1987).

336 CHAPTER 3. RESTITUTION AND GOVERNMENT 3.2.3 County of Oneida v. Oneida Indian Nation

County of Oneida v. Oneida Indian Nation

Supreme Court of the United States

470 U.S. 226

1985

Justice Powell delivered the opinion of the Court. These cases present the question whether three Tribes of the Oneida Indians may bring a suit for damages for the occupation and use of tribal land allegedly conveyed unlawfully in 1795.

I The Oneida Indian Nation of New York, the Oneida Indian Nation of Wis- consin, and the Oneida of the Thames Band Council (the Oneidas) instituted this suit in 1970 against the Counties of Oneida and Madison, New York. The Oneidas alleged that their ancestors conveyed 100,000 acres to the State of New York under a 1795 agreement that violated the Trade and Intercourse Act of 1793 (Nonintercourse Act), 1 Stat. 329, and thus that the transaction was void. The Oneidas' complaint sought damages representing the fair rental value of that part of the land presently owned and occupied by the Counties of Oneida and Madison, for the period January 1, 1968, through December 31, 1969.

The United States District Court for the Northern District of New York initially dismissed the action on the ground that the complaint failed to state a claim arising under the laws of the United States. The United States Court of Appeals for the Second Circuit aAErmed. Oneida Indian Nation v. County of Oneida, 464 F. 2d 916 (1972). We then granted certiorari and reversed. Oneida Indian Nation v. County of Oneida, 414 U.S. 661 (1974) (Oneida I ).

We held

unanimously that, at least for jurisdictional purposes, the Oneidas stated a claim for possession under federal law. . . . The case was remanded for trial.

On remand, the District Court trifurcated trial of the issues. In the first phase, the court found the counties liable to the Oneidas for wrongful possession of their lands. 434 F. Supp. 527 (1977). In the second phase, it awarded the Oneidas damages in the amount of $16,694, plus interest, representing the fair rental value of the land in question for the 2-year period specified in the complaint. Finally, the District Court held that the State of New York, a third- party defendant brought into the case by the counties, must indemnify the counties for the damages owed to the Oneidas. The Court of Appeals aAErmed the trial court's rulings with respect to liability and indemnification. 719 F. 2d 525 (1983). It remanded, however, for further proceedings on the amount of damages. Id., at 542. The counties and the State petitioned for review of these rulings. Recognizing the importance of the Court of Appeals' decision not only for the Oneidas, but potentially for many eastern Indian land claims, we granted

Supra Section 3.2.1.

September 11, 2000

3.2. INDIAN LAND CLAIMS 337 certiorari, 465 U.S. 1099 (1984), to determine whether an Indian tribe may have a live cause of action for a violation of its possessory rights that occurred 175 years ago. We hold that the Court of Appeals correctly so ruled.

II The respondents in these cases are the direct descendants of members of the Oneida Indian Nation, one of the six nations of the Iroquois, the most pow- erful Indian Tribe in the Northeast at the time of the American Revolution. See B. Graymont, The Iroquois in the American Revolution (1972) (hereinafter Graymont). From time immemorial to shortly after the Revolution, the Onei- das inhabited what is now central New York State. Their aboriginal land was approximately six million acres, extending from the Pennsylvania border to the St. Lawrence River, from the shores of Lake Ontario to the western foothills of the Adirondack Mountains. See 434 F. Supp., at 533.

Although most of the Iroquois sided with the British, the Oneidas actively supported the colonists in the Revolution. . . . This assistance prevented the Iro- quois from asserting a united effort against the colonists, and thus the Oneidas' support was of considerable aid. After the War, the United States recognized the importance of the Oneidas' role, and in the Treaty of Fort Stanwix, 7 Stat. 15 (Oct. 22, 1784), the National Government promised that the Oneidas would be secure "in the possession of the lands on which they are settled." Within a short period of time, the United States twice reaAErmed this promise, in the Treaties of Fort Harmar, 7 Stat. 33 (Jan. 9, 1789), and of Canandaigua, 7 Stat. 44 (Nov. 11, 1794).

During this period, the State of New York came under increasingly heavy pressure to open the Oneidas' land for settlement. Consequently, in 1788, the State entered into a "treaty" with the Indians, in which it purchased the vast majority of the Oneidas' land. The Oneidas retained a reservation of about 300,000 acres, an area that, the parties stipulated below, included the land involved in this suit.

In 1790, at the urging of President Washington and Secretary of War Knox, Congress passed the first Indian Trade and Intercourse Act, ch. 33, 1 Stat. 137. See 4 American State Papers, Indian Affairs, Vol. 1, p. 53 (1832); F. Prucha, American Indian Policy in the Formative Years 43-44 (1962). The Act prohibited the conveyance of Indian land except where such conveyances were entered pursuant to the treaty power of the United States. In 1793, Congress passed a stronger, more detailed version of the Act, providing that "no purchase or grant of lands, or of any title or claim thereto, from any Indians or nation or tribe of Indians, within the bounds of the United States, shall be of any validity in law or equity, unless the same be made by a treaty or convention entered into pursuant to the constitution . . . [and] in the presence, and with the approbation of the commissioner or commissioners of the United States" appointed to supervise such transactions. 1 Stat. 330, x 8. Unlike the 1790 version, the new statute included criminal penalties for violation of its terms. Ibid.

338 CHAPTER 3. RESTITUTION AND GOVERNMENT

Despite Congress' clear policy that no person or entity should purchase In- dian land without the acquiescence of the Federal Government, in 1795 the State of New York began negotiations to buy the remainder of the Oneidas' land. When this fact came to the attention of Secretary of War Pickering, he warned Governor Clinton, and later Governor Jay, that New York was required by the Nonintercourse Act to request the appointment of federal commissioners to supervise any land transaction with the Oneidas. See 434 F. Supp., at 534- 535. The State ignored these warnings, and in the summer of 1795 entered into an agreement with the Oneidas whereby they conveyed virtually all of their re- maining land to the State for annual cash payments. Ibid. It is this transaction that is the basis of the Oneidas' complaint in this case.

The District Court found that the 1795 conveyance did not comply with the requirements of the Nonintercourse Act. Id., at 538-541. In particular, the court stated that "[t]he only finding permitted by the record . . . is that no United States Commissioner or other oAEcial of the federal government was present at the . . . transaction." Id., at 535. The petitioners did not dispute this finding on appeal. Rather, they argued that the Oneidas did not have a federal common-law cause of action for this violation. Even if such an action once existed, they contended that the Nonintercourse Act pre-empted it, and that the Oneidas could not maintain a private cause of action for violations of the Act. Additionally, they maintained that any such cause of action was time-barred or nonjusticiable, that any cause of action under the 1793 Act had abated, and that the United States had ratified the conveyance. The Court of Appeals, with one judge dissenting, rejected these arguments. Petitioners renew these claims here; we also reject them and aAErm the court's finding of liability.

III At the outset, we are faced with petitioner counties' contention that the Oneidas have no right of action for the violation of the 1793 Act. Both the District Court and the Court of Appeals rejected this claim, finding that the Oneidas had the right to sue on two theories: first, a common-law right of action for unlawful possession; and second, an implied statutory cause of action under the Nonintercourse Act of 1793. We need not reach the latter question as we think the Indians' common-law right to sue is firmly established.

A Federal Common Law

By the time of the Revolutionary War, several well-defined principles had been established governing the nature of a tribe's interest in its property and how those interests could be conveyed. It was accepted that Indian nations held "aboriginal title" to lands they had inhabited from time immemorial. See Cohen, Original Indian Title, 32 Minn. L. Rev. 28 (1947). The "doctrine of discovery" provided, however, that discovering nations held fee title to these lands, subject to the Indians' right of occupancy and use. As a consequence, no one could purchase Indian land or otherwise terminate aboriginal title without

September 11, 2000

3.2. INDIAN LAND CLAIMS 339 the consent of the sovereign.

Oneida I, 414 U.S., at 667. See Clinton & Hotopp,

Judicial Enforcement of the Federal Restraints on Alienation of Indian Land: The Origins of the Eastern Land Claims, 31 Me. L. Rev. 17, 19-49 (1979).

With the adoption of the Constitution, Indian relations became the exclusive province of federal law. . . . From the first Indian claims presented, this Court recognized the aboriginal rights of the Indians to their lands. The Court spoke of the "unquestioned right" of the Indians to the exclusive possession of their lands, Cherokee Nation v. Georgia, 5 Pet. 1, 17 (1831), and stated that the Indians' right of occupancy is "as sacred as the fee simple of the whites." Mitchel v. United States, 9 Pet. 711, 746 (1835). This principle has been reaAErmed consistently. . . . Thus, as we concluded in Oneida I, "the possessory right claimed [by the Oneidas] is a federal right to the lands at issue in this case." 414 U.S., at 671 (emphasis in original).

Numerous decisions of this Court prior to Oneida I recognized at least im- plicitly that Indians have a federal common-law right to sue to enforce their aboriginal land rights. In Johnson v. McIntosh, supra, the Court declared invalid two private purchases of Indian land that occurred in 1773 and 1775 without the Crown's consent. Subsequently in Marsh v. Brooks, 8 How. 223, 232 (1850), it was held: "That an action of ejectment could be maintained on an Indian right to occupancy and use, is not open to question. This is the result of the decision in Johnson v. McIntosh." More recently, the Court held that Indians have a common-law right of action for an accounting of "all rents, issues and profits" against trespassers on their land. United States v. Santa Fe Pacific R. Co., 314 U.S. 339 (1941). . . .

In keeping with these well-established principles, we hold that the Oneidas can maintain this action for violation of their possessory rights based on federal common law.

This Court explained the doctrine of discovery as follows:

"[D]iscovery gave title to the government by whose subjects, or by whose authority, it was made, against all other European governments, which title might be consummated by possession.

"The exclusion of all other Europeans, necessarily gave to the nation making the discovery the sole right of acquiring the soil from the natives, and establishing settlements upon it. . . .

"The rights thus acquired being exclusive, no other power could interpose between [the discoverer and the natives].

"In the establishment of these relations, the rights of the original inhabitants were, in no instance, entirely disregarded; but were necessarily, to a consider- able extent, impaired. They were admitted to be the rightful occupants of the soil, with a legal as well as just claim to retain possession of it, and to use it according to their own discretion; but their rights to complete sovereignty, as independent nations, were necessarily diminished, and their power to dispose of the soil at their own will, to whomsoever they pleased, was denied by the original fundamental principle, that discovery gave exclusive title to those who made it."

Johnson v. McIntosh, 8 Wheat. 543, 573-574 (1823).

[Footnote by court, renumbered]

340 CHAPTER 3. RESTITUTION AND GOVERNMENT

B Pre-emption

Petitioners argue that the Nonintercourse Acts pre-empted whatever right of action the Oneidas may have had at common law . . . .

. . . . [W]e hold that the Oneidas' right of action under federal common law was not pre-empted by the passage of the Nonintercourse Acts.

IV Having determined that the Oneidas have a cause of action under federal common law, we address the question whether there are defenses available to the counties. We conclude that none has merit.

A Statute of Limitations

There is no federal statute of limitations governing federal common-law ac- tions by Indians to enforce property rights. In the absence of a controlling federal limitations period, the general rule is that a state limitations period for an analogous cause of action is borrowed and applied to the federal claim, pro- vided that the application of the state statute would not be inconsistent with underlying federal policies. . . . We think the borrowing of a state limitations period in these cases would be inconsistent with federal policy. Indeed, on a number of occasions Congress has made this clear with respect to Indian land claims.

. . . .

B Laches

The dissent argues that we should apply the equitable doctrine of laches to hold that the Oneidas' claim is barred. Although it is far from clear that this defense is available in suits such as this one,

we do not reach this issue

today. While petitioners argued at trial that the Oneidas were guilty of laches, the District Court ruled against them and they did not reassert this defense on appeal. As a result, the Court of Appeals did not rule on this claim, and we likewise decline to do so.

We note, as Justice Stevens, 231 U.S. 28, 45-47 (1913). In these circumstances, it is

questionable whether laches properly could be applied. Furthermore, the statutory restraint on alienation of Indian tribal land adopted by the Nonintercourse Act of 1793 is still the law. See 25 U.S.C. x 177. This fact not only distinguishes the cases relied upon by the dissent, but also suggests that, as with the borrowing of state statutes of limitations, the application of laches would appear to be inconsistent with established federal policy. Although the issue of laches is not before us, we add these observations in response to the dissent. [Footnote by court, renumbered]

September 11, 2000

3.2. INDIAN LAND CLAIMS 341

C Abatement

Petitioners argue that any cause of action for violation of the Nonintercourse Act of 1793 abated when the statute expired. . . .

. . . the precedents of this Court compel the conclusion that the Oneidas' cause of action has not abated.

D Ratification

We are similarly unpersuaded by petitioners' contention that the United States has ratified the unlawful 1795 conveyances. . . .

E Nonjusticiability

The claim also is made that the issue presented by the Oneidas' action is a nonjusticiable political question. . . .

. . . . We conclude . . . that the Oneidas' claim is not barred by the political question doctrine.

V Finally, we face the question whether the Court of Appeals correctly held that the federal courts could exercise ancillary jurisdiction over the counties' cross-claim against the State of New York for indemnification. . . .

The counties' cross-claim for indemnification raises a classic example of an- cillary jurisdiction. . . . The Eleventh Amendment forecloses, however, the ap- plication of normal principles of ancillary and pendent jurisdiction where claims are pressed against the State. . . . The indemnification claim here, whether cast as a question of New York law or federal common law, is a claim against the State for retroactive monetary relief. . . . In the absence of the State's consent . . . the suit is barred by the Eleventh Amendment. . . .

. . . . . . . . [W]e hold that the federal courts erred in exercising ancillary jurisdic- tion over this claim.

VI The decisions of this Court emphasize "Congress' unique obligation toward the Indians. . . .

One would have thought that claims dating back for more than a century and a half would have been barred long ago. As our opinion indicates, however, neither petitioners nor we have found any applicable statute of limitations or other relevant legal basis for holding that the Oneidas' claims are barred or

342 CHAPTER 3. RESTITUTION AND GOVERNMENT otherwise have been satisfied. The judgment of the Court of Appeals is aAErmed with respect to the finding of liability under federal common law, and reversed with respect to the exercise of ancillary jurisdiction over the counties' cross- claim for indemnification. The cases are remanded to the Court of Appeals for further proceedings consistent with our decision.

It is so ordered. Justice Brennan, with whom Justice Marshall joins, concurring in part and dissenting in part.

I join the Court's opinion except for Part V. I dissent from Part V because I adhere to my view that the Eleventh Amendment "bars federal court suits against States only by citizens of other States," Yeomans v. Kentucky, 423 U.S. 983, 984 (1975) (Brennan, J., dissenting). . . .

Justice Stevens, with whom The Chief Justice, Justice White, and Justice Rehnquist join, dissenting in No. 83-1065.

In 1790, the President of the United States notified Cornplanter, the Chief of the Senecas, that federal law would securely protect Seneca lands from ac- quisition by any State or person:

"If . . . you have any just cause of complaint against [a pur- chaser] and can make satisfactory proof thereof, the federal courts will be open to you for redress, as to all other persons." 4 American State Papers, Indian Affairs, Vol, 1, p. 142 (1832).

The elders of the Oneida Indian Nation received comparable notice of their capacity to maintain the federal claim that is at issue in this litigation. They made no attempt to assert the claim, and their successors in interest waited 175 years before bringing suit to avoid a 1795 conveyance that the Tribe freely made, for a valuable consideration. The absence of any evidence of deception, concealment, or interference with the Tribe's right to assert a claim, together with the societal interests that always underlie statutes of repose--particularly when title to real property is at stake--convince me that this claim is barred by the extraordinary passage of time. It is worthy of emphasis that this claim arose when George Washington was the President of the United States.

The Court refuses to apply any time bar to this claim, believing that to do so would be inconsistent with federal Indian policy. This Court, however, has always applied the equitable doctrine of laches when Indians or others have sought, in equity, to set aside conveyances made under a statutory or common- law incapacity to convey. Although this action is brought at law, in ejectment, there are sound reasons for recognizing that it is barred by similar principles.

In reaching a contrary conclusion, the Court relies on the legislative histories of a series of recent enactments. In my view, however, the Oneida were barred from avoiding their 1795 conveyance long before 1952, when Congress enacted the first statute that the Court relies on today. Neither that statute, nor any subsequent federal legislation, revived the Oneida's dormant claim.

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3.2. INDIAN LAND CLAIMS 343

I Today's decision is an unprecedented departure from the wisdom of the common law:

"The best interests of society require that causes of action should not be deferred an unreasonable time. This remark is peculiarly ap- plicable to land titles. Nothing so much retards the growth and prosperity of a country as insecurity of titles to real estate. Labor is paralysed where the enjoyment of its fruits is uncertain; and liti- gation without limit produces ruinous consequences to individuals." Lewis v. Marshall, 5 Pet. 470, 477-478 (1831).

Of course, as the Court notes, there "is no federal statute of limitations govern- ing federal common-law actions by Indians to enforce property rights." How- ever, "where Congress has not spoken but left matters for judicial determination within the general framework of familiar legal principles," Holmberg v. Arm- brecht, 327 U.S. 392, 395 (1946), the settled practice has been to adopt the state law of limitations as federal law.

. . . . . . . . [A] routine application of our practice in dealing with limitations questions would lead to the conclusion that this claim is barred by the lapse of time.

Nevertheless, there are unique considerations in cases involving Indian claims that warrant a departure from the ordinary practice. Indians have long occu- pied a protected status in our law, and in the 19th century they were often characterized as wards of the State. At common law, conveyances of persons subject to similar disabilities were void. In practice, however, the common-law courts modified the wooden rules ordinarily applied to real property claims in actions at law in order to protect the ward, as far as possible, from manipu- lation, while at the same time avoiding the obvious inequity involved in the setting aside, at a distant date, of conveyances that had been freely made, for valuable consideration.

For example, the statute of limitations applicable to actions seeking to gain recovery of the real estate conveyed under such disabilities did not begin to run against a ward until his unique disabilities had been overcome. Thus, to be faithful to these common-law principles, the application of a state statute of limitations in the context of ancient Indian claims would require flexible consideration of the development of the particular tribe's capacity to govern its own affairs.

Moreover, the common law developed prescription doctrines that terminated the vendor's power to avoid a void conveyance in an action in ejectment. These doctrines could deny the ward, or those claiming under him, a cause of action in ejectment even before the running of the applicable statute of limitations. Although these doctrines were often based on theories of implied ratification,

344 CHAPTER 3. RESTITUTION AND GOVERNMENT they were most often enforced in circumstances indicating undue or prejudicial delay.

I believe that the equitable doctrine of laches, with its focus on legitimate reliance and inexcusable delay, best reflects the limitation principles that would have governed this ancient claim at common law--without requiring a histo- rian's inquiry into the archaic limitation doctrines that would have governed the claims at any specific time in the preceding two centuries. Of course, the application of a traditional equitable defense in an action at law is something of a novelty. But this novel development in litigation involving Indian claims arose in order to benefit a special class of litigants, and it remains true that an equitable defense to the instant claim is less harsh than a straightforward appli- cation of the limitations rule dictated by our usual practice. At least equal to the maxim that equity follows the law is the truth that common-law real prop- erty principles were often tempered by equitable considerations--as the rules limiting a ward's power to avoid an unlawful conveyance demonstrate.

As the Court recognizes, the instant action arises under the federal common law, not under any congressional enactment, and in this context the Court would not risk frustrating the will of the Legislature by applying this familiar doctrine of equity. The merger of law and equity in one federal court is, of course, primarily procedural. Considering the hybrid nature of these claims and the evolving character of the common law, however, I believe that the application of laches as a limitation principle governing ancient Indian claims will promote uniformity of result in law and at equity, maintain the proper measure of flexibility to protect the legitimate interests of the tribes, while at the same time honoring the historic wisdom in the value of repose.

II Three decisions of this Court illustrate the application of the doctrine of laches to actions seeking to set aside conveyances made in violation of federal law. In Ewert v. Bluejacket, 259 U.S. 129 (1922), the Court stated that "the equitable doctrine of laches . . . cannot properly have application to give vitality to a void deed and to bar the rights of Indian wards in lands subject to statutory restrictions." Id., at 138. A close examination of the Ewert case, however, indicates that the Court applied the doctrine of laches, but rejected relief for the defendant in the circumstances of the case.

In 1909, Ewert, a federal Indian agent, obtained a conveyance of allotted lands from the heirs of an Indian in violation of a statutory prohibition against federal oAEcers engaging in trade with Indians. In 1916, the heirs brought an action, in equity, seeking to set aside the conveyance. The Court of Appeals held that the heirs had the burden on disproving laches because they had brought their action outside the applicable state statute of limitations, and concluded that they had not satisfied this burden. "The adult plaintiffs were free to make conveyance of this land, even though they were Indians, and [since] their tribal relations had been severed, [they] were chargeable with the same diligence as

September 11, 2000

3.2. INDIAN LAND CLAIMS 345 white people in discovering and pursuing their legal remedies." Bluejacket v. Ewert, 265 F. 823, 829 (CA8 1920).

On appeal, this Court held that the plaintiffs' action was not barred by the doctrine of laches, noting that "[Ewert] still holds the legal title to the land." 259 U.S., at 138. The Court principally relied on the doctrine that "an [unlawful] act . . . is void and confers no right upon the wrongdoer." Waskey v. Hammer, 223 U.S. 85, 94 (1912) (emphasis added). On the facts of Ewert, the Court found that the plaintiffs' burden of disproving laches was easily met, but the Court might well have reached a different conclusion in Ewert if the conveyance had not been so recent, if the defendant had not been as blameworthy, or if the character of the property had changed dramatically in the interim.

My interpretation of Ewert is illustrated by this Court's prior decision in Felix v. Patrick, 145 U.S. 317 (1892). In that case, the Court applied the doctrine of laches to bar an action by the heirs of an Indian to establish a constructive trust

over lands that had been conveyed by her in violation of

a federal statutory restriction. The action to set aside the unlawful transfer was brought 28 years after the transaction, and in the intervening time, "[t]hat which was wild land thirty years ago is now intersected by streets, subdivided into blocks and lots, and largely occupied by persons who have bought upon the strength of Patrick's title, and have erected buildings of a permanent character upon their purchases." Id., at 334.

The Court recognized that the long passage of time, the change in the char- acter of the property, the transfer of some of the property to third parties, the absence of any obvious inadequacy in the consideration received in the original transaction, and Patrick's lack of direct participation in the original transfer all supported a charge of laches against the plaintiffs. In addition, the Court noted that "[t]he decree prayed for in this case, if granted, would offer a dis- tinct encouragement to the purchase of similar claims, which doubtless exist in abundance through the Western Territories, . . . and would result in the unset- tlement of large numbers of title upon which the owners have rested in assured security for nearly a generation." Id., at 335.

Nor is Felix the only application of these principles in a similar context. In Wetzel v. Minnesota Railway Transfer Co., 169 U.S. 237 (1898), the children of a deceased Mexican War veteran received a warrant for 160 acres of land under a federal statute that prohibited any alienation of the property without the approval of the proper state probate court. The children's guardian sold their share in the warrant without seeking the approval of the proper court. Forty-four years after the conveyance, the children brought an action, in equity,

seeking to establish a constructive trust over the 160 acres--now located in a well-developed area of St. Paul, Minnesota. The Court held that the action was barred by laches relying on Felix v. Patrick, and noting that the property

Note that this action was purely equitable in nature, so that there is nothing surprising

in the court being willing to bar the plaintiffs for laches. [pdj]

Once again, note well that the action was in equity. [pdj]

346 CHAPTER 3. RESTITUTION AND GOVERNMENT had been completely developed and had greatly increased in value. The Court also observed that title had passed to persons who were no doubt ignorant of the defect in title.

The Court also noted the relevance of the length of the delay:

"While the fact that the complainants were ignorant of the de- fect in the title and were without means to prosecute an investigation into the facts may properly be considered by the court, it does not mitigate the hardship to the defendants of unsettling these titles. If the complainant may put forward these excuses for delay after thirty years, there is no reason why they may not allege the same as an excuse after a lapse of sixty. The truth is, there must be some limit of time within which these excuses shall be available, or titles might forever be insecure. The interests of public order and tranquillity de- mand that parties shall acquaint themselves with their rights within a reasonable time, and although this time may be extended by their actual ignorance, or want of means, it is by no means illimitable." 169 U.S., at 241 (emphasis added).

Ewert, Felix, and Wetzel establish beyond doubt that it is quite consistent with federal policy to apply the doctrine of laches to limit a vendor's power to avoid a conveyance violating a federal restriction on alienation.

III As in Felix and Wetzel, the land conveyed by the Oneida in 1795 has been converted from wilderness to cities, towns, villages, and farms. The 872 acres of land involved in the instant action include the principal transportation ar- teries in the region, and other vital public facilities owned by the Counties of Oneida and Madison. The counties and the private property owners affected by the litigation, without proven notice of the defect in title caused by the State of New York's failure to comply with the federal statute, have erected costly improvements on the property in reliance on the validity of their title. Even if the counties are considered for some purposes to be the alter ego of the State, it is surely a fiction to argue that they are in any way responsible for their predicament, or that their taxpayers, who will ultimately bear the burden of the judgment in this case, are in any way culpable for New York's violation of federal law in 1795.

As the Court holds, there was no legal impediment to the maintenance of this cause of action at any time after 1795. Although the mere passage of time, without other inequity in the prosecution of the claim, does not support a finding of laches in the ordinary case, e.g., Holmberg v. Armbrecht, 327 U.S., at 396, in cases of gross laches the passage of a great length of time creates a nearly insurmountable burden on the plaintiffs to disprove the obvious defense of laches. As Justice Story noted for the Court in Prevost v. Gratz, 6 Wheat. 481, 504-505 (1821):

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3.2. INDIAN LAND CLAIMS 347

"[G]eneral presumptions are raised by the law upon subjects of which there is no record or written instrument, not because there are the means of belief or disbelief, but because mankind, judging of matters of antiquity from the infirmity and necessity of their sit- uation must, for the preservation of their property and rights, have recourse to some general principle, to take the place of individual and specific belief, which can hold only as to matters within our own time, upon which a conclusion can be formed from particular and individual knowledge." Id., at 504-505.

Given their burden of explaining nearly two centuries of delay in the pros- ecution of this claim, and considering the legitimate reliance interests of the counties and the other property owners whose title is derived from the 1795 conveyance, the Oneida have not adequately justified their delay.

Of course, the traditional rule was "that `the conduct of Indians is not to be measured by the same standard which we apply to the conduct of other people.' But their very analogy to persons under guardianship suggests a limitation to their pupilage, since the utmost term of disability of an infant is but 21 years, and it is very rare that the relations of guardian and ward under any circumstances, even those of lunacy, are maintained for a longer period than this." Felix v. Patrick, 145 U.S., at 330-331 (quoting The Kansas Indians, 5 Wall. 737, 758 (1867)). In this case, the testimony at trial indicates that the Oneida people have independently held land derived from tribal allotments at least since the Dawes Act of 1887, and probably earlier in the State of New York. They have received formal schooling at least since 1796 in New York, and have gradually become literate in the English language. They have developed a sophisticated system of tribal government, and at various times in the past 175 years, have petitioned the Government for the redress of grievances, or sent commissions to confer with their brethren.

In all the years after the 1795 conveyance--until the years leading up to this litigation--the Oneida made few efforts to raise this specific grievance against the State of New York and the landowners holding under the State's title. Claims to lands in New York most often were only made in connection with generalized grievances concerning the Tribe's treatment at the hands of the United States Government. Although the Oneida plainly knew or should have known that they had conveyed their lands to the State of New York in vio- lation of federal law, and that they might have some cause for redress, they inexplicably delayed filing a lawsuit on their claim until 175 years after the con- veyance was made. Finally, "[t]here is no evidence that any of the plaintiffs or their predecessors ever refused or returned any of the payments received for the purported sale of land pursuant to the Treaty of 1795."

The Oneida have not met their formidable burden of disproving unjustifiable delay to the prejudice of others. In my opinion their cause of action is barred by the doctrine of laches. The remedy for the ancient wrong established at trial should be provided by Congress, not by judges seeking to rewrite history at this

348 CHAPTER 3. RESTITUTION AND GOVERNMENT late date.

IV The Oneida argue that the legislative histories of a series of congressional enactments, beginning in 1952, persuasively establish that their claims have never been barred. This argument has serious flaws, not the least, that whatever being said in 1952 or 1966 is extremely weak authority for the status of the common law in 1795, or for a considerable period thereafter. Believing, as I do, that the Oneida's claim was barred by the doctrine of laches or by a related common-law doctrine long before 1952, it is quite clear that the statutes discussed by the Court did not revive it.

. . . .

V The Framers recognized that no one ought be condemned for his forefathers' misdeeds--even when the crime is a most grave offense against the Republic.

The Court today ignores that principle in fashioning a common-law remedy for the Oneida Nation that allows the Tribe to avoid its 1795 conveyance 175 years after it was made. This decision upsets long-settled expectations in the ownership of real property in the Counties of Oneida and Madison, New York, and the disruption it is sure to cause will confirm the common-law wisdom that ancient claims are best left in repose. The Court, no doubt, believes that it is undoing a grave historical injustice, but in doing so it has caused another, which only Congress may now rectify.

I respectfully dissent.

3.2.4 Notes on County of Oneida

1. The majority opinion described the Oneidas' action as one for use and

occupation: "These cases present the question whether three Tribes of the Oneida Indians may bring a suit for damages for the occupation and use of tribal land allegedly conveyed unlawfully in 1795. . . . The Oneidas' complaint sought damages representing the fair rental value of that part of the land presently owned and occupied by the Counties of Oneida and Madison, for the period January 1, 1968, through December 31, 1969."

Although a restitutionary claim, the Oneidas' stated cause of action is radically different from an action of ejectment. In ejectment the plaintiff seeks to recover the possession of land from its present possessor, i.e., the plaintiff seeks specific restitution; in an action of indebitatus assumpsit for

U.S. Const. Art. III, x 3, cl. 2 ("no Attainder of Treason shall work Corruption of Blood,

or Forfeiture except during the Life of the person attainted"). Cf. Adams v. Woods, 2 Cranch 336, 341 (1805) ("In a country where not even treason can be prosecuted after a lapse of three years, it could scarcely be supposed that an individual would remain for ever liable to a pecuniary forfeiture"). [Footnote by Justice Stevens, renumbered]

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3.2. INDIAN LAND CLAIMS 349

use and occupation the plaintiff seeks the fair rental value (in dollars) of the defendant's use of the land; i.e., the plaintiff seeks value restitution.

The critical requirements of ejectment are that the plaintiff be out of possession of the land that is the subject of the action and that the plaintiff claims the right to immediate possession. These requirements do not apply to an action for use and occupation; see, Raven Red Ash Coal Co. v. Ball, 185 Va. 534, 39 S.E. 2d 231, supra Chapter I, at 48.

Ejectment, as you will recall, replaced both the old real (praecipe) actions and the possessory assizes. In the real actions the question that was tried was: who has the better "title" to the land? In the possessory assizes the question was: who has the right to immediate possession of the land?

The

real actions were restitutionary; the possessory assizes were considered to be personal and were based on what we would call tort--they were closely related to the action of trespass. Ejectment is a "mixed" action: it can be used to recover possession, but it is also the traditional means for trying questions of title. Use and occupation, on the other hand, is normally not considered to be an action that is appropriate to use to try questions of title.

In many cases, of course, a plaintiff will want both to recover land and to recover the value of its past use and occupation. In such a case, the plaintiff can bring an action of ejectment and then, if he wins, bring a supplementary action for mesne

profits. The recovery in an action for

mesne profits is the fair rental value of the land during the time that the defendant was in possession; that is, the recovery in an action for mesne profits is the same as the recovery in an action for use and occupation.

2. This raises the question as to why the Oneidas did not bring ejectment.

I suspect that the reason was that--in recognition of the Greater Pig Principle

--they did not want to appear to be too greeedy. The Oneidas

actually claimed a great deal of land in New York State, but their claim was not to fee simple ownership. All that they could claim under the precedents was "aboriginal title," a mere right to possession which could be terminated by the United States--but not New York State--at any time. In these circumstances, they were not really seeking possession of the 100,000 acres in the possession of the County of Oneida nor was their primary concern the $16,694 that they recovered on their claim for two years use and occupation of those lands. What they wanted--and got-- was a precedent holding that all their ancestral conveyances of land to New York State were void, a precedent establishing their "aboriginal" right to millions of acres worth billions of dollars.

This is grossly oversimplified; among other things, the concept of `title' is modern and

would hardly have been understood at the time when the possessory assizes were developed.

`Mesne' is pronounced `mean.'

"The greater pig loses."

350 CHAPTER 3. RESTITUTION AND GOVERNMENT

Thus, though the Oneidas' action was not technically one to try title, it had that effect. This being so, it made perfectly good sense for the court to treat the action as if it were an action in ejectment.

3. It did not, however, make sense for the dissenters in County of Oneida to

treat the action as one in ejectment. Ejectment is an action at law where the plaintiff seeks to vindicate legal principles. As far as I know--and the dissenters could cite no contrary examples

--the equitable doctrine of

laches has never been successfully asserted in an ejectment action.

Now the action of use and occupation is an action on one of the common counts in indebitatus assumpsit, and the action of indebitatus assumpsit, although an action at law, is based on equitable principles and is subject to equitable defenses--including laches--of a sort that can otherwise only be asserted in a suit in equity.

Justice Stevens dissent thus would have been--slightly--more persuasive if he had stressed the fact that the Oneidas' action was for use and occupation--and, therefore, presumably in indebitatus assumpsit--and not, as he incorrectly said, for ejectment.

3.3 Eminent Domain 3.3.1 A Note on Eminent Domain Eminent Domain, popularly if inaccurately called Condemnation, is not a nor- mal subject for a course in Restitution. Eminent Domain is the "taking" of property by the government--or by someone authorized by the government, like a utility company--for a public purpose. Most aspects of Eminent Do- main are far removed from our concerns in this course. It seems worthwhile to note, however, that the relief granted to the condemnor and--especially--to the condemnee in a "taking" action is usually a form of restitutionary relief.

The cases of Ewert, Felix, and Wetzel that were cited by Justice Stewart were all suits

in equity, suits to "set aside a conveyance," in the first case, and "to establish a constructive trust," in the other two.

That, after all, is what Lord Mansfield meant when he said in Moses v. Macferlan [2

Burr. 1005 (1760)], reprinted supra in Section 1.10.1:

This [action in indebitatus assumpsit] is . . . beneficial to the defendant. It is the most favourable way in which he can be sued: he can be liable 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 it; in short, he may defend himself by every thing which shews that the plaintiff, ex aequo et bono, is not intitled to the whole of his demand, or to any part of it.

And it is, after all, a type of restitutionary action--an action to "get" something--when

the government, or its designee, brings an action to "take" something.

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3.3. EMINENT DOMAIN 351

There are two ways in which the government can assert its power of eminent domain. It can simply go out and take the property in question--vi et armis, as it were--or it can ask a court to transfer the property to the condemnor. The second approach is more usual; the first is often called "inverse condemnation," although in the federal practice it is usually simply called a "taking" case.

In the second type of action, the traditional type, the plaintiff-condemnor seeks judicial relief awarding it property belonging to the defendant.

The action

is not based on any wrong, and the plaintiff-condemnor does not seek a remedy for any loss that it has suffered. Thus the relief sought falls clearly within the category of restitution.

In the first type of action, the inverse condemnation action, the condemnor does not seek any judicial relief, but rather exercises "self-help." It is the owner of the property who has to go to court as a plaintiff suing the condemnor;

the owner's cause of action in such a case is for just compensation--i.e., the fair market value of the property. Although the constitutional language calls it compensation, the relief that the plaintiff seeks in an inverse condemnation action is the restitution of the value of the property that is taken from the plaintiff.

The condemnee in an ordinary condemnation action is not the plaintiff, but he inevitably seeks exactly the same relief that he would have sought if the government had simply taken the property, vi et armis.

Thus the condemnor usually and the condemnee always seek restitutionary relief in eminent domain proceedings. The next case is the leading federal case on that type of relief.

In many jurisdictions, including the federal, condemnation actions are brought in rem,

that is they are brought against the property itself, rather than against the owners of the property. That is why the federal law reports are filled with cases with names like "United States v. 3.17 Acres of Land." This practice clearly reveals the restitutionary nature of eminent domain proceedings. The owners of the land, however, are normally joined as additional defendants.

If the condemnor is a state or federal government it is blessed with sovereign immunity

and cannot be sued without its consent. Governments, however, always consent to be sued in inverse condemnation actions, if only because their oAEcers who actually do the takings would otherwise be subject to injunctions and damages for violating the property owner's constitutional right to just compensation. Cf., Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579 (1952).

Besides seeking restitution of the fair market value of the property, the plaintiff in an

inverse condemnation action (or the defendant in an ordinary eminent domain proceeding) may also seek so-called "severance damages" for the loss he suffers when the property that is condemned is severed from the property he retains.

352 CHAPTER 3. RESTITUTION AND GOVERNMENT 3.3.2 United States v. Miller

United States v. Miller Supreme Court of the United States

317 U.S. 369

1943

Mr. Justice Roberts delivered the opinion of the Court. This case presents important questions respecting standards for valuing property taken for public use. For this reason, and because of an apparent conflict with one of our decisions, we granted certiorari.

The United States condemned a strip across the respondents' lands for tracks of the Central Pacific Railroad, relocation of which was necessary on account of the prospective flooding of the old right-of-way by waters to be impounded by the Central Valley Reclamation Project in California. For many years a proposal to initiate state reclamation works in this vicinity had been before the people of the state. In 1932 they voted approval and authorization of the project. It was, however, subsequently adopted by the United States as a federal project.

April 6, 1934, the Chief of Engineers of the Army recommended that the Government contribute twelve million dollars towards the project. Congress authorized the appropriation in the following year. December 22, 1935, the President approved construction of the entire improvement. In 1936 Congress appropriated $6,900,000 for it and in 1937 $12,500,000. In August 1937 the project was again authorized by Congress.

In his report for the fiscal year ending June 30, 1937, the Secretary of the Interior stated that Shasta, California, had been selected for the site of the Sacramento River dam. Its construction involved relocation of some thirty miles of the line of the railroad.

Portions of respondents' lands were required for the relocated right-of-way. Alternate routes were surveyed by March 1936 and staked at intervals of 100 feet. Prior to the authorization of the project, the area of which respondents' tracts form a part was largely uncleared brush land. In the years 1936 and 1937 certain parcels were purchased with the intention of subdividing them and, in 1937, subdivisions were plotted and there grew up a settlement known as Boomtown, in which the respondents' lands lie. Two of the respondents were realtors interested in developing the neighborhood. By December 1938 the town had been built up for business and residential purposes.

December 14, 1938, the United States filed in the District Court for Northern California a complaint in eminent domain against the respondents and others whose lands were needed for the relocation of the railroad. On that day the Government also filed a declaration of taking.

In this declaration the estimate

of just compensation to be paid for a tract belonging to three of the respondents

Pursuant to Act of Feb. 26, 1931, 46 Stat. 1421, 40 U.S.C. xx 258a-258e. [Footnote by

court, renumbered]

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3.3. EMINENT DOMAIN 353 as co-tenants was estimated at $2,550, and that sum was deposited in court. On the application of these owners, the court directed the Clerk to pay each of them one-third of the deposit, or $850, on account of the compensation they were entitled to receive.

The action in eminent domain was tried to a jury. The respondents offered opinion evidence as to the fair market value of the tracts involved and also as to severance damage to lots of which portions were taken. Each witness was asked to state his opinion as to market value of the land taken as at December 14, 1938, the date of the filing of the complaint. Government counsel objected to the form of the question on the ground that, as the United States was definitely committed to the project August 26, 1937, the respondents were not entitled to have included in an estimate of value, as of the date the lands were taken, any increment of value due to the Government's authorization of, and commitment to, the project. The trial court sustained the objection and required the question to be reframed so as to call for market value at the date of the taking, excluding therefrom any increment of value accruing after August 26, 1937, due to the authorization of the project. Under stress of the ruling, and over objection and exception, questions calling for opinion evidence were phrased to comply with the court's decision. The jury rendered verdicts in favor of various respondents.

The three respondents who had received $850 each on account of compensa- tion were awarded less than the total paid them. The court entered judgment that title to the lands was in the United States and judgment in favor of re- spondents respectively for the amounts awarded them. Judgment was entered against the three respondents and in favor of the United States for the amounts they had received in excess of the verdicts with interest. They moved to set aside the money judgments against them on the ground that the court had no jurisdiction to enter them. The motions were overruled. All of the respondents appealed, assigning error to the trial judge's ruling with respect to the questions to be asked the witnesses, to his charge which had instructed the jury that, in arriving at market value as of the date of taking, they should disregard incre- ment of value due to the initiation of the project and arising after August 26, 1937, and three of them to his entry of money judgments for the United States.

The Circuit Court of Appeals reversed the judgment, holding, by a divided court, that the trial judge erred in his rulings and in his charge, and unanimously that the District Court was without jurisdiction to award the United States a judgment for amounts overpaid. A majority of the court were of opinion the witnesses should have been asked to state the fair market value of the lands as of the date of taking, without qualification, and the judge should have charged that this value measured the compensation to which the respondents were entitled.

1. The Fifth Amendment of the Constitution provides that private property shall not be taken for public use without just compensation. Such compensation means the full and perfect equivalent in money of the property taken. The owner is to be put in as good position pecuniarily as he would have occupied if his property had not been taken.

It is conceivable that an owner's indemnity should be measured in various

354 CHAPTER 3. RESTITUTION AND GOVERNMENT ways depending upon the circumstances of each case and that no general formula should be used for the purpose. In an effort, however, to find some practical standard, the courts early adopted, and have retained, the concept of market value. The owner has been said to be entitled to the "value," the "market value," and the "fair market value" of what is taken. The term "fair" hardly adds anything to the phrase "market value," which denotes what "it fairly may be believed that a purchaser in fair market conditions would have given," or, more concisely, "market value fairly determined."

Respondents correctly say that value is to be ascertained as of the date of taking. But they insist that no element which goes to make up value as at that moment is to be discarded or eliminated. We think the proposition is too broadly stated. Where, for any reason, property has no market, resort must be had to other data to ascertain its value; and, even in the ordinary case, assessment of market value involves the use of assumptions, which make it unlikely that the appraisal will reflect true value with nicety. It is usually said that market value is what a willing buyer would pay in cash to a willing seller. Where the property taken, and that in its vicinity, has not in fact been sold within recent times, or in significant amounts, the application of this concept involves, at best, a guess by informed persons.

Again, strict adherence to the criterion of market value may involve inclusion of elements which, though they affect such value, must in fairness be eliminated in a condemnation case, as where the formula is attempted to be applied as between an owner who may not want to part with his land because of its special adaptability to his own use, and a taker who needs the land because of its peculiar fitness for the taker's purposes. These elements must be disregarded by the fact finding body in arriving at "fair" market value.

Since the owner is to receive no more than indemnity for his loss, his award cannot be enhanced by any gain to the taker. Thus, although the market value of the property is to be fixed with due consideration of all its available uses, its special value to the condemnor as distinguished from others who may or may not possess the power to condemn, must be excluded as an element of market value. The district judge so charged the jury, and no question is made as to the correctness of the instruction.

There is, however, another possible element of market value, which is the bone of contention here. Should the owner have the benefit of any increment of value added to the property taken by the action of the public authority in previously condemning adjacent lands? If so, were the lands in question so situate as to entitle respondents to the benefit of this increment?

Courts have had to adopt working rules in order to do substantial justice in eminent domain proceedings. One of these is that a parcel of land which has been used and treated as an entity shall be so considered in assessing compensation for the taking of part or all of it.

This has begotten subsidiary rules. If only a portion of a single tract is taken, the owner's compensation for that taking includes any element of value

September 11, 2000

3.3. EMINENT DOMAIN 355 arising out of the relation of the part taken to the entire tract. Such damage is often, though somewhat loosely, spoken of as severance damage. On the other hand, if the taking has in fact benefited the remainder, the benefit may be set off against the value of the land taken.

As respects other property of the owner consisting of separate tracts ad- joining that affected by the taking, the Constitution has never been construed as requiring payment of consequential damages; and unless the legislature so provides, as it may, benefits are not assessed against such neighboring tracts for increase in their value.

If a distinct tract is condemned, in whole or in part, other lands in the neighborhood may increase in market value due to the proximity of the public improvement erected on the land taken. Should the Government, at a later date, determine to take these other lands, it must pay their market value as enhanced by this factor of proximity. If, however, the public project from the beginning included the taking of certain tracts but only one of them is taken in the first instance, the owner of the other tracts should not be allowed an increased value for his lands which are ultimately to be taken any more than the owner of the tract first condemned is entitled to be allowed an increased market value because adjacent lands not immediately taken increased in value due to the projected improvement.

The question then is whether the respondents' lands were probably within the scope of the project from the time the Government was committed to it. If they were not, but were merely adjacent lands, the subsequent enlargement of the project to include them ought not to deprive the respondents of the value added in the meantime by the proximity of the improvement. If, on the other hand, they were, the Government ought not to pay any increase in value arising from the known fact that the lands probably would be condemned. The owners ought not to gain by speculating on probable increase in value due to the Government's activities.

In which category do the lands in question fall? The project, from the date of its final and definite authorization in August 1937, included the relocation of the railroad right-of-way, and one probable route was marked out over the respondents' lands. This being so, it was proper to tell the jury that the respon- dents were entitled to no increase in value arising after August 1937 because of the likelihood of the taking of their property. If their lands were probably to be taken for public use, in order to complete the project in its entirety, any in- crease in value due to that fact could only arise from speculation by them, or by possible purchasers from them, as to what the Government would be compelled to pay as compensation.

Shoemaker v. United States, 147 U.S. 282, is directly in point and supports this view, notwithstanding respondents' efforts to distinguish the case. There Congress, in 1890, authorized commissioners to establish a park along Rock Creek in the District of Columbia, and, for that purpose, to select not exceeding two thousand acres of land. In 1891 the commissioners prepared a map of the lands to be acquired, which was approved by the President as required by the

356 CHAPTER 3. RESTITUTION AND GOVERNMENT statute. Proceedings were brought to condemn certain tracts lying within the mapped area. The Supreme Court of the District instructed the appraisers, whom the Act made the triers of fact, that they "shall receive no evidence tending to prove the prices actually paid on sales of property similar to that included in said park, and so situated as to adjoin it or to be within its immediate vicinity, when such sales have taken place since the passage of the act . . . authorizing said park . . ." The instruction was approved by this court.

The majority of the court below thought the case distinguishable in the view that the boundaries of the park were fixed by the Act of Congress authorizing the project and, therefore, it was known what land would lie inside, and what outside, the park from the beginning, and that land taken for the park should not have the benefit of an increase in value which adjoining land might enjoy through its proximity to the improvement. This, of course, would be true if the lines of the park had, in the beginning, been fixed, because property lying outside the boundaries of the park, and not intended to be taken, would be dissimilar from that lying within it, the one gaining value by proximity and the other gaining nothing from the fact that it was to be taken from its owner. Such was the ruling of the court in Kerr v. South Park Commissioners, 117 U.S. 379, 387. From the citation of that case in the Shoemaker opinion, the majority below inferred that the two presented like facts. But, in the Kerr case, the lines of the park had been determined, whereas, in the Shoemaker case, the Act authorized the appropriation of a fixed acreage within a larger area. Consequently any land lying within that area was likely to be taken. If a tract happened not to be taken, because not within the limits finally fixed, it might show an increase in readily realizable market value by reason of proximity to the improvement. In the Shoemaker case, the court excluded any increment of value arising out of the fact that Congress had authorized the location and condemnation of land for the park, for the very reason that Shoemaker's property lay in the area within which the park was to be laid out. If, in the instant case, the respondents' lands were, at the date of the authorizing Act, clearly within the confines of the project, the respondents were entitled to no enhancement in value due to the fact that their lands would be taken. If they were within the area where they were likely to be taken for the project, but might not be, the owners were not entitled, if they were ultimately taken, to an increment of value calculated on the theory that if they had not been taken they would have been more valuable by reason of their proximity to the land taken. In so charging the jury the trial court was correct.

The respondents assert that a different rule should have been applied in respect of severance damage, even if the court's rulings were correct as to the valuation of land taken. In the light of what has already been said, we find no merit in the contention.

The respondents also say that, whatever the criterion of value adopted by the federal courts, Congress has adopted the local rule followed in the state where the federal court sits; and they claim that the California rule is settled that fair market value at the date of taking is the standard of value, without

September 11, 2000

3.3. EMINENT DOMAIN 357 elimination of any increment attributable to the action of the taker. We need not determine what is the local law, for the federal statutes upon which reliance is placed require only that, in condemnation proceedings, a federal court shall adopt the forms and methods of procedure afforded by the law of the State in which the court sits. They do not, and could not, affect questions of substantive right--such as the measure of compensation--grounded upon the Constitution of the United States.

The respondents urge, further, that the reversal by the Circuit Court of Appeals is justified by the District Court's disregard of the practice of the California courts with respect to the production of opinion evidence as to market value, even though it was right as to the elements which must be excluded. They allege that, in California courts, an opinion witness must state his valuation as at the date of taking and the opposing party is at liberty, upon crossexamination, to elicit the facts on which the witness relied in arriving at that value. Counsel insist that if the Government was entitled to have the witnesses disregard any increment of value due to the Government's intention to construct the project, it could have developed, on crossexamination, how far the inclusion of any such element had affected the value stated. We think that probably under California procedure this would have been the better and more appropriate way to develop the basis of the witnesses' opinions. We do not feel, however, that if there was a disregard of the local practice in this aspect the error is substantial or worked injury to the respondents.

2. We think the court below erred in holding the District Court without power to enter a judgment against three of the respondents to whom payments in excess of the jury's verdicts had been made out of the funds deposited with the Court.

Examination of the Act of February 26, 1931, discloses that the declaration of taking is to be filed in the proceeding for condemnation at its inception or at any later time. When the declaration is filed the amount of estimated compensation is to be deposited with the court, to be paid as the court may order "for or on account" of the just compensation to be awarded the owners. Thus the acquisition by the Government of title and immediate right to possession, and the deposit of the estimated compensation, occur as steps in the main proceeding.

The purpose of the statute is two-fold. First, to give the Government im- mediate possession of the property and to relieve it of the burden of interest accruing on the sum deposited from the date of taking to the date of judgment in the eminent domain proceeding. Secondly, to give the former owner, if his title is clear, immediate cash compensation to the extent of the Government's estimate of the value of the property. The Act recognizes that there may be an error in the estimate, and appropriately provides that, if the judgment ul- timately awarded shall be in excess of the amount deposited, the owner shall recover the excess with interest. But there is no correlative provision for repay- ment of any excess by the owner to the United States. The necessary result is, so the respondents say, that any sum paid them in excess of the jury's award is

358 CHAPTER 3. RESTITUTION AND GOVERNMENT their property, which the United States may not recover.

All the provisions of the Act taken together require a contrary conclusion. The payment is of estimated compensation; it is intended as a provisional and not a final settlement with the owner; it is a payment "on account of" compen- sation and not a final settlement of the amount due. To hold otherwise would defeat the policy of the statute and work injustice; would be to encourage fed- eral oAEcials to underestimate the value of the property with the result that the Government would be saddled with interest on a larger sum from date of taking to final award, and would be to deny the owner the immediate use of cash approximating the value of his land.

Respondents assert that whatever the substantive right of the United States to repayment of the surplus, the District Court in rendering judgment against them deprived them of property without due process of law. We think the contention is unsound.

The District Court was dealing with money deposited in its chancery to be disbursed under its direction in connection with an action pending before it. The situation is like that in which litigants deposit money as security or to await the outcome of litigation. Notwithstanding the fact that the court released the fund to the respondents, the parties were still before it and it did not lose control of the fund but retained jurisdiction to deal with its retention or repayment as justice might require.

Denial of notice and hearing is asserted. But, while it is true that the court included the judgment of restitution in its general judgment in the condemnation proceedings without notice to the parties or hearing, the respondents made motions to set aside the judgment against them, and the court heard and acted on the motions. The respondents had full opportunity to urge any meritorious reasons why judgment of restitution should not be entered against them. We think they were entitled to no more.

State courts have proceeded as did the court below, under analogous statutes, and our decisions justify the District Court's action.

The judgment of the Circuit Court of Appeals is reversed and that of the District Court aAErmed.

Reversed.

3.3.3 Notes on United States v. Miller

1. If Miller serves no other purpose for this course, it is a good example of

how courts calculate market value. The best treatise by far on this subject is J. Bonbright, Valuation of Property (1937).

2. The language that the Court uses:

Such compensation means the full and perfect equivalent in money of the property taken. The owner is to be put in as good

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3.3. EMINENT DOMAIN 359

position pecuniarily as he would have occupied if his property had not been taken.

may sound as if just compensation is remedial rather than restitutionary. On the other hand, as Miller itself makes clear, the owner's actual loss-- his damage--is not the measure of the compensation. The measure is the fair market value of the property that the condemnor has taken; the condemnee does not get back his former property, but he does get the value of that property. That sounds--to me, at least--more like compensation.

For most purposes, of course, it does not make any difference whether one considers the just compensation in a condemnation action as remedial or restitutionary. As in the case of conversion, for example, one party loses the property and the other gains it, so the loss to one equals (in theory) the gain to the other.

3. Conversion, however, only lies for a taking of personal property. The com-

mon count in indebitatus assumpsit known as "goods sold and delivered," or "quantum valebant,"

is also limited to personal property. There is no

ordinary action at law which allows those whose land has been taken from them to recover the full value of land and also allows the other party to keep the land.

But that is the result in an eminent domain proceeding.

4. The treatment in Part 2 of Miller of overpayments made by the govern-

ment under the Act of February 26, 1931 (the Declaration of Taking Act) is an example of a very typical type of restitutionary relief. Since the par- ties were still before the trial court, that court simply entered a judgment against the defendants for the amounts of the overpayments. If that sim- ple procedure had not been available, however, the government's remedy would have been an action at law in indebitatus assumpsit for money had and received. Cf. Moses v. Macferlan, 2 Burr. 1005 (1760), reprinted supra in Section 1.10.1.

If only part of the condemnee's property is taken, the condemnee may also recover so-

called `severance damages': the amount by which the value of the remaining land has been reduced by the severance of the taken parcel. `Severance damages,' though not based on tort, are true actions for damages--are actions for the loss of the condemnee, not for the value of anything gained by the condemnor.

Or "quantum valebat."

Trespass to land (trespass quare clausum fregit or q.c.f.), use and occupation, and mesne

profits only award the plaintiff compensation--whether one considers it restitutionary or remedial--for the period from the time that the defendant went on the land to the time that the action is filed.

360 CHAPTER 3. RESTITUTION AND GOVERNMENT 3.3.4 United States v. Causby

United States v. Causby Supreme Court of the United States

328 U.S. 256

1946

Mr. Justice Douglas delivered the opinion of the Court. This is a case of first impression. The problem presented is whether respon- dents' property was taken, within the meaning of the Fifth Amendment, by frequent and regular flights of army and navy aircraft over respondents' land at low altitudes. The Court of Claims held that there was a taking and entered judgment for respondents, one judge dissenting. 104 Ct. Cls. 342, 60 F. Supp. 751. The case is here on a petition for a writ of certiorari which we granted because of the importance of the question presented.

Respondents own 2.8 acres near an airport outside of Greensboro, North Carolina. It has on it a dwelling house, and also various outbuildings which were mainly used for raising chickens. The end of the airport's northwest-southeast runway is 2,220 feet from respondents' barn and 2,275 feet from their house. The path of glide to this runway passes directly over the property--which is 100 feet wide and 1,200 feet long. The 30 to 1 safe glide angle approved by the Civil Aeronautics Authority passes over this property at 83 feet, which is 67 feet above the house, 63 feet above the barn and 18 feet above the highest tree. The use by the United States of this airport is pursuant to a lease executed in May, 1942, for a term commencing June 1, 1942 and ending June 30, 1942, with a provision for renewals until June 30, 1967, or six months after the end of the national emergency, whichever is the earlier.

Various aircraft of the United States use this airport--bombers, transports and fighters. The direction of the prevailing wind determines when a particular runway is used. The northwest-southeast runway in question is used about our per cent of the time in taking off and about seven per cent of the time in landing. Since the United States began operations in May, 1942, its four-motored heavy bombers, other planes of the heavier type, and its fighter planes have frequently passed over respondents' land and buildings in considerable numbers and rather close together. They come close enough at times to appear barely to miss the tops of the trees and at times so close to the tops of the trees as to blow the old leaves off. The noise is startling. And at night the glare from the planes brightly lights up the place. As a result of the noise, respondents had to give up their chicken business. As many as six to ten of their chickens were killed in one day by flying into the walls from fright. The total chickens lost in that manner was about 150. Production also fell off. The result was the destruction of the use of the property as a commercial chicken farm. Respondents are frequently deprived of their sleep and the family has become nervous and frightened. Although there have been no airplane accidents on respondents' property, there have been several accidents near the airport and close to respondents' place. These are

September 11, 2000

3.3. EMINENT DOMAIN 361 the essential facts found by the Court of Claims. On the basis of these facts, it found that respondents' property had depreciated in value. It held that the United States had taken an easement over the property on June 1, 1942, and that the value of the property destroyed and the easement taken was $2,000.

I. The United States relies on the Air Commerce Act of 1926, 44 Stat. 568, 49 U.S.C. x 171, as amended by the Civil Aeronautics Act of 1938, 52 Stat. 973, 49 U.S.C. x 401. Under those statutes the United States has "complete and exclusive national sovereignty in the air space" over this country. 49 U.S.C. x 176 (a). They grant any citizen of the United States "a public right of free- dom of transit in air commerce through the navigable air space of the United States." 49 U.S.C. x 403. And "navigable air space" is defined as "airspace above the minimum safe altitudes of flight prescribed by the Civil Aeronautics Authority." 49 U.S.C. x 180. And it is provided that "such navigable airspace shall be subject to a public right of freedom of interstate and foreign air nav- igation." Id. It is, therefore, argued that since these flights were within the minimum safe altitudes of flight which had been prescribed, they were an ex- ercise of the declared right of travel through the airspace. The United States concludes that when flights are made within the navigable airspace without any physical invasion of the property of the landowners, there has been no taking of property. It says that at most there was merely incidental damage occurring as a consequence of authorized air navigation. It also argues that the landowner does not own superadjacent airspace which he has not subjected to possession by the erection of structures or other occupancy. Moreover, it is argued that even if the United States took airspace owned by respondents, no compensable damage was shown. Any damages are said to be merely consequential for which no compensation may be obtained under the Fifth Amendment.

It is ancient doctrine that at common law ownership of the land extended to the periphery of the universe--Cujus est solum ejus est usque ad coelum.

But

that doctrine has no place in the modern world. The air is a public highway, as Congress has declared. Were that not true, every transcontinental flight would subject the operator to countless trespass suits. Common sense revolts at the idea. To recognize such private claims to the airspace would clog these highways, seriously interfere with their control and development in the public interest, and transfer into private ownership that to which only the public has a just claim.

But that general principle does not control the present case. For the United States conceded on oral argument that if the flights over respondents' property rendered it uninhabitable, there would be a taking compensable under the Fifth Amendment. It is the owner's loss, not the taker's gain, which is the measure of the value of the property taken. United States v. Miller, 317 U.S. 369. Market value fairly determined is the normal measure of the recovery. Id. And that value may reflect the use to which the land could readily be converted, as well as the existing use. United States v. Powelson, 319 U.S. 266, 275, and cases

1 Coke, Institutes (19th ed. 1832) ch. 1, x 1 (4a); 2 Blackstone, Commentaries

(Lewis ed. 1902) p. 18; 3 Kent, Commentaries (Gould ed. 1896) p. 621. [Footnote by Court, renumbered]

362 CHAPTER 3. RESTITUTION AND GOVERNMENT cited. If, by reason of the frequency and altitude of the flights, respondents could not use this land for any purpose, their loss would be complete. It would be as complete as if the United States had entered upon the surface of the land and taken exclusive possession of it.

We agree that in those circumstances there would be a taking. Though it would be only an easement of flight which was taken, that easement, if per- manent and not merely temporary, normally would be the equivalent of a fee interest. It would be a definite exercise of complete dominion and control over the surface of the land. The fact that the planes never touched the surface would be as irrelevant as the absence in this day of the feudal livery of seisin on the transfer of real estate. The owner's right to possess and exploit the land-- that is to say, his beneficial ownership of it--would be destroyed. It would not be a case of incidental damages arising from a legalized nuisance such as was involved in Richards v. Washington Terminal Co., 233 U.S. 546. In that case, property owners whose lands adjoined a railroad line were denied recovery for damages resulting from the noise, vibrations, smoke and the like, incidental to the operations of the trains. In the supposed case, the line of flight is over the land. And the land is appropriated as directly and completely as if it were used for the runways themselves.

There is no material difference between the supposed case and the present one, except that here enjoyment and use of the land are not completely de- stroyed. But that does not seem to us to be controlling. The path of glide for airplanes might reduce a valuable factory site to grazing land, an orchard to a vegetable patch, a residential section to a wheat field. Some value would remain. But the use of the airspace immediately above the land would limit the utility of the land and cause a diminution in its value. That was the philosophy of Portsmouth Co. v. United States, 260 U.S. 327. In that case the petition alleged that the United States erected a fort on nearby land, established a battery and a fire control station there, and fired guns over petitioner's land. The Court, speaking through Mr. Justice Holmes, reversed the Court of Claims, which dismissed the petition on a demurrer, holding that "the specific facts set forth would warrant a finding that a servitude has been imposed.". . .

. . . . We have said that the airspace is a public highway. Yet it is obvious that if the landowner is to have full enjoyment of the land, he must have exclusive con- trol of the immediate reaches of the enveloping atmosphere. Otherwise buildings could not be erected, trees could not be planted, and even fences could not be run. The principle is recognized when the law gives a remedy in case overhang- ing structures are erected on adjoining land. The landowner owns at least as much of the space above the ground as he can occupy or use in connection with the land. See Hinman v. Pacific Air Transport, 84 F. 2d 755. The fact that he does not occupy it in a physical sense--by the erection of buildings and the like--is not material. As we have said, the flight of airplanes, which skim the surface but do not touch it, is as much an appropriation of the use of the land as a more conventional entry upon it. We would not doubt that, if the United

September 11, 2000

3.3. EMINENT DOMAIN 363 States erected an elevated railway over respondents' land at the precise altitude where its planes now fly, there would be a partial taking, even though none of the supports of the structure rested on the land. The reason is that there would be an intrusion so immediate and direct as to subtract from the owner's full enjoyment of the property and to limit his exploitation of it. While the owner does not in any physical manner occupy that stratum of airspace or make use of it in the conventional sense, he does use it in somewhat the same sense that space left between buildings for the purpose of light and air is used. The su- peradjacent airspace at this low altitude is so close to the land that continuous invasions of it affect the use of the surface of the land itself. We think that the landowner, as an incident to his ownership, has a claim to it and that invasions of it are in the same category as invasions of the surface.

In this case, as in Portsmouth Co. v. United States, supra, the damages were not merely consequential. They were the product of a direct invasion of respondents' domain. As stated in United States v. Cress, 243 U.S. 316, 328, ". . . it is the character of the invasion, not the amount of damage resulting from it, so long as the damage is substantial, that determines the question whether it is a taking."

. . . . The airplane is part of the modern environment of life, and the inconve- niences which it causes are normally not compensable under the Fifth Amend- ment. The airspace, apart from the immediate reaches above the land, is part of the public domain. We need not determine at this time what those precise limits are. Flights over private land are not a taking, unless they are so low and so frequent as to be a direct and immediate interference with the enjoyment and use of the land. We need not speculate on that phase of the present case. For the findings of the Court of Claims plainly establish that there was a diminution in value of the property and that the frequent, low-level flights were the direct and immediate cause. We agree with the Court of Claims that a servitude has been imposed upon the land.

II. By x 145 (1) of the Judicial Code, 28 U.S.C. x 250 (1), the Court of Claims has jurisdiction to hear and determine "All claims (except for pensions) founded upon the Constitution of the United States or . . . upon any contract, express or implied, with the Government of the United States . . ."

We need not decide whether repeated trespasses might give rise to an implied contract. Cf. Portsmouth Co. v. United States, supra. If there is a taking, the claim is "founded upon the Constitution" and within the jurisdiction of the Court of Claims to hear and determine. . . . Thus, the jurisdiction of the Court of Claims in this case is clear.

III. The Court of Claims held, as we have noted, that an easement was taken. But the findings of fact contain no precise description as to its nature. It is not described in terms of frequency of flight, permissible altitude, or type of airplane. Nor is there a finding as to whether the easement taken was temporary or permanent. Yet an accurate description of the property taken is essential,

364 CHAPTER 3. RESTITUTION AND GOVERNMENT since that interest vests in the United States. . . .

Since on this record it is not clear whether the easement taken is a permanent or a temporary one, it would be premature for us to consider whether the amount of the award made by the Court of Claims was proper.

The judgment is reversed and the cause is remanded to the Court of Claims so that it may make the necessary findings in conformity with this opinion.

Reversed. Mr. Justice Jackson took no part in the consideration or decision of this case.

Mr. Justice Black dissenting. The Fifth Amendment provides that "private property" shall not "be taken for public use without just compensation." The Court holds today that the Gov- ernment has "taken" respondents' property by repeatedly flying Army bombers directly above respondents' land at a height of eighty-three feet where the light and noise from these planes caused respondents to lose sleep and their chick- ens to be killed. Since the effect of the Court's decision is to limit, by the imposition of relatively absolute constitutional barriers, possible future adjust- ments through legislation and regulation which might become necessary with the growth of air transportation, and since in my view the Constitution does not contain such barriers, I dissent.

. . . . Mr. Justice Burton joins in this dissent.

3.3.5 Notes on United States v. Causby

1. Causby is an example of a federal "taking" case, the type of case that, in

the state courts, is typically called an "inverse condemnation" case.

2. Causby was an action in the Court of Claims (now part of the Federal

Circuit). It is the first case to interpret the provision of x 145 (1) of the Judicial Code, 28 U.S.C. x 250 (1) (the Tucker Act) granting the Court of Claims jurisdiction to hear and determine "[a]ll claims . . . founded upon the Constitution" as granting that court jurisdiction to hear "taking" cases against the States.

The Court of Claims had no jurisdiction to hear tort claims against the United States. It was originally established to hear contract claims, and the United States waived its immunity to suit in such cases, in order to overcome the natural reluctance of anyone to contract with a party who was immune from suit. This history makes it rather diAEcult to treat "taking" cases as analogous to conversion actions, for conversion is tradi- tionally considered to be a tort.

But see Hambly v. Trott, 1 Cowper 371, 98 Eng. Rep. 1136 (K.B. 1776) reprinted supra

in Section 1.12.1.

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3.3. EMINENT DOMAIN 365

The better analogy historically is to a restitutionary action in indebitatus assumpsit, especially as the Court of Claims had, prior to Causby, awarded "just compensation" to plaintiffs in taking actions on the theory that such actions were on an implied contract (rather than on a claim "founded on the Constitution"). Thus Portsmouth Harbor Land & Hotel Co. v. United States, 260 U.S. 327 (1922), which was relied on so heavily by the majority in Causby, was a case in which the government's repeated firing of artillery shells across Portsmouth Harbor's land was held to have given rise to an implied contract on the part of the United States to pay for the property "taken" by those activities.

Note that the Court in Causby, after holding that the claim "was founded on the Constitution," expressly held that: "We need not decide whether repeated trespasses might give rise to an implied contract."

3. The implied contract in taking cases like Portsmouth Harbor was not what

is so often confusingly called a "quasi-contract" or a "contract implied in law." This point is made clear in the following passage from Mr. Justice Brandeis's dissent in Portsmouth Harbor :

Appropriation by the United States of private property for public use, without instituting condemnation proceedings, does not entitle the owner to sue under the Tucker Act (Judicial Code, x 24, par. 20), unless the taking was made under such circumstances as to give rise to a contract express or implied in fact to pay compensation. . . . Hence this action must rest on a contract, express or implied in fact. . . . An appropriation of private property will not entitle the owner to recover if made by mistake or if made under a claim of right, although the claim is later shown to be unfounded. . . . And, if the appropriation was made by an oAEcer without authority, the claimant is likewise without this remedy against the Government. . . . The essentials of a recovery are a taking on behalf of the United States, made by oAEcials duly authorized, and under such conditions that a contract will be implied in fact.

260 U.S. at 331-32. Contracts implied in fact are actual contracts, they are simply not ex- pressed in words. "Contracts implied in law" are not contracts at all. Yet both contracts implied in fact and "contracts implied in law" were histor- ically enforced by the same procedure: an action in indebitatus assumpsit.

To add to the confusion, it can often be diAEcult to tell whether an implied contract is implied in fact or in law. If I go into a grocery store and pick up a can of beans and start to walk out, have I in fact impliedly contracted to pay for the beans? Or am I converting the beans, an activity that in many States--though not in Massachusetts--would make me liable to pay for the beans on a contract implied in law, if the store owner chooses to

366 CHAPTER 3. RESTITUTION AND GOVERNMENT

waive the tort of conversion and sue me in assumpsit? In either type of implied contract the store owner's action will be in indebitatus assumpsit for goods sold and delivered.

Do you agree with me that the plaintiff's action in Causby can properly-- if anachronistically--be described as an action on a contract implied in law? The law, of course, being the Constitution? (And the Tucker Act?)

3.3.6 Boomer v. Atlantic Cement Co.

Boomer v. Atlantic Cement Company, Inc.

New York Court of Appeals 26 N.Y.2d 219; 257 N.E.2d 870; 309 N.Y.S.2d 312; 40 A.L.R.3d 590

1970

Bergan, J. Defendant operates a large cement plant near Albany. These are actions for injunction and damages by neighboring land owners alleging injury to property from dirt, smoke and vibration emanating from the plant. A nuisance has been found after trial, temporary damages have been allowed; but an injunction has been denied.

The public concern with air pollution arising from many sources in industry and in transportation is currently accorded ever wider recognition accompanied by a growing sense of responsibility in State and Federal Governments to control it. Cement plants are obvious sources of air pollution in the neighborhoods where they operate.

But there is now before the court private litigation in which individual prop- erty owners have sought specific relief from a single plant operation. The thresh- old question raised by the division of view on this appeal is whether the court should resolve the litigation between the parties now before it as equitably as seems possible; or whether, seeking promotion of the general public welfare, it should channel private litigation into broad public objectives.

A court performs its essential function when it decides the rights of parties before it. Its decision of private controversies may sometimes greatly affect public issues. Large questions of law are often resolved by the manner in which private litigation is decided. But this is normally an incident to the court's main function to settle controversy. It is a rare exercise of judicial power to use a decision in private litigation as a purposeful mechanism to achieve direct public objectives greatly beyond the rights and interests before the court.

Effective control of air pollution is a problem presently far from solution even with the full public and financial powers of government. In large measure adequate technical procedures are yet to be developed and some that appear possible may be economically impracticable.

It seems apparent that the amelioration of air pollution will depend on tech- nical research in great depth; on a carefully balanced consideration of the eco-

September 11, 2000

3.3. EMINENT DOMAIN 367 nomic impact of close regulation; and of the actual effect on public health. It is likely to require massive public expenditure and to demand more than any local community can accomplish and to depend on regional and interstate controls.

A court should not try to do this on its own as a by-product of private litiga- tion and it seems manifest that the judicial establishment is neither equipped in the limited nature of any judgment it can pronounce nor prepared to lay down and implement an effective policy for the elimination of air pollution. This is an area beyond the circumference of one private lawsuit. It is a direct responsibility for government and should not thus be undertaken as an incident to solving a dispute between property owners and a single cement plant--one of many--in the Hudson River valley.

The cement making operations of defendant have been found by the court at Special Term to have damaged the nearby properties of plaintiffs in these two actions. That court, as it has been noted, accordingly found defendant main- tained a nuisance and this has been aAErmed at the Appellate Division. The total damage to plaintiffs' properties is, however, relatively small in compari- son with the value of defendant's operation and with the consequences of the injunction which plaintiffs seek.

The ground for the denial of injunction, notwithstanding the finding both that there is a nuisance and that plaintiffs have been damaged substantially, is the large disparity in economic consequences of the nuisance and of the injunc- tion. This theory cannot, however, be sustained without overruling a doctrine which has been consistently reaAErmed in several leading cases in this court and which has never been disavowed here, namely that where a nuisance has been found and where there has been any substantial damage shown by the party complaining an injunction will be granted.

The rule in New York has been that such a nuisance will be enjoined although marked disparity be shown in economic consequence between the effect of the injunction and the effect of the nuisance.

The problem of disparity in economic consequence was sharply in focus in Whalen v. Union Bag & Paper Co. (208 N. Y. 1). A pulp mill entailing an investment of more than a million dollars polluted a stream in which plaintiff, who owned a farm, was "a lower riparian owner". The economic loss to plaintiff from this pollution was small. This court, reversing the Appellate Division, reinstated the injunction granted by the Special Term against the argument of the mill owner that in view of "the slight advantage to plaintiff and the great loss that will be inflicted on defendant" an injunction should not be granted (p. 2). "Such a balancing of injuries cannot be justified by the circumstances of this case", Judge Werner noted (p. 4). He continued: "Although the damage to the plaintiff may be slight as compared with the defendant's expense of abating the condition, that is not a good reason for refusing an injunction" (p. 5).

Thus the unconditional injunction granted at Special Term was reinstated. The rule laid down in that case, then, is that whenever the damage resulting from a nuisance is found not "unsubstantial", viz., $100 a year, injunction would

368 CHAPTER 3. RESTITUTION AND GOVERNMENT follow. This states a rule that had been followed in this court with marked consistency . . . .

There are cases where injunction has been denied. McCann v. Chasm Power Co. (211 N. Y. 301) is one of them. There, however, the damage shown by plaintiffs was not only unsubstantial, it was non-existent. Plaintiffs owned a rocky bank of the stream in which defendant had raised the level of the water. This had no economic or other adverse consequence to plaintiffs, and thus injunctive relief was denied. . . . Thus if, within Whalen v. Union Bag & Paper Co. (supra) which authoritatively states the rule in New York, the damage to plaintiffs in these present cases from defendant's cement plant is "not unsubstantial", an injunction should follow.

Although the court at Special Term and the Appellate Division held that injunction should be denied, it was found that plaintiffs had been damaged in various specific amounts up to the time of the trial and damages to the respective plaintiffs were awarded for those amounts. The effect of this was, injunction having been denied, plaintiffs could maintain successive actions at law for damages thereafter as further damage was incurred.

The court at Special Term also found the amount of permanent damage attributable to each plaintiff, for the guidance of the parties in the event both sides stipulated to the payment and acceptance of such permanent damage as a settlement of all the controversies among the parties. The total of permanent damages to all plaintiffs thus found was $185,000. This basis of adjustment has not resulted in any stipulation by the parties.

This result at Special Term and at the Appellate Division is a departure from a rule that has become settled; but to follow the rule literally in these cases would be to close down the plant at once. This court is fully agreed to avoid that immediately drastic remedy; the difference in view is how best to avoid it.

One alternative is to grant the injunction but postpone its effect to a speci- fied future date to give opportunity for technical advances to permit defendant to eliminate the nuisance; another is to grant the injunction conditioned on the payment of permanent damages to plaintiffs which would compensate them for the total economic loss to their property present and future caused by defen- dant's operations. For reasons which will be developed the court chooses the latter alternative.

If the injunction were to be granted unless within a short period--e.g., 18 months--the nuisance be abated by improved methods, there would be no as- surance that any significant technical improvement would occur.

The parties could settle this private litigation at any time if defendant paid enough money and the imminent threat of closing the plant would build up the pressure on defendant. If there were no improved techniques found, there would

Respondent's investment in the plant is in excess of $45,000,000. There are over 300

people employed there. [Footnote by court, renumbered]

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3.3. EMINENT DOMAIN 369 inevitably be applications to the court at Special Term for extensions of time to perform on showing of good faith efforts to find such techniques.

Moreover, techniques to eliminate dust and other annoying by-products of cement making are unlikely to be developed by any research the defendant can undertake within any short period, but will depend on the total resources of the cement industry nationwide and throughout the world. The problem is universal wherever cement is made.

For obvious reasons the rate of the research is beyond control of defendant. If at the end of 18 months the whole industry has not found a technical solution a court would be hard put to close down this one cement plant if due regard be given to equitable principles.

On the other hand, to grant the injunction unless defendant pays plaintiffs such permanent damages as may be fixed by the court seems to do justice between the contending parties. All of the attributions of economic loss to the properties on which plaintiffs' complaints are based will have been redressed.

The nuisance complained of by these plaintiffs may have other public or private consequences, but these particular parties are the only ones who have sought remedies and the judgment proposed will fully redress them. The limita- tion of relief granted is a limitation only within the four corners of these actions and does not foreclose public health or other public agencies from seeking proper relief in a proper court.

It seems reasonable to think that the risk of being required to pay permanent damages to injured property owners by cement plant owners would itself be a reasonable effective spur to research for improved techniques to minimize nuisance.

The power of the court to condition on equitable grounds the continuance of an injunction on the payment of permanent damages seems undoubted. . . .

The damage base here suggested is consistent with the general rule in those nuisance cases where damages are allowed. "Where a nuisance is of such a permanent and unabatable character that a single recovery can be had, including the whole damage past and future resulting therefrom, there can be but one recovery" (66 C. J. S., Nuisances, x 140, p. 947). It has been said that permanent damages are allowed where the loss recoverable would obviously be small as compared with the cost of removal of the nuisance . . . .

. . . . Thus it seems fair to both sides to grant permanent damages to plaintiffs which will terminate this private litigation. The theory of damage is the "servi- tude on land" of plaintiffs imposed by defendant's nuisance. (See United States v. Causby, 328 U.S. 256, 261, 262, 267, where the term "servitude" addressed to the land was used by Justice Douglas relating to the effect of airplane noise on property near an airport.)

The judgment, by allowance of permanent damages imposing a servitude on land, which is the basis of the actions, would preclude future recovery by plaintiffs or their grantees. . . .

370 CHAPTER 3. RESTITUTION AND GOVERNMENT

This should be placed beyond debate by a provision of the judgment that the payment by defendant and the acceptance by plaintiffs of permanent damages found by the court shall be in compensation for a servitude on the land.

Although the Trial Term has found permanent damages as a possible basis of settlement of the litigation, on remission the court should be entirely free to re-examine this subject. It may again find the permanent damage already found; or make new findings.

The orders should be reversed, without costs, and the cases remitted to Supreme Court, Albany County to grant an injunction which shall be vacated upon payment by defendant of such amounts of permanent damage to the re- spective plaintiffs as shall for this purpose be determined by the court.

Jasen, J. (dissenting). I agree with the majority that a reversal is required here, but I do not subscribe to the newly enunciated doctrine of assessment of permanent damages, in lieu of an injunction, where substantial property rights have been impaired by the creation of a nuisance.

It has long been the rule in this State, as the majority acknowledges, that a nuisance which results in substantial continuing damage to neighbors must be enjoined. . . . To now change the rule to permit the cement company to continue polluting the air indefinitely upon the payment of permanent damages is, in my opinion, compounding the magnitude of a very serious problem in our State and Nation today.

In recognition of this problem, the Legislature of this State has enacted the Air Pollution Control Act. . . .

The harmful nature and widespread occurrence of air pollution have been extensively documented. Congressional hearings have revealed that air pollution causes substantial property damage, as well as being a contributing factor to a rising incidence of lung cancer, emphysema, bronchitis and asthma.

The specific problem faced here is known as particulate contamination be- cause of the fine dust particles emanating from defendant's cement plant. The particular type of nuisance is not new, having appeared in many cases for at least the past 60 years. It is interesting to note that cement production has recently been identified as a significant source of particulate contamination in the Hudson Valley. This type of pollution, wherein very small particles escape and stay in the atmosphere, has been denominated as the type of air pollution which produces the greatest hazard to human health. We have thus a nuisance which not only is damaging to the plaintiffs,

but also is decidedly harmful to

the general public.

I see grave dangers in overruling our long-established rule of granting an injunction where a nuisance results in substantial continuing damage. In per- mitting the injunction to become inoperative upon the payment of permanent

There are seven plaintiffs here who have been substantially damaged by the maintenance

of this nuisance. The trial court found their total permanent damages to equal $185,000. [Footnote by court, renumbered]

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3.3. EMINENT DOMAIN 371 damages, the majority is, in effect, licensing a continuing wrong. It is the same as saying to the cement company, you may continue to do harm to your neigh- bors so long as you pay a fee for it. Furthermore, once such permanent damages are assessed and paid, the incentive to alleviate the wrong would be eliminated, thereby continuing air pollution of an area without abatement.

It is true that some courts have sanctioned the remedy here proposed by the majority in a number of cases, but none of the authorities relied upon by the majority are analogous to the situation before us. In those cases, the courts, in denying an injunction and awarding money damages, grounded their decision on a showing that the use to which the property was intended to be put was primarily for the public benefit. Here, on the other hand, it is clearly estab- lished that the cement company is creating a continuing air pollution nuisance primarily for its own private interest with no public benefit.

This kind of inverse condemnation may not be invoked by a private person or corporation for private gain or advantage. Inverse condemnation should only be permitted when the public is primarily served in the taking or impairment of property. The promotion of the interests of the polluting cement company has, in my opinion, no public use or benefit.

Nor is it constitutionally permissible to impose servitude on land, without consent of the owner, by payment of permanent damages where the continuing impairment of the land is for a private use. This is made clear by the State Constitution (art. I, x 7, subd. [a]) which provides that "[p]rivate property shall not be taken for public use without just compensation" (emphasis added). It is, of course, significant that the section makes no mention of taking for a private use.

In sum, then, by constitutional mandate as well as by judicial pronounce- ment, the permanent impairment of private property for private purposes is not authorized in the absence of clearly demonstrated public benefit and use.

I would enjoin the defendant cement company from continuing the discharge of dust particles upon its neighbors' properties unless, within 18 months, the cement company abated this nuisance.

It is not my intention to cause the removal of the cement plant from the Albany area, but to recognize the urgency of the problem stemming from this stationary source of air pollution, and to allow the company a specified period of time to develop a means to alleviate this nuisance.

I am aware that the trial court found that the most modern dust control devices available have been installed in defendant's plant, but, I submit, this does not mean that better and more effective dust control devices could not be developed within the time allowed to abate the pollution.

Moreover, I believe it is incumbent upon the defendant to develop such devices, since the cement company, at the time the plant commenced production (1962), was well aware of the plaintiffs' presence in the area, as well as the probable consequences of its contemplated operation. Yet, it still chose to build and operate the plant at this site.

372 CHAPTER 3. RESTITUTION AND GOVERNMENT

In a day when there is a growing concern for clean air, highly developed industry should not expect acquiescence by the courts, but should, instead, plan its operations to eliminate contamination of our air and damage to its neighbors.

Accordingly, the orders of the Appellate Division, insofar as they denied the injunction, should be reversed, and the actions remitted to Supreme Court, Albany County to grant an injunction to take effect 18 months hence, unless the nuisance is abated by improved techniques prior to said date.

Chief Judge Fuldd and Judges Burke and Scileppi concur with Judge Bergan; Judge Jasen dissents in part and votes to reverse in a separate opin- ion; Judges Breitel and Gibson taking no part.

3.3.7 Notes on Boomer v. Atlantic Cement Co.

1. Boomer is an example of the type of relief (which I claim is restitutionary)

that the plaintiff typically gets in an inverse condemnation action like Causby. Notice, however, that the plaintiff sought an injunction against a continuing nuisance; the plaintiff did not want to "sell" the defendant a servitude (that's just a fancy name for an easement) permitting the defendant to dump cement dust on the plaintiffs' dairy farm and their cows and the damp laundry drying on the clothesline in their back yard.

A successful action in indebitatus assumpsit for goods sold and delivered has two consequences. The plaintiff receives the market price of the goods and the defendant ends up owning the goods exactly as if he really had bought them. A successful action in conversion has exactly the same result: the plaintiff receives the market price of the converted goods and the converter acquires all of the plaintiff's right, title, and interest in those goods.

In cases like Boomer, the plaintiff receives the market value of the servitude "taken" by the defendant and the defendant ends up owning the servitude.

Note that the "servitude" in Boomer to dump cement dust was actually very much like the overused easement to carry coal across the plaintiff's land that was involved in Raven Red Ash Coal Co. v. Ball, 185 Va. 534 (1946), reprinted supra in Section 1.17.2. Permanent damages, however, were not at issue in Raven.

2. Cases in which a court "balances the equities" and denies an injunction

against activities that would entitle the plaintiff to damages at law for a continuing nuisance or trespass are not unusual. See Keeton & Morris, Notes on "Balancing the Equities", 18 Tex. L. Rev. 412 (1940). The typical case is one where the defendant has constructed a building that partially encroaches on the plaintiff's land. Ejectment won't work in such a case because a judgment in ejectment has to be enforced by the sheriff and--as the old legal maxim has it--"the sheriff doesn't own a wrecking

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3.4. MISTAKEN PAYMENTS TO GOVERNMENTS 373

company." Courts of equity will issue injunctions against the maintenance of encroaching buildings; that is a classic example of a continuing trespass. When the building is very valuable and the encroachment the result of an innocent mistake, a court of equity is likely to balance the equity and deny the injunction.

What is unusual about Boomer is that the majority did not simply deny the injunction and remit the plaintiff to his remedy at law (or--rather-- grant the same relief that a court of law would have granted the plaintiff in a nuisance action). The remedy at law is past damages, the loss suffered by the plaintiff up to the day on which the action is filed.

The novel feature in Boomer --which explains why you have probably al- ready considered the case in some of your other courses--is the invention of the new equitable remedy of "permanent damages," relief identical to the relief that the landowners would have received in an inverse condemnation action.

3. Boomer does supply a most instructive example of the importance of

getting the right remedy. Once the fact was established that Atlantic Cement Company's activities amounted to a continuing nuisance, there were three possible remedies that the plaintiff could get. The legal remedy of past damages is not very satisfactory from the plaintiff's point of view, especially as he has bring a new action every couple of years to collect the damages that have accrued since he last sued. The fact that this remedy at law is so inadequate is the reason that courts of equity are willing to step in and grant an injunction against a legal nuisance or trespass. Assuming that the investment in the plant of $45,000,000 is a good indication of its market value,

an injunction might well have been worth $40,0000,000,

or more, to the plaintiffs. The permanent damage remedy invented in Boomer is certainly more attractive than past damages, but the plaintiffs would have been much better off if the injunction had been issued.

3.4 Mistaken Payments to Governments 3.4.1 A Note on Payments Made by Mistake to Govern-

ments

One of the traditional grounds for restitution, both at law and in equity, is mistake. Probably the most frequent type of mistake is the mistaken payment of money. Mistaken payments are typically treated more favorably by the courts

The $45,000,000 cost of the plant is irrelevant from the point of view of an economic

analysis or from the point of view of evaluating an injunction against maintaining the plant. The $45,000,000 is a "sunk" cost. The relevant figure--as to which there was no evidence--was the market value of the cement plant.

374 CHAPTER 3. RESTITUTION AND GOVERNMENT than are mistaken supplying of goods and services. We will have to look at cases involving mistake in much more detail hereafter.

The following case is fairly typical of mistaken payment cases. Its only unusual feature is the fact that the mistaken payment was a payment of taxes.

3.4.2 Maricopa County v. Leppla

Maricopa County v. Leppla

Supreme Court of Arizona 89 Ariz. 220; 360 P.2d 227; 84 A.L.R.2d 1129

1961

Lockwood, Justice. Appellees, hereafter called plaintiffs, sued the appellants, hereafter called defendants, alleging that prior to November 4, 1957, certain taxpayers named in the complaint had paid the first installment of 1957 taxes on properties assessed to them respectively, and that thereafter the plaintiff Phoenix Title and Trust Company, acting for and on behalf of either itself or the taxpayers, and in ignorance that the taxes had already been paid, again paid the taxes. Plaintiffs prayed judgment for the amount of the overpayments made for themselves and for and on behalf of the taxpayers for whom they acted, and also for a judgment declaring that the County Treasurer is authorized by law to make refunds to taxpayers under such circumstances. The matter was to the trial court upon the defendants' motion to dismiss, and upon the plaintiffs' motion for judgment on the pleadings. The trial court denied the former and granted the plaintiffs' motion and thereafter a written judgment in accordance with the order was entered from which judgment the defendants have appealed.

Defendants urge that the lower court erred in granting the plaintiffs' motion for judgment on the pleadings and entering judgment in accordance therewith for the reasons that: (1) voluntary payment of taxes without protest and not under duress, cannot be recovered by a taxpayer; (2) when a person through his own mistake voluntarily makes a payment of taxes, which the law would not compel him to make, such mistake is no basis for recovering the erroneous payment; (3) the County Treasurer has no authority to refund taxes once he has issued a receipt for them except upon lawful order of the proper authority; and (4) declaratory judgment is not proper when the matters pleaded do not involve a question of construction or validity of the rights, statute or other legal relation which are affected by the statute, municipal ordinance, contract or franchise.

Defendants cite numerous cases to the effect that it is the general rule that taxes voluntarily paid without protest and not under duress cannot be recovered by the taxpayer, even though paid by mistake, if the mistake is upon the part of the taxpayer, and is due to his own negligence. They rely particularly on Maricopa County v. Arizona Citrus Land Co., 55 Ariz., 234, 100 P.2d 587, 589, as holding that the burden of knowing what the tax situation is with reference

September 11, 2000

3.4. MISTAKEN PAYMENTS TO GOVERNMENTS 375 to a particular piece of property is on the taxpayer himself and that in the event he does not ascertain and familiarize himself with what the tax record indicates, he acts negligently and is not permitted to recover. Plaintiffs also rely upon this case, particularly noting this court's reference to the Restatement of the Law on Restitution, x 19 as follows:

"A person who has paid money to another because of an er- roneous belief induced by a mistake of fact that he was thereby performing in whole or in part a duty to the payee, other than a contract duty, is entitled to restitution of the amount so paid if such duty did not exist. * * *

"h. Public duties. Subject to the rules as to the Immunity of the State from liability, the rule stated in this Section applies to a payment made because of a mistake of fact as to the existence of a public obligation, as where a person pays for the second time a tax from him personally, having forgotten the initial payment, or makes payment of a fine in ignorance that his attorney has already paid."

As stated in the foregoing case, this court has taken the position that it will follow the Restatement unless it appears we are committed to some other rule than that contained therein, or that it does not clearly state the rule of common law. This court concluded that the sections of the Restatement above cited did not apply to the Arizona Citrus Land Co. case, supra. Therein the plaintiffs sued Maricopa County to recover from it certain taxes which plaintiffs had paid as assessed against property owned by them. After such payment plaintiffs discovered that the taxes assessed against them were on improvements which as a matter of fact were not situated on their land but on adjoining land owned by other persons. We held that the fact situation did not fall within paragraph h of Section 19, supra, stating:

"We think the section quoted and the illustration given do not apply to the facts of the present case. The latter limits the ap- plication of the rule to `a mistake of facts as to the existence of a public obligation', giving two instances of where a public obligation has already been satisfied, and a person pays it a second time.

"In the present case there can be no doubt that a public obliga- tion to pay taxes on the improvements existed and that it had never been satisfied until it was paid by plaintiff. We think the rule laid down by the Supreme Court of California correctly states the com- mon law rule as applicable to circumstances involved in the present case, and that it is not in conflict with the restatement. * * *" (Emphasis supplied).

Although the precise point involved herein, viz., a double payment of the same tax, was not involved in the Arizona Citrus Land Co. case, this court obviously recognized a distinction between "a mistake of facts as to the existence

376 CHAPTER 3. RESTITUTION AND GOVERNMENT of a public obligation", and a situation where a public obligation has already been satisfied and someone pays it a second time. There is no doubt that the general rule of common law is that voluntary payment of taxes without protest and not under duress cannot be recovered by a taxpayer, if such payment was made through a mistake on the part of the taxpayer, and was due to his own negligence. Maricopa County v. Arizona Citrus Land Co. supra. In each of these cases however, an assessment was made and a tax levied thereon, and thereafter the taxpayer paid the tax, without ascertaining whether or not the assessment was correct or whether the tax was a valid one against him. Under such circumstances the courts have denied recovery by the taxpayer, in effect upon the ground that even though there was a mistake of fact, such fact was within the ability of the taxpayer to ascertain, and there was negligence on his part in not doing so before making payment of the tax. This is contrary to the general principle as to overpayment or wrongful payment on the part of one individual to another, in which case the rule is practically uniform that the individual may recover the excess or wrongful payment. Continental Oil Co. v. Rapp, Okl., 301 P.2d 198, 202; Restatement, Restitution x 19, p. 86.

Apparently the rationale in tax cases follows the statement from 3 Cooley Taxation x 1295 which reads as follows:

"To accord a right of recovery in every case where, after as- sessments have been made without appeal, budgets and tax rates predicated thereon, the taxes paid without objection or protest, and the monies expended for the public purposes, it afterwards develops that some mistake has been made in the assessment, would work disastrous results. It must of necessity be confined to extreme and exceptional cases."

This is not a case where a tax obligation actually existed after the original payment by the taxpayer had been made. The second payment was purely gratuitous and constituted a receipt by the tax authority of money which it had not anticipated in any manner whatsoever, and for which there existed no obligation. Under no theory, of mistake or otherwise, was the taxpayer or its agent required to satisfy a non-existent obligation. Under these circumstances, we are of the opinion that the reason for denying a taxpayer the right to recover taxes paid under a mistake of fact which he might have ascertained and called to the attention of the taxing authority before payment, does not exist, and that paragraph h of Section 19, Restatement, supra, applies. We find, therefore, that the court did not err in entering judgment for the plaintiffs and against the defendants for the amount of taxes paid in addition to satisfying the original tax assessment.

The claim for declaratory relief apparently is in anticipation of a similar fact situation which might or might not develop. We have held that this does not form the basis for a declaratory judgment. See Moore v. Bolin, 70 Ariz. 354, 220 P.2d 850.

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3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 377

The judgment of the trial court is therefore aAErmed in part, and reversed in part, with directions to strike that portion of the judgment which is declaratory in nature.

Struckmeyer, C.J., Bernstein, V.C.J., and Udall and Jennings, JJ; concur.

3.5 When the Government Seeks Restitution For the remainder of this chapter we shall explore some cases in which the government is the plaintiff seeking restitution. These cases are divided into two categories: (i) those in which the government seeks restitution because the defendant was unjustly enriched at the government's expense and (ii) those in which the government seeks restitution because the defendant was enriched by a violation of an economic regulation promulgated by the government.

The first category includes cases that could just as well have been brought by a private plaintiff, though the fact that the actual plaintiff is a government may well make the courts more--and in some cases

overly--inclined to grant the

relief sought. These cases also serve as an introduction to the law of constructive trusts.

The second category is one that has largely been ignored in the theoretical literature. The cases included

in that category raise the fundamental question

of what is meant by the term `restitution'. They also supply the occasion for an exploration of the appropriateness of using remedies developed in private litigation in order to enforce governmental regulatory schemes.

3.5.1 Unfaithful Fiduciaries 3.5.1.1 City of Jersey City v. Hague

City of Jersey City v. Hague

Supreme Court of New Jersey

18 N.J. 584, 115 A.2d 8

1955

The opinion of the court was delivered by Vanderbilt, C.J. Defendant Frank Hague moved, without supporting aAEdavit, to dismiss the complaint "for failure to state a claim upon which relief can be granted" and the trial court granted the motion. The plaintiff appealed to the Appellate Division of the Superior Court and we certified the case on our own motion while it was pending there.

E.g., Snepp v. U.S., 444 U.S. 507 (1980), infra.

Especially Citronelle-Mobile Gathering, Inc. v. Herrington, 826 F.2d 16 (T.E.C.A., 1987),

cert. denied, 108 S. Ct. 327, which is printed infra at Section 3.5.2.4.

378 CHAPTER 3. RESTITUTION AND GOVERNMENT

I. The Facts of the Complaint No principle of pleading is better established, not only under our rules of court but under the practice that preceded it, . . . that on an attack on a com- plaint all the facts and all the reasonable inferences and implications therefrom are to be considered most strongly in favor of the plaintiff since the remedy sought by the defendant is a drastic one. It is with this necessary principle in mind that the complaint is to be read.

The first count of the complaint alleges that (1) the plaintiff is a municipal corporation; (2) the defendant Frank Hague was mayor of Jersey City from 1917 to 1947; (3) the defendant Frank Hague Eggers was mayor from 1947 to 1949 and a member of the board of commissioners from 1942 to 1949; (4) the defendant John F. Malone was deputy mayor from 1917 to 1949, and

"5. The defendants Hague, Eggers and Malone were political associates, and close political confederates and collaborators, and closely associated together in the government of the City of Jersey City continuously for at least twenty-five years prior to May 17, 1949.

"6. From May 15, 1917 to May 17, 1949, the defendants, acting at times singly and at other times in combination with each other, in their capacities as individuals and as oAEcials of the plaintiff City, did steal and did unlawfully, fraudulently, corruptly and with gross breach of trust, extort and appropriate to themselves property of the City, to wit, money, in the amount of not less than fifteen million dollars ($15,000,000.). The said thefts and defrauds of moneys of the City were accomplished by the means of the extortion from em- ployees of the City of three percent (3%) of the annual salary of each said employee during each year from 1917 to 1949 as aforesaid. The said thefts, defrauds, and extortions were committed in such man- ner and at such times as to have constituted, in law, thefts, defrauds and extortions from the city payroll funds, which were the property of the City, in that the three percent of salary of each city employee was extorted by threats and force by the defendants from the said city employees on a systematic annual basis, and was made payable to and was taken by the defendants directly out of the salary moneys paid or payable by the City to the said employees for services.The systematic basis on which the said thefts, defrauds and extortions were organized and carried out by the defendants, amounted in law to an unlawful charge upon, and theft, defraud and extortion from, the City's treasury and budgeted appropriations for each such year, in the amount of three percent of City treasury funds and budgeted appropriations set aside or held or appropriated for salaries of City employees."

The second count of the complaint repeats the allegations of the first six paragraphs of the first count of the complaint and then states:

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3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 379

"2. Under the laws of New Jersey and the ordinances and reso- lutions of the City of Jersey City in force during the period May 15, 1917 to May 17, 1949, it was unlawful for any paid employee of the City of Jersey City to give or pay to any person any money or other valuable consideration by way of bribe, `Kick-back' or otherwise as a condition of obtaining or holding such City employment or of ob- taining City funds as salary therefor. All such moneys extorted by the defendants from City employees under defendants' three percent extortion scheme were and are subject to be forfeited to the City for its own use and benefit, or as trustee for the use and benefit of the defrauded employees (or their heirs and administrators) from whom such moneys were extorted. Defendants are required to for- feit all such moneys to plaintiff, in the amount of $15,000,000. as aforesaid."

The complaint then concludes:

"Wherefore, plaintiff demands judgment against the defendants, jointly and severally, in the amount of $15,000,000. plus interest; and for the impressment of a trust in the amount of $15,000,000. plus interest, upon the property and assets of the defendants for the use and benefit of the plaintiff as beneficiary or in the name of plaintiff as trustee for the use and benefit of all employees (or their heirs and administrators) of the plaintiff from whom the defendants extorted payroll percentage amounts as alleged herein; and for the costs of this suit; and for such other relief as may be just, equitable and proper."

The complaint will be examined first with respect to the substantive law and then in its procedural aspects.

II. The Substantive Law of the Complaint The complaint in effect alleges that the defendants by force of their oAEcial positions systematically extorted from the employees of the plaintiff municipality 3% of their oAEcial income from 1917 to 1949 as a condition of their employment and continued employment and retained these funds for their own use. The substantial question before us is whether they can be permitted in law to do this.

We do not have to look far for any answer. In Driscoll v. Burlington-Bristol Bridge Co., 8 N.J. 433, at page 474 et seq. (1952), this court said without dissent:

"The members of the board of chosen freeholders and of the bridge commission are public oAEcers holding positions of public trust. They stand in a fiduciary relationship to the people whom they have been elected or appointed to serve. . . . As fiduciaries

380 CHAPTER 3. RESTITUTION AND GOVERNMENT

and trustees of the public weal they are under an inescapable obli- gation to serve the public with the highest fidelity. In discharging the duties of their oAEce they are required to display such intelligence and skill as they are capable of, to be diligent and conscientious, to exercise their discretion not arbitrarily but reasonably, and above all to display good faith, honesty and integrity. . . . They must be impervious to corrupting influences and they must transact their business frankly and openly in the light of public scrutiny so that the public may know and be able to judge them and their work fairly. When public oAEcials do not so conduct themselves and discharge their duties, their actions are inimicable to and inconsistent with the public interest, and not only are they individually deserving of censure and reproach but the transactions which they have entered into are contrary to public policy, illegal and should be set aside to the fullest extent possible consistent with protecting the rights of innocent parties. . . .

"These obligations are not mere theoretical concepts or idealistic abstractions of no practical force and effect; they are obligations im- posed by the common law on public oAEcers and assumed by them as a matter of law upon their entering public oAEce. The enforcement of these obligations is essential to the soundness and eAEciency of our government, which exists for the benefit of the people who are its sovereign. . . . The citizen is not at the mercy of his servants holding positions of public trust nor is he helpless to secure relief from their machinations except through the medium of the ballot, the pressure of public opinion or criminal prosecution. He may se- cure relief in the civil courts either through an action brought in his own name . . . or through proceedings instituted on his behalf by the Governor . . . . Under the former practice the great prerogative writs, especially certiorari, were generally available to the aggrieved citizen, but by art. VI, sec. V, par. 4 of the Constitution of 1947 the relief theretofore granted in such matters as a matter of judicial discretion became a matter of right . . . . Nonfeasance, misfeasance, malfeasance and corruption in public oAEce cannot prevail against an aroused citizenry who have it in their power to end the miscon- ception of some public oAEcials that their obligations are fully met so long as they obey the letter of the law and avoid its penal sanctions. That the shortcomings of some public oAEcers may not make them accountable in our criminal courts does not mean that their nefari- ous acts cannot successfully be attacked through the processes of the civil law. * * * It is the potential for evil and not the actual finan- cial loss or other injury incurred that renders a transaction illegal because of an abuse of discretion . . . ."

Manifestly the instant case falls within the pattern of the Driscoll case. Restitution was likewise invoked in such cases as United States v. Carter,

September 11, 2000

3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 381 217 U.S. 286, 30 S.Ct. 515, 50 L.Ed. 769 (1910) . . . .

The same principles were applied in City of Minneapolis v. Canterbury, 122 Minn. 301, 142 N.W. 812, 48 L.R.A., N.S., 842 (Sup. Ct. 1913):

"We meet these facts: Defendant, while head of the fire depart- ment and an agent of the city, intrusted with the discharge of im- portant duties on behalf of his fellow citizens and also acting in an advisory capacity to the committee charged with the responsibility of selecting a site, acquired title to real property and caused it to be conveyed to plaintiff for such use at a material advance in price. The question is: Can plaintiff recover the excess? The doctrine of con- structive trust arising from abuse of fiduciary relations is too familiar to require exposition. Some consideration of its underlying principles is necessary, however, in order to determine whether it is applicable. No man can serve two masters, and `the same person cannot act for himself, and at the same time, with respect to the same matter, as agent for another, whose interest might be in conflict with his'; nor can he be allowed to profit by his own wrong, even if such be only constructive wrong. * * * The instances of application of the rule under consideration to public oAEcers in this state have been where the oAEcer has sought a recovery from the municipality, and we are now for the first time called upon to determine whether it should be applied by constructing a trust in favor of the municipality upon the misconduct of an oAEcer. The principle is the same, however, and it is settled that, `if the prohibited or void contract has been executed, the oAEcer becomes a trustee for the municipality, and is bound to account for any profits which he derived from the transaction. . . ." (142 N.W., at page 814-815.)

The same principles are elucidated in two Massachusetts cases decided al- most simultaneously. In the first, City of Boston v. Santosuosso, 298 Mass. 175, 10 N.E. 2d 271, 274 (Sup. Jud. Ct. 1937), the complaint charged the defendants, including Mayor Curley, with using their influence to have a certain claim against the city settled under an agreement by which Curley and other defendants shared in the settlement. The court held:

"The right of the city of Boston as a cestui que trust is preemi- nently an equitable right, and it arose as soon as the agreement was made and the fund was received by its mayor. When the fund was received under the agreement by the mayor, the defendants held the legal title in trust to pay it over to the city of Boston."

The other Massachusetts case, City of Boston v. Dolan, 298 Mass. 346, 10 N.E. 2d 275, 277, 281 (Sup. Jud. Ct. 1937), is to the same effect:

Carter is reprinted infra in Section 3.5.1.3. [pdj]

382 CHAPTER 3. RESTITUTION AND GOVERNMENT

"But as city treasurer the defendant was a fiduciary. As such he could be compelled to account in equity like a trustee, regardless of a possible remedy at law, and could not be permitted to retain a secret profit made in transactions conducted for the city. The saying, `Public oAEce is a public trust,' is more than mere rhetoric. . . ."

The case of Reading v. Attorney General (1951), A.C. 507; 1 All E.R. (1951) 612, in the House of Lords, is an even stronger decision in its bearing on the case at bar. Reading, a sergeant in the British Army Medical Corps stationed in Egypt, received about Pound 20,000 from a group of smugglers for riding in uniform on various trucks which they were using in their smuggling activities into Cairo, the idea being that the truck would not be stopped by the Egyptian police if a British soldier in uniform was riding upon it. The English government seized the money, and after serving a term in prison Reading brought a petition to recover the money. It is important to the decision of the case at bar to note that the money in question in the Reading case never belonged to the government (here the plaintiff, Jersey City) nor was it in any way out-of-pocket in the transaction. Nevertheless, the House of Lords held that the government was entitled to the money on the ground that Reading obtained it illegally as a result of the misuse of his position as a soldier in the English Army. Lord Porter stated:

"In my opinion any oAEcial position, whether marked by a uni- form or not, which enables the holder to earn money by its use gives his master a right to receive the money so earned even though it was earned by a criminal act. `You have "earned" ', the master can say, `money by the use of your position as my servant. It is not for you, who have gained this advantage, to set up your own wrong as a defence to my "claim." ' * * *" (p. 619)

"It is often convenient to speak of money obtained as received in the course of the servant's employment, but, strictly speaking, I do not think that expression accurately describes the position where a servant receives money by reason of his employment, but in derelic- tion of his duty. * * *" (p. 620)

"The fact that the Crown in this case, or that any master, has lost no profits or suffered no damage is, of course, immaterial and the principle is so well known that it is unnecessary to cite the cases illustrating and supporting it. It is the receipt and possession of the money that matters, not the loss or prejudice to the master. * * *" (p. 621)

Lord Porter also based the case on the additional ground of a fiduciary relationship:

"As to the assertion that there must be a fiduciary relationship, the existence of such a connection is, in my opinion, not an additional

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3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 383

necessity in order to substantiate the claim, but another ground for succeeding where a claim for money had and received would fail.

In any case, I agree with Asquith, L.J., in thinking that the words `fiduciary relationship' in this setting are used in a wide and loose sense and include, inter alios, a case where the servant gains from his employment a position of authority which enables him to obtain the sum which he receives." (p. 620)

This view of the law is borne out by the American Law Institute Restatement on Restitution:

"Section 190, General Rule: Where a person in a fiduciary rela- tion to another acquires property, and the acquisition or retention of the property is in violation of his duty as a fiduciary, he holds it upon a constructive trust for the other."

"Section 197, Bonus or Commission Received by Fiduciary: Where a fiduciary in violation of his duty to the beneficiary receives or re- tains a bonus or commission or other profit, he holds what he receives upon a constructive trust for the beneficiary."

"Comment: a) Bribes and Commissions. The rule stated in this section is applicable not only where the fiduciary receives something in the nature of a bribe given him by a third person in order to induce him to violate his duty as a fiduciary, but also where something is given to him and received by him in good faith, if it was received for an act done by him in connection with the performance of his duties as fiduciary. * * *"

"c) Where no harm to beneficiary. The rule stated in this Section is applicable although the profit received by the fiduciary is not at the expense of the beneficiary. * * *"

As these decisions and the Restatement show, the development of the princi- ple of restitution, both at law and in equity, as a remedy for breach by a public oAEcial of his fiduciary obligations has obviously been salutary. Restitution, by virtue of its adaptability to individual cases on equitable principles may, as we have seen, reach situations beyond the grasp of other civil or criminal remedies and do justice on equitable principles; see Driscoll v. Burlington-Bristol Bridge Co., . . . 8 N.J. 433, at pages 497-504, where various alternatives were weighed with a view to working out justice so far as possible to all concerned, but always on the fundamental basis of preventing the unfaithful public oAEcial or public body profiting from his or its wrongdoing. See 65 Harv. L. Rev. 502 (1952);

What does this mean?

Can the government's defense be characterized either as an action for money had and received or as a constructive trust?

Was Reading any more a fiduciary than the janitor Johnson in the Nebraska National Bank case, supra Section 2.2.1? Would your conclusion be different if Reading were a private, rather than a non-commissioned oAEcer? [pdj]

384 CHAPTER 3. RESTITUTION AND GOVERNMENT Lenhoff, The Constructive Trust as a Remedy for Corruption in Public Life, 54 Col. L. Rev. 214 (1954).

Applying these principles to the substance of the complaint we find that the first count alleges that the defendants as individuals and as public oAEcials "did steal and did unlawfully, fraudulently, corruptly and with gross breach of trust, extort and appropriate to themselves property of the city, to wit, money." It then sets forth the means by which the theft and extortion of city property was accomplished, namely, "by means of the extortion from the employees of the City three percent of the annual salary of each. * * * In such manner and at such times as to have constituted, in law, thefts, defrauds and extortions from the City payroll funds, which were the property of the City. * * *." The first count sounds in restitution to permit the city to recover its property wrongfully taken by the defendant from it. Confusion results only from the language concerning the manner and means by which the taking of the property from the city was accomplished. On this count the city has the power to bring suit for the recovery of its property in the same manner as natural persons . . . . The city itself is the real party in interest . . . .

To sustain the complaint all we need to find is that it sets forth at least one suAEcient claim. . . .

But the second count also alleges basically that it was unlawful for the em- ployees of the city to pay consideration for obtaining or holding city employment, and that all such money extorted by the defendants "were subject to be for- feited [1] to the City for its own use and benefit, or [2] as trustee for the use and benefit of the employees." The second count involves at least the elements of a cause of action arising from the wrongful acts of the defendants . . . . The general theory of recovery in the second count is that a constructive trust exists in favor of the city for the profit realized by its oAEcials.

It was urged at the oral argument that the payments of city employees were voluntary political contributions, but the complaint contains no such allegations and therefore such facts are not before us.

The ad damnum clause is consistent with the demands of the respective counts and therefore proper.

. . . . The acts alleged in the complaint, if true, were unlawful, improper, fraud- ulent and corrupt and it would be unconscionable for a court with equitable powers to add any dignity to such misconduct by refusing relief to a proper party. The City of Jersey City is the proper party, by the very nature of the al- legations of the complaint, to seek to recover its own property wrongfully taken, to seek to recover property which in good conscience as between the parties to the suit belongs to the city or to right a wrong perpetrated upon its servants and inhabitants. Furthermore, it must be remembered that the court will not permit a trust to fail for the want of a trustee and that equity has the power to provide a trustee, if it should be necessary. Restatement, Trusts, sec. 32, 396; Scott on Trusts, sec. 101.

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3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 385

From the standpoint of substantive law the complaint states claims on which relief may be based.

III. The Procedural Aspects of the Complaint On the defendant Hague's simple six-line motion, without supporting aAEdavit, to dismiss the complaint for failure to state a ground on which relief could be granted, the trial court dismissed the complaint for a multitude of procedural deficiencies. He found the complaint we have analyzed

"contradictory, ambiguous and confusing, in addition to its being omissively deficient in at least one vital particular, It is my opinion that within the minimum requirements of good pleading the com- plaint cannot be allowed to stand. Its inadequacy is partly reflected in the ad damnum clause, this being in the alternative. The clause asks judgment against defendants as for money belonging to the plaintiff, and also for the same money to be held by the plaintiff as trustee for the city's employees, from whom the moneys were allegedly obtained by defendants. No authority is averred for the bringing of this suit on behalf of the employees, who are described as the beneficiaries of the litigation. Plaintiff derives no authority in this connection from the fact that these persons happened to be its employees at the time of whatever transactions may have been had by them with defendants. `Every action must be prosecuted in the name of the real party in interest' (R.R. 4:30-1). And even if the suit were expressly authorized by the employees, I think there can be no doubt that its prosecution would be beyond the facilities of plaintiff as a municipal corporation, and so ultra vires.

"Moreover, there is no allegation that either of the defendants as an oAEcial of the plaintiff city received money from the city's employees. The plain import of the pleading is that any such money receipts were realized not by anyone as mayor or other oAEcial but by one holding place and power in a political party organization, and in the latter capacity. No one would have power or authority to receive such money as an oAEcial of the city, and any receipt of moneys would be legally unaffected by the circumstance of the recipient's being mayor or other oAEcial at the time. This is another way of saying that it was not as a fiduciary of plaintiff that the moneys could have been received by either defendant, any more than it was by plaintiff's employees, as such, that the moneys could have been paid. In and by the very act of paying and receiving, the parties to the transaction legally stepped out of their respective positions in order to commit the act. The circumstance that defendants and their alleged tributaries held the municipal positions ascribed to them is extraneous to what the complaint seems to tender as the basic issue.

"The complaint appears to me to be completely stultified by its incongruities. In one aspect plaintiff claims the return of its

386 CHAPTER 3. RESTITUTION AND GOVERNMENT

own moneys; in another, and in the same paragraph, it claims the return of these moneys as belonging to the employees, there being no authority shown for the making of the latter claim. No case, explicit or implicit, is pleaded for the establishment of a trust. The court could not proceed to a meritorious determination of the present motion without conjecture as to the true cause intended. It is not necessary to state that pleading of this kind is by all means to be discouraged.

"What this motion presents is not a mere matter of inconsistent pleading, such as the rules allow, but rather a matter of inherent re- pugnance occurring within a single context. Defendants argue their motion on the basis of a meaning which they extract from the com- plaint. In doing this they, in a legal sense, act arbitrarily for the reason this also is something extract and deal with is really not pleaded. This also is something not to be encouraged, if rules of valid pleading are to be effective. The argument made for plaintiff, on the other hand, is a plea for the recognition and application of a legal tenet that could have its support only in principles that make for a constructive or resulting trust. But the complaint, as I have said, is devoid of allegations of the kind that would sustain a claim of trust or fiduciary relation. `In all averments of * * * fraud (or) breach of trust * * * particulars of the wrong with dates and items if necessary shall be stated so far as practicable.' (R.R. 4:9-1).

In Flint Frozen Foods, Inc., v. Firemen's Ins. Co. of N.J., 8 N.J. 606, at [page] 611, the court said: `While a party may claim inconsistent claims or defenses, Rule 3:8-5(b), and may argue incon- sistent principles of law, he cannot be heard here to contend for two diametrically opposed sets of fact.' In re Perrone ['s Estate], 5 N.J. 514, 527."

While it must be conceded that the complaint in the pending case would have offended Chitty and Tidd no less than Daniell and Mitford, it is nevertheless to be borne in mind that these giants of an earlier age of special pleading would have been equally annoyed at the oAEcial form approved in the rules of court, here and elsewhere. The technicalities of procedure which formerly often made a mockery of substantial justice have been replaced by rules of court which merely require that a claim for relief need only aver the facts on which the claim is based . . . in simple, concise and direct terms . . . and which permit a complaint to set forth two or more claims alternatively, hypothetically, consistent or inconsistent, legal or equitable . . . while the demand for relief may be singular, alternative or of several different types . . . . The acts upon which the claim or claims are based need only be pleaded according to their legal effect in form fairly to apprise the adversary of the facts intended to be proved . . . . R.R. 4:8-6 states the cardinal objective: "All pleadings shall be so construed as to do substantial justice."

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3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 387

"The grand objective of the movement for simplified procedure by rules of court is the elimination of the interminable prolixity and absurd technicalities of special pleading, which in the days of Baron Parke, gone never to return, made a mockery of substantive law as well as of substantial justice for the sake of the `record.' * * * The common law has been saved from the excesses of special pleading and especially its verbosity and technicalities, and nowhere more effectively than in New Jersey, but in the process the substantive law has not been changed. On the contrary, it has been preserved and our procedure has been made to serve the ends of substantial justice, not by abandoning stating the essentials of a cause of action or of a defense, but by doing so in `simple, concise and direct terms.' " Grobart v. Society for Establishing Useful Mfgs., 2 N.J. 136, at pages 151-152 (1949).

But however liberal pleadings may be, the requirement still remains that at least the gist of a substantive ground of relief must be set forth, albeit informally.

To understand the modern system of pleading it is essential to indicate the line distinguishing the liberality of the rule permitting amendments on the one hand and of the necessity for stating, however informally, the gist of a ground for relief which may in appropriate instances be made the basis of an attack in law on the complaint by way of summary judgment.

Broad power of amendment is contemplated by the rules (R.R. 4:15) at any stage of proceedings, and is permitted except when justice to a party prejudiced thereby requires that it be forbidden. Under a modern system of pleading by rules of court "the record" with us is not the all essential that it was at common law; with us the achievement of substantial justice is the fundamental consideration. To that end leave to amend "shall be freely given when justice so requires." R.R. 4:15-1.

. . . . Nor are inconsistent, hypothetical or alternative claims or demands to be condemned "regardless of whether such inconsistency is in point of law or fact," at least until all of the facts have been developed, for the spirit and intent of still another principle of the new practice requires a party to join all matters in controversy so that they may be disposed of and settled without multiplicity of action.

. . . .

IV. Conclusion The order appealed from is reversed and the cause remanded for further proceedings consistent herewith.

Heher, J. (dissenting). The complaint is vague and uncertain in its alle- gations and fundamentally incongruous in the right of action pleaded and the relief sought.

388 CHAPTER 3. RESTITUTION AND GOVERNMENT

The first count alleges that the defendants, "as individuals and as oAEcials" of the city, "did steal and did unlawfully, fraudulently, corruptly and with gross breach of trust, extort and appropriate to themselves property of the City, to wit, money * * *, accomplished by the means of the extortion from employees of the City of 3% of the annual salary of each said employee during each year from 1917 to 1949," "in such manner and at such times as to have constituted, in law, thefts, defrauds and extortions from the city payroll funds, which were the property of the City, in that the 3% of salary of each city employee was extorted by threats and force by the defendants from the said city employees on a systematic annual basis," amounting "in law to an unlawful charge upon, and theft, defraud and extortion from, the City's treasury and budgeted appro- priations for each such year," to the extent of "3% of City treasury funds and budgeted appropriations set aside or held or appropriated for salaries of City employees."

The second count, repeating these allegations by reference, asserts that "All such moneys extorted by the defendants from City employees under defendants' 3% extortion scheme were and are subject to be forfeited to the City for its own use and benefit, or as trustee for the use and benefit of the defrauded employees (or their heirs and administrators) from whom such moneys were extorted," and defendants "are required to forfeit all such moneys to plaintiff, in the amount of" 15 million dollars.

There is a demand for judgment in the sum stated and "the impressment of a trust" in that amount "upon the property and assets" of defendants "for the use and benefit of the plaintiff as beneficiary, or in the name of plaintiff as trustee for the use and benefit of all employees (or their heirs and administrators) of the plaintiff from whom" the moneys were "extorted."

There is no specification whatever of the acts and conduct constituting, "in law, thefts, defrauds and extortions from the city payroll funds." It is pleaded that the "extortion" was accomplished "in such manner and at such times" as to fall into the foregoing category of misconduct; there is no particularization of the "threats and force" by which the moneys were allegedly "extorted." A mere charge of extortion cannot be made to import the means by which it was accomplished. The crucial averment is a bare conclusion of law. And recovery of the money is demanded as the city's own or as trustee for the use and benefit of the employees or their legal representatives.

But the city cannot enforce such right as the employees or their heirs or administrators may have, as their trustee. It bears no such relation to them; and, as a branch of the State Government for local administration, limited in its powers to those expressly conferred or reasonably implied to effectuate the authority given in express terms, it is not endowed with capacity to act as a trustee for the individual employees or their legal representatives to enforce a trust in invitum against the defendants.

It was conceded on the oral argument that the moneys in question were earned by the employees by service actually rendered the city, and were paid to them by the city in the usual course, and the employees themselves, individu-

September 11, 2000

3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 389 ally, made the disposition constituting the basis of this action; and that if there be the liability thus charged to the defendants, the employees themselves may enforce it, unless they were particeps criminis,

and there is no such allegation.

It became the peremptory duty of the city to appropriate the moneys needed to compensate its employees for services rendered, and to make payment accord- ingly; and, upon payment, title to the moneys passed to the employees, and they were free to use it as they chose, conformably to law.

Such being the case, the city has no right of action to recover the money as its own property. The defendants cannot be under a liability both to the city and to its employees, past and present, who made to defendants the asserted payments now in controversy. This would seem to be axiomatic.

Reading v. Attorney General (1951), A.C. 507, 1 All E.R. (1951) 617, is rad- ically different. There, a sergeant attached to the Royal Army Medical Corps stationed in Egypt, while in uniform, boarded a private lorry and escorted it through Cairo, thus enabling it to pass the civilian police without being in- spected. The lorry was loaded with cases, the contents of which were unknown. On each occasion the sergeant received from a civilian a large sum of money of which the military authorities later took possession. The moneys paid, it seems, were bribes to facilitate the operation of a smuggling ring engaged in transporting drugs and liquor across the Egyptian border. The Crown seized the money paid the sergeant and he, after court-martial, interposed a petition of right for the restitution of money alleged to have been had and received by the Crown to his use, or for the payment to him of money taken possession of on behalf of the Crown.

The holding was that the sergeant was using his position in the Army, and the uniform to which his rank entitled him, to obtain the money which he received and therefore the Crown, his master, was entitled to the money. The moneys represented part of the proceeds of bribery. Lord Porter accepted the view of Bowen, L.J. in Boston Deep Sea Fishing & Ice Co. v. Ansell, 39 Ch. D. 367 (1888), that "the money which is sought to be recovered must be money had and received by the agent for the principal's use; but the use which arises in such a case, does not depend on any privity

between the principal and the

opposite party with whom the agent is employed to conduct business--it is not that the money ought to have gone into the principal's hands in the first instance; the use arises from the relation between the principal and the agent himself. It is because it is contrary to equity that the agent or the servant should retain money so received without the knowledge of his master. Then the law implies a use, that is to say, there is an implied contract, if you put it as

I.e., participants in the crime. [pdj]

Notice this use of the word `privity'. You should have come across the term in your study

of Torts and such cases as MacPherson v. Buick Motor Co., 217 N.Y. 382, 111 N.E. 1050 (1916). You should also have come across it in your study of Property in the context of "covenants running with the land," where, as you recall, a real covenant will not be binding upon a defendant who is neither in privity of contract or privity of estate with the plaintiff.

But what does privity mean in the context of Restitution? [pdj]

390 CHAPTER 3. RESTITUTION AND GOVERNMENT a legal proposition--there is an equitable right, if you treat it as a matter of equity--as between the principal and agent that the agent should pay it over, which renders the agent liable to be sued for money had and received, and there is an equitable right in the master to receive it, and to take it out of the hands of the agent, which gives the principal a right to relief in equity." In response to the argument that, even so, this right to recover is subject to the qualification that "the sum obtained must have been obtained in the course of the sergeant's employment," Lord Porter said that it is "often convenient to speak of money obtained as received in the course of the servant's employment, but, strictly speaking, I do not think that expression accurately describes the position where a servant receives money by reason of his employment, but in dereliction of his duty." Such is not the case pleaded here.

. . . . The Restatement, Agency, section 403, declares the rule to be that if an agent "receives anything as a result of his violation of a duty of loyalty to the principal, he is subject to a liability to deliver it, its value, or its proceeds, to the principal." And there is also the rule, Ibid., section 380, that unless otherwise agreed, an agent is subject to a duty "not to conduct himself with such impropriety that he brings disrepute upon the principal or upon the business in which he is engaged." But for a breach of this duty only actual damages would be recoverable.

There is no showing of disloyalty here. The circumstances under which the alleged payments were made, and the use to which they were to be put, are not pleaded; and there is no way of determining from the complaint whether there was, in fact and in law, a betrayal of the city's interest giving rise to a cause of action. Wrongdoing is not to be implied.

The essence of the declared cause of action, as elaborated on the oral ar- gument, is the "extortion" on the given pro rata basis of moneys actually paid as salary to the city's employees which, if well founded in fact, would give rise to a right of action in the latter alone, for the money was theirs and not the city's. But on the hypothesis of a cause of action in the city also, the complaint is basically insuAEcient in particularization of the facts supporting the strictly legal conclusion of extortion.

It is fundamental in pleading that the facts be stated with reasonable defi- niteness and certainty to show the constituents of the pleaded cause of action and to apprise the adversary party of the case he is called upon to meet. . . . It is not enough " `to refer to matters in an uncertain, doubtful, and ambigu- ous manner, as a kind of general dragnet to meet whatever evidence may be presented.' " . . . . Simplicity of pleading has relation to the form and not the substance. And a party " `cannot be heard * * * to contend for two diametrically opposed sets of facts.'/," . . . .

I would aAErm the judgment, as grounded upon a complaint deficient in the statement of a cause of action.

Mr. Justice Oliphant and Mr. Justice Wachenfeld join in this opinion.

September 11, 2000

3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 391

For reversal --Chief Justice Vanderbilt, and Justices Burling, Jacobs and Brennan--4.

For aAErmance--Justices Heher, Oliphant and Wachenfeld--3.

3.5.1.2 Notes on City of Jersey City v. Hague

1. Notice that the two counts in the complaint of Jersey City are based on

two different theories, both of which can be used to support restitutionary relief. The first theory was that Jersey City was entitled to restitution of its property, which had been "stolen" by "Boss"--as he was known--Hague. The second was that "Boss" Hague had been somehow unjustly enriched by his extortion of money from the City's employees and that, since this unjust enrichment was obtained by the exploitation of his oAEcial position as Mayor of the City, the City was, in equity, entitled to a constructive trust of his ill-gotten gains.

The first theory seems diAEcult to support. The problem is that--unless the court first imposes a constructive trust on the second theory--the payments that "Boss" Hague extorted from the City's employees were never the property of the City.

The second theory seems more reasonable, especially if one agrees that "Boss" Hague got his hands on the extorted moneys by a breach of his fiduciary duty to the City. There is, however, as the dissenters

noted,

the problem that, on the facts alleged, it would seem that the parties with the best claim to the ill-gotten gains were the victims of the extortion, not the City. Would a decree holding "Boss" Hague liable to the City bar a later action by the victimized employees to recover the amounts extorted from them? The victims were not, after all, parties to the suit by the City against "Boss" Hague.

The fact that there may be more than one claimant is a frequent--and frequently ignored--characteristic of many restitution proceedings. When the issue is discussed by the courts it often is disguised as a discussion of privity.

Is this problem solved by the City's prayer "for the impressment of a trust in the amount of $15,000,000. plus interest, upon the property and assets of the defendants for the use and benefit of the plaintiff as beneficiary or in the name of plaintiff as trustee for the use and benefit of all employees (or their heirs and administrators) of the plaintiff from whom the defendants extorted payroll percentage amounts"? Does a municipal corporation like Jersey City have the authority to sue as parens patriae of its employees? If "Boss" Hague had been the president of a private business corpora- tion, would that corporation have been able to recover kickbacks that he extorted from employees of the corporation?

Jersey City v. Hague could easily have gone the other way. Note that the decision in

favor of the City was only by a vote of 4 to 3.

392 CHAPTER 3. RESTITUTION AND GOVERNMENT

Notice the extreme sloppiness of the City's complaint. Would the New Jersey Supreme Court have been so willing to sustain that pleading if it had been filed on behalf of a private party, rather than a government?

Is it possible that the sloppy complaint was the product of skillful lawyer- ing? There are cases where a badly drafted complaint will survive a de- murrer even though a well drafted one would reveal that the plaintiff has no conceivable claim for which relief can be granted.

What would have happened if "Boss" Hague's motion to dismiss the com- plaint (for failure to state a ground on which relief could be granted) had been granted? There are many lawyers who believe that it is normally a waste of time to make such motions, since ultimately all that the motion does is educate one's opponent.

3.5.1.3 United States v. Carter

United States v. Carter Supreme Court of the United States

217 U.S. 286

1910

The facts are stated in the opinion. Mr. Justice Lurton delivered the opinion of the court. This is a bill which seeks to compel the defendant, Oberlin M. Carter, late a captain in the army of the United States, to account for illicit gains, gratuities and profits received by him through collusion with contractors for river and harbor improvements in the Savannah, Georgia, improvement district, and to follow such illicit profits into securities and other property held for him by other defendants to the suit.

In substance, the bill charges that under an appropriation made by Congress for the improvement of the harbor of Savannah certain contracts were entered into with John F. Gaynor and Benjamin D. Greene, doing business either in their joint names, or the name of one of them, or as the Atlantic Contracting Company. The these contracts were made in pursuance of plans and specifica- tions prepared and let out under biddings conducted by the defendant Oberlin M. Carter, then an engineer oAEcer assigned as local engineer of the improve- ments projected in the Savannah district. These contracts were executed, the appropriations disbursed and the work supervised and accepted by said oAEcer, or under his advice and recommendations, by the War Department.

It is charged that Carter entered into a corrupt arrangement with the said contractors, by which he undertook to use his power and discretion in the prepa- ration of specifications and contracts, and in advertising and letting the same out in such a way as to enable Gaynor and Greene to become contractors un- der conditions which would insure them a large profit, and to use his influence, power and discretion in the supervision and acceptance of the work to their

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3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 393 greatest advantage. It is then, in substance, averred that in consideration of such service to them and the betrayal of his trust he should share in the profits and receive one-third of every distribution made. It is charged in substance that under such agreement or understanding there was paid over to the defendant Carter about $500,000 as his share of the profits, and that the same was con- verted into real estate, bonds, stocks and negotiable notes, and that much of these gains were later placed in the custody of certain other defendants named in the bill, two of them being brothers of defendant Carter, to wit, Lorenzo D. Carter and I. Stanton Carter, who are charged as holding same as agents for Oberlin M. Carter. Securities aggregating in value some $400,000, into which the larger part of the share of the defendant Oberlin M. Carter is said to have gone, were attached under this and other bills, ancillary in character, and placed in the hands of a receiver to abide the result of a decree in this case, the same decree to go down in the ancillary suits in other jurisdictions in which any part of the property or securities has been impounded.

There was a decree in favor of the United States in the Circuit Court sub- stantially as prayed for. Upon an appeal by the defendants and cross-appeal by the United States, to the Circuit Court of Appeals, the decree was aAErmed as far as it went, and was enlarged in certain matters upon the appeal of the United States. The original defendants have appealed from this last decree so far as it was favorable to the complainant, and the United States has perfected a cross-appeal with reference to certain parts of the decree with which it is discontent. Thus the whole case is here as upon a broad appeal and the sev- eral appeals have been heard upon the entire record, consisting of some thirty printed volumes.

The facts essential to be stated, as sifted out of this great record of pleadings and evidence, are these: From some time in 1889 until July 20, 1897, Oberlin M. Carter, then a brilliant and rising oAEcer of engineers in the army of the United States, was assigned to duty and placed in charge of certain improvements, for which an appropriation had been made, in the harbor of Savannah. It is enough to say, without going into particulars, that this duty involved large powers and considerable discretion in the matter of plans, preparation of contracts, advertis- ing for and acceptance of bids, superintendence and acceptance of the work as it progressed, and some latitude in the construction and modification of contracts. It is undoubtedly true that the plans, the form of contracts, the character and time of advertising, and acceptance of bids, as well as most matters involving the exercise of judgment and discretion during the execution of contracts, were reported to the War Department for its approval or rejection. Nevertheless it is most thoroughly made out that the action and recommendation of a local engineer oAEcer in charge of such work practically determined the situation so long as he had the confidence of his superiors and kept within the general limits of the appropriation by Congress for the work in hand. Passing by a number of comparatively small contracts made prior to 1892, as well as a very large one made in 1896, but not completed when Captain Carter was succeeded in July, 1897, the bill charges:

394 CHAPTER 3. RESTITUTION AND GOVERNMENT

"That commencing with the contract No. 4820 of September 16, 1892, let in the name of Edward H. Gaynor, contractor, that after the payment of the cost of the work, and after the payment to the other persons, parties to the said fraudulent scheme as aforesaid, the profits amounting to over two million dollars, of all the aforesaid contracts so fraudulently let as aforesaid, were divided from time to time between Oberlin M. Carter, Benjamin D. Greene and John F. Gaynor in three equal shares, one of which shares was apportioned to the said Oberlin M. Carter as his share of the profits arising from the consummation of said scheme to defraud the United States."

Aside from certain contracts prior to September, 1892, and subsequent to May, 1896, the Circuit Court found, and the Circuit Court of Appeals confirmed the finding, that between September 16, 1892, and May 12, 1896, the United States, through the defendant Oberlin M. Carter, as its disbursing oAEcer, paid to Gaynor and Greene, or the Atlantic Contracting Company, a corporation of which they owned all of the shares except a few assigned to certain kinsmen for organization purposes, on account of what we shall hereafter describe as Gaynor and Greene contracts, the sum of $2,567,493.48. They also found that of this sum $1,815,941.62 was distributed as net profits between John F. Gaynor, Benjamin D. Greene and some third person not publicly known to be interested. The remainder, $751,551.86, was the sum disbursed by Greene and Gaynor for labor, supplies and salaries, being the actual cost of the work for which the Government had in some way been induced to pay, under contracts drawn and supervised by Captain Carter, the sum of $2,567,493.48. These figures are not derived from any set of books kept by either the contractors or by Carter. Though the execution of these contracts extended over a period of four years and involved the receipt and expenditure of millions, yet the contractors say they kept no books other than one which related to supplies bought and ordinary labor or salary accounts, and that that book could not be produced. The plan under which Greene and Gaynor carried on these great affairs, as shown by the evidence, was to apply monthly payments received from Carter, as the Government's disbursing oAEcer, to the payment of the monthly expenses and advances which might have been made by one or the other of the contractors, and then divide the balance into three parts, one part being at once handed over to Greene, another to Gaynor and the third to some third person, who both courts found upon the evidence to have been one Robert F. Westcott, the father-in-law of the defendant Oberlin M. Carter, or to accounts kept in his name, and that this third was ultimately turned over to Carter himself.

Without any distinct finding as to the method by which the Government had been defrauded or as to the extent of actual loss sustained, both courts concurred in the conclusion that the Government had been defrauded, and had suffered great loss. Without any distinct finding as to whether one-third of the profits realized had been paid over to Robert F. Westcott, as a secret partner with Greene and Gaynor, or to him as the representative of Captain Carter, yet both courts concurred in holding that, if Westcott was interested as a partner

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3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 395 in the contracts, Carter, under all of the facts, was chargeable with knowledge of such partnership relation, and that, if with such knowledge he accepted from Westcott the share of profit so received, he was accountable to the Government for all such illicit gratuities or gains. In view of this concurrence of opinion upon these material facts the burden rests heavily upon the appellant Oberlin M. Carter to satisfy this court that their conclusions are plainly erroneous, or that, conceding the facts to be as found, the decree holding him accountable is erroneous as matter of law. . . .

But counsel have urged with great force and much confidence that the con- clusion of both of the courts below rests upon no secure foundation, and that there has been a great miscarriage of justice in finding that Captain Carter was ever in any way interested in these contracts or that he ever, directly or indi- rectly, consciously shared in any profits arising therefrom. This protest does not, as we understand it, involve any serious denial of the fact that nearly two millions of dollars were realized as profit upon contracts drawn by, let out and supervised by Captain Carter at a net cost to the contractors of less than one million dollars; nor does it involve any serious denial that approximately one- third of this abnormal profit was paid over to some third person not publicly known to have had any connection with the contracts or the contractors. If, however, we are in error in assuming such a limitation upon the contention of counsel, there is no reasonable ground, upon this record, for doubting the correctness of the conclusion reached by the courts below as to either of these matters. It may be conceded that no witness proves an express agreement be- tween the contractors and Carter that he should serve them in the letting or execution of these contracts. So far as the principals have spoken, they have denied any such agreement.

But it is said that none of the specific averments of the bill as to the methods by which the Government had been defrauded were sustained by either the Circuit Court or the Circuit Court of Appeals. Thus it was averred that Carter had shortened the time required by regulations for advertising for bids, that he had made it diAEcult for some intending bidders to secure the plans and specifications, that he had deterred others by unduly magnifying the risks of the work, that the specifications were so drawn as to leave to the Government the option of two or more materials of different value, or two or more methods of doing parts of the work, or the right to substitute one material for another. It was also averred that Greene and Gaynor were in advance advised as to how such options would be exercised, but that other proposing bidders were not, and that by this and other artifices Greene and Gaynor were enabled to secure contracts at unreasonable prices. It is then averred that Carter had collusively and fraudulently increased unduly the quantity of some materials required and diminished that of other kinds; that he had exercised options reserved in such a way as to greatly increase the cost of the work and the profit of the contractors; that he had permitted changes in materials and methods of using the materials and of doing the work in such manner as to be of disadvantage to the United States and of advantage to the contractors, and that he had permitted the use

396 CHAPTER 3. RESTITUTION AND GOVERNMENT of cheap and inferior materials and had accepted bad and inferior work.

Aside from the elusiveness of a fraud well concocted and unsuspected while going on, there was in the way of the Government in this case the fact that in respect to almost everything which had served to add to the cost of the work and to the profit of the contractors Carter had confessedly a wide discretion. That he might be controlled in the exercise of this by his superior oAEcers or by the War Department when important changes, modifications or substitutions were made, is true. But, in actual practice, this War Department approval was largely oAEcial and formal when the engineer in charge was regarded as capable and honest and his recommendation within the limit of the appropriation or of the contract as made. It was the fact that such an oAEcer in control of such work had a wide discretion which at once made his fidelity of the utmost importance to the Government and his co-operation and collusion of such large value to the contractors. This discretion was the stumbling block in the way of the Circuit Court. It was not easy to show in some instances that the work had suffered by the substitution of one material for another, or by the increase of one kind of mat in mattress work for another, or by one method of measuring or paying for mattress work rather than by another. When contracts and specifications were elastic enough, as seems to have been the case with the Greene and Gaynor contracts, to justify varying interpretations, or full of options as to materials or methods, as was the fact here, nothing short of conduct or action plainly indefensible as an exercise of honest judgment would justify an inference of corruption. When to this situation there was added the fact that as a whole the harbor improvement had been intelligently and scientifically carried out and was apparently an engineering success, and that this result had been reached within the limit of the Congressional appropriation, it was not surprising that upon this line of evidence, considered apart from all other things, the Circuit Judge found himself unable to predicate fraud and corruption upon the conduct of Carter in these details which the bill pointed out as the methods by which he had enabled a great fraud upon the Government to be carried out and by which his corrupt collusion was to be established.

The Circuit Court, upon this aspect of the evidence, said:

"The evidence leaves the court with the impression that there was carelessness in the manner in which some of the work was done, indeed, carelessness for which Carter was justly entitled to be crit- icised, but considering the material results, the magnitude of the work, and assuming the absence of any mercenary or other ulterior motive on Carter's part, except such as might be justly deduced from the facts so far considered, I am of the opinion, as was Sena- tor Edmunds in the court-martial case, that Carter's course in the premises was not necessarily an abuse of the discretion vested in him, nor seriously inconsistent with his claim that he discharged his duty to the government, and that, limited as above stated, under the rule of evidence obtaining in such case, the government has failed to maintain its case."

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3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 397

Excluding, as the Circuit Court did, all consideration of the extraordinary profit which the contractors had in some way realized upon these contracts, and that through indirect ways approximately five hundred thousand dollars of this profit had come at last to the possession of Carter it is not surprising that that court did not find evidence of such gross abuse of discretion as to justify a finding that he had conspired with Greene and Gaynor to defraud the Government.

But the case of the United States against the defendants is not to be deter- mined by the consideration of the suAEciency of any one fact or group of facts, but by a judgment based upon the evidence as a whole. The learned Circuit Judge very nearly fell into error by such a partial view of the case. From ulti- mate error he was saved by the subsequent consideration of the principal, and really determinative, factors in the case, namely, the abnormal profit which the contractors had in some way been able to realize, and the evidence tracing one- third of that profit into Carter's hands, with no credible reason for such result. The Circuit Court of Appeals took a somewhat wider view of the matter. Thus that court said:

"We concur, therefore, in the view expressed in the opinion filed by the trial judge, that the charge of conspiracy between Captain Carter and the contractors to defraud the United States, under the contracts referred to, is: (a) neither established by direct evidence, (b) nor can such charge be upheld under the testimony alone of meth- ods adopted in making specifications, advertising for bids, treatment of proposed bidders, or letting contracts, (c) nor under one or the other several branches of testimony reviewed in the opinion, consid- ered independently of the entire chain of circumstances. But these conclusions are not the tests of suAEciency of the entire chain of circumstantial evidence to sustain that charge. While the fact is es- tablished, as there stated, `that a great wrong was practiced in this raid upon the government,' we are not satisfied that the right of the United States, `to a decree awarding to it' all property in question `arising from funds made up of profits realized by the contractors' therein, may rightly rest, as there stated, upon the proposition that Carter must `as a conclusion of law be held chargeable with knowl- edge of what was being done in the premises.'

"Under the settled facts above recited, however, linked with cu- mulative evidence, tending to prove actual knowledge on the part of Captain Carter of the excessive profit in the mattress work and of divisions thereof with Wescott in New York, and complicity in the fraudulent transactions, of which (at one time or another) he acquired approximately one-third of the net proceeds, we are con- strained to the belief that the evidence is decisive, not only of frauds perpetrated by the contractors, but of concurrence and participation therein by Captain Carter."

398 CHAPTER 3. RESTITUTION AND GOVERNMENT

If it be once assumed that the defendant Carter did secretly receive from Greene and Gaynor a proportion of the profits gained by them in the execution of the contracts in question, the right of the United States in equity to a decree against him for the share so received is made out. It is immaterial if that appears whether the complainant was able to show any specific abuse of discretion, or whether it was able to show that it had suffered any actual loss by fraud or otherwise. It is not enough for one occupying a confidential relation to another, who is shown to have secretly received a benefit from the opposite party, to say, "You cannot show any fraud, or you cannot show that you have sustained any loss by my conduct." Such an agent has the power to conceal his fraud and hide the injury done his principal. It would be a dangerous precedent to lay down as law that unless some aAErmative fraud or loss can be shown, the agent may hold on to any secret benefit he may be able to make out of his agency. The larger interests of public justice will not tolerate, under any circumstances, that a public oAEcial shall retain any profit or advantage which he may realize through the acquirement of an interest in conflict with his fidelity as an agent.If he takes any gift, gratuity or benefit in violation of his duty, or acquires any interest adverse to his principal without a full disclosure, it is a betrayal of his trust and a breach of confidence, and he must account to his principal for all he has received.

The doctrine is well established and has been applied in many relations of agency or trust. The disability results not from the subject-matter but from the fiduciary character of the one against whom it is applied. It is founded on reason and the nature of the relation and is of paramount importance. "It is of no moment," said Lord Thurlow, in The New York Buildings Company v. Alexander Mackenzie, 3 Paton, 378, "what the particular name or description, whether of character or oAEce, situation or position is, on which the disability attaches." Thus, in Aberdeen Railroad Company v. Blaikie Brothers, 1 MacQueen's Appeal Cases, 461, 472, it was applied to a contract of a director dealing in behalf of his company. Lord Chancellor Cranworth, in respect to the general rule, said:

"And it is a rule of universal application, that no one having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict with the interest of those he is bound to pro- tect.

"So strictly is this principle adhered to, that no question is al- lowed to be raised as to the fairness or unfairness of a contract so entered into.

"It obviously is, or may be, impossible to demonstrate how far in any particular case the terms of such a contract have been the best for the interest of the cestui que trust, which it was possible to obtain.

"It may sometimes happen that the terms on which a trustee has dealt or attempted to deal with the estate or interests of those for whom he is a trustee, have been as good as could have been obtained

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3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 399

from any other person--they may even at the time have been better.

"But still so inflexible is the rule that no inquiry on that subject is permitted. The English authorities on this head are numerous and uniform.

"The principle was acted on by Lord King in Keech v. Sandford,

and by Lord Hardwick in Whelpdale v. Cookson,

and the whole

subject was considered by Lord Eldon on a great variety of occasions. It is suAEcient to refer to what fell from that very learned and able judge in Ex parte James.

"It is true that the questions have generally arisen on agreements for purchases or leases of land, and not, as here, on a contract of a mercantile character. But this can make no difference in principle. The inability to contract depends not on the subject-matter of the agreement, but on the fiduciary character of the contracting party, and I cannot entertain a doubt of its being applicable to the case of a party who is acting as manager of a mercantile or trading business for the benefit of others, no less than to that of an agent or trustee employed in selling or letting land."

In City of Findlay v. Pertz, 66 Fed. Rep. 427, 435, it was applied to a con- tract where it was shown that a municipal oAEcial, buying for the municipality, had received a commission from the seller. In that case the Circuit Court of Appeals said:

"His duty was to give to the public service the full benefit of a disinterested judgment and the utmost fidelity. Any agreement or understanding by which his judgment or duty conflicted with his private interest was corrupting in its tendency. We know of no more pernicious influence than that brought about through a system of commissions paid to public agents engaged in buying public supplies. Such arrangements are a fruitful source of public extravagance and peculation. The conflict created between duty and interest is ut- terly vicious, unspeakably pernicious, and an unmixed evil. Justice, morality and public policy unite in condemning such contracts, and no court will tolerate any suit for their enforcement."

In Leake on Contracts, 409, it is said:

"Any profit made by an agent in the execution of his agency must be accounted for to the principal, who may claim it as a debt for money received to his use. A gratuity given to an agent for the purpose of influencing the execution of his agency vitiates a contract subsequently made by him, as being presumptively made

Select Cases, temp. King, p. 61. [Footnote by court, renumbered]

1 Ves. Sen. 8. [Footnote by court, renumbered]

400 CHAPTER 3. RESTITUTION AND GOVERNMENT

under that influence, and a gratuity to an agent after the execution of the agency, must be accounted for to his principal."

See also Perry on Trusts, x 430, and Parsons on Contracts, 6th ed., x 89. The principle is most often applied in cases where one holding the relation of a trustee buys the trust property, though at public sale. Examples are numerous. Michoud v. Girod, 4 How. 503, 555, is a leading case decided by this court. Referring to the general rule, which forbids one to buy in an estate, directly, or indirectly, when he is acting for the seller, this court said:

"The general rule stands upon our great moral obligation to re- frain from placing ourselves in relations which ordinarily excite a conflict between self-interest and integrity. It restrains all agents, public and private; but the value of the prohibition is most felt, and its application is more frequent, in the private relations in which the vendor and purchaser may stand towards each other. The disability to purchase is a consequence of that relation between them which imposes on the one a duty to protect the interest of the other, from the faithful discharge of which duty his own personal interest may withdraw him. In this conflict of interest, the law wisely interposes. It acts not on the possibility that, in some cases, the sense of that duty may prevail over the motives of self-interest, but it provides against the probability in many cases, and the danger in all cases, that the dictates of self-interest will exercise a predominant influ- ence, and supersede that of duty. It therefore prohibits a party from purchasing on his own account that which his duty or trust requires him to sell on account of another, and from purchasing on account of another that which he sells on his own account. In effect, he is not allowed to unite the two opposite characters of buyer and seller, be- cause his interests, when he is the seller or buyer on his own account, are directly conflicting with those of the person on whose account he buys or sells."

In Robertson v. Chapman, 152 U.S. 673, 681, this court, in dealing with the matter of a sale by an agent to himself effected under cover of another, said:

"If an agent to sell effects a sale to himself, under the cover of the name of another person, he becomes, in respect to the property, a trustee for the principal, and, at the election of the latter, seasonably made, will be compelled to surrender it, or, if he has disposed of it to a bona fide purchaser, to account not only for its real value, but for any profit realized by him on such resale. And this will be done upon the demand of the principal, although it may not appear that the property, at the time the agent fraudulently acquired it, was worth more than he paid for it. The law will not, in such case, impose upon the principal the burden of proving that he was, in fact,

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3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 401

injured, and will only inquire whether the agent has been unfaithful in the discharge of his duty. While his agency continues he must act in the matter of such agency solely with reference to the interests of his principal. The law will not permit him, without the knowledge or assent of his principal, to occupy a position in which he will be tempted not to do the best he may for the principal."

Reading the evidence in relation to Captain Carter's conduct in drafting the specifications, advertising, acceptance of bids, and more particularly his almost invariable exercise of options and other discretionary powers in the subsequent execution of the contracts let to Greene and Gaynor, in the light of the abnormal profit realized by them, of which, approximately, five hundred thousand dollars ultimately found its way into his possession, we can but entertain a strong conviction that his relations with them from the beginning were inconsistent with his fidelity to the United States, and that he must account to his principal for every dollar of gain or profit or advantage which has been derived by him from these contracts.

The defense against such a conclusion rests upon three propositions: 1. That the aAErmative evidence that he abused his discretion and secretly and corruptly favored Greene and Gaynor is not suAEcient.

We shall not consider this proposition apart from the other two, for it is not material whether the evidence referred to, considered out of relation to the other parts of the case, would or would not make out a case of fraud.

2. That, in view of the great risk attendant upon such works, the profit claimed to have resulted was not so abnormal as to justify an inference of fraud, and that it was in part due to cheap labor, bordering upon peonage.

Neither should this contention be considered apart from the chain of evidence which leads to but one inevitable result, namely, that this great profit was not legitimate. Looked at, apart from everything else, a profit of $1,815,941.62 upon a job which cost the contractor but $751,551.86 arouses deep suspicion, and demands a clear explanation. That explanation does not appear in the facts of this record.

3. It is urged that Captain Carter's greatly increased personal expenditures during the progress of this work, and his acquisition of some four hundred thousand dollar's worth of bonds, stock and other property, much of which has been impounded in this case as property into which his illicit gains and gratuities have been traced, arose from the generous bounty of Robert F. Westcott, and that Carter was ignorant of any interest Westcott had in the Greene and Gaynor contracts, and of the fact, if it be a fact, that Westcott's gratuities came from his participation in the distribution of the profit on the Greene and Gaynor contracts.

This last proposition presents the very crux of the case. What was Westcott's relation to the Greene and Gaynor contracts? It has been suggested rather than urged that he was, secretly, a partner in these enterprises. There is no evidence

402 CHAPTER 3. RESTITUTION AND GOVERNMENT that he was, other than the fact that very many profit dividends are traced to bank accounts standing in his name. But, if he was, and Carter bargained with him for a share in the profit, knowing his relation, the legal consequence is the same as if he had received the same interest from Greene or Gaynor. But the apparent participation of Mr. Westcott in the profit arising from the Greene and Gaynor contracts is not inconsistent with a mere agency for Carter, and such an agent we think he was. That Carter could not openly receive any gains or gratuities from Greene and Gaynor is obvious. Some gobetween was essential. The requisite conditions for such a screen would suggest Mr. Westcott. He was an aged retired business man of some fortune, residing in New York. Captain Carter, in October, 1890, married one of his daughters. Mrs. Carter died in December, 1892, leaving no issue. During the marriage Mr. Westcott made Mrs. Carter a small monthly allowance. His regard and esteem for Captain Carter during the time of and subsequent to this marriage was, on the evidence, very pronounced, and this relation affords the basis for the claim that Captain Carter's greatly increased personal expenditures during the progress of the Greene and Gaynor contracts was due to Mr. Westcott's generous and unceasing gratuities. It is shown that Captain Carter's income was substantially limited to his pay as captain and that his personal expenditures did not exceed three or four thousand dollars per annum down to 1892. From then on his expenditures steadily increased, until they reached and passed twenty thousand dollars per annum. Now it cannot escape observation that this great change in his manner of living began with the Greene and Gaynor contracts and became more and more marked through the progress of the work under his supervision. It does not follow, of course, that the means for such widening expenditures came from these contracts, but the circumstance is suspicious and calls for satisfactory explanation.

Among other details averred in the bill of complaint is, that, beginning in 1892 and continuing down to 1896, Captain Carter was continuously engaged in making investments in loans, real estate, bonds and stocks, and that the amount so invested aggregated more than four hundred thousand dollars. Many of these investments turned out to be in the identical securities, which, after much diAEculty, were impounded under the process in this case, and are now in the hands of the receiver.

That the increase from these investments was collected by him, ostensibly for Mr. Westcott, is not questioned. That he applied it to his own personal use is shown by a comparison of the bank accounts standing in his name and those in the name of Westcott, as well as by the inference to be drawn from the remarkable correspondence between the increasing volume of this income and his own personal expenditures. Now Carter does not deny that he did make large investments during 1892, and the years following, nor that the properties and other securities impounded in this case are in large part the result of such investments. What he does claim is that in making such investments he was acting for Westcott under powers of attorney which cover most of the time, and under oral authority during the rest. His use of the income from such

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3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 403 investments or of means approximating such income, he says, was due to the generous bounty of Mr. Westcott. His title and right to the property in which he made such investments for Mr. Westcott he distinctly sets up in his sworn answer as resting alone upon donations made to him in October, 1897, and he sets out as evidence of title two receipts.In that he says that he "never had any interest, direct or indirect, in the securities described in the receipts of October 11 and 29, 1897, until the same were respectively given to this defendant as a pure and original donation by said Westcott at the time of said respective receipts in October, 1897."

The first of these receipts reads thus: "Received New York Oct. 11, 1897, from R.F. Westcott the following bonds, sixty-three in all." Then follows the numbers and description of bonds. Signed "O. M. Carter." The other reads thus: "Received New York Oct. 29, 1897, from R. F. Westcott, the following instruments." Then follows a long list of notes, mortgages, stocks and bonds. Signed "O. M. Carter." The securities described in these receipts are undoubt- edly the same securities bought by him from time to time, ostensibly for Mr. Westcott. These purchases and investments show a remarkable correspondence in date and amounts with the dividend distributions of Greene and Gaynor prof- its, and undoubtedly represent the one-third of such profit nominally paid to the account of credit of Westcott. During the years covering these distributions Captain Carter, according to his own account of matters, stood for and repre- sented Mr. Westcott, sometimes by oral direction and sometimes by power of attorney. Certain it is that there was a blending of the business affairs of these two men rarely ever seen. Under Carter's powers of attorney he checked upon Westcott's bank account as his own. He had free access to his safe deposit box, where these securities were kept, and collected interest and dividends as they accrued. Certain investments of large amounts were shown to have been made by him which did not appear in Westcott's bank account. This was explained by Carter, who, in substance, said that Mr. Westcott had, on going off to Europe, left a large amount of currency in his safe deposit box, and that he invested this money for Westcott. Not less than one hundred thousand dollars of money appears to have come from that source, and yet Carter says that he cannot say how much Mr. Westcott left there, nor how much remained when he returned, and that although he and Mr. Westcott had occasional settlements, they neither gave nor received receipts nor rendered accounts. There is no positive, compe- tent evidence explaining just who these securities were in the personal custody of Mr. Westcott in October, 1897. Captain Carter was relieved at Savannah in July, 1897, by Captain Gillette, who very early discovered indications of malad- ministration by his predecessor. By direction of General Wilson he pressed his investigations and caused charges to be preferred. In August, 1897, and before Gillette's discoveries had been made public, Captain Carter was sent to England as military attache with the American embassy. Within a month he returned, doubtless due to orders, only to find that serious charges, involving his career and his honor, had been preferred, and that his management of the Savannah district improvements was about to undergo a thorough investigation. There is

404 CHAPTER 3. RESTITUTION AND GOVERNMENT evidence, as we have before stated, strongly tending to show that he had himself collected the interest and dividends upon the shares and bonds mentioned in these receipts up to the time he went abroad, a fact which points to his having had personal custody of these securities up to that time. Though there is no competent positive evidence that he did turn these securities over to Westcott, or caused them to be placed in his hands, for safekeeping, before his trip abroad, there is good reason for believing so.Frederick P. Solley, another son-in-law of R. F. Westcott, says that he went with Mr. Westcott to his safe deposit box in October, 1897, to get these securities. The statement then made to him by Westcott as to why he had possession of these instruments was objected to as not competent, being declarations in the absence of Carter. The objection was sustained, and there is no error assigned. Solley says "that he and Westcott carried them to the oAEce of Mr. Stimson, Westcott's lawyer;" there a list was made out and the witness checked them over. He did not see them delivered to Carter. But Mr. Stimson did. What explanation Mr. Westcott made to him of the transaction before Carter's arrival and delivery to him has been excluded, because not made in Carter's presence. He, however, saw the transfer, and saw the receipt signed. The significance of Stimson's evidence as to what was said in the presence of both Westcott and Carter is that nothing was said as to this being a gift, and that no acknowledgment was made so indicating. He does not recall anything said by Westcott in the presence of Carter. He does, however, say that after Carter had taken the securities, alluding to a number of bonds which were among the securities, he said: "Daddy, I want you to take these," or "Daddy, I want to give these bonds to you. Something substantially to that effect, and that Mr. Westcott replied: `No,' either verbally or with some gesture of dissent. Captain Carter put the bonds which he had referred to back with the others and took them all." A proposal to give to Westcott a part of the very securities which Westcott was then giving to Carter as a "pure donation," is incompatible with the latter contention; it accords more with the attitude of one who was receiving back his own from one who had performed a great ser- vice as custodian of property which the owner had reason for concealing from publicity.

A more significant fact pointing to the same conclusion is that Robert F. Westcott did not come forward and testify in favor of his son-in-law before the board of inquiry, or before the subsequent court-martial. The investigation be- fore the board of inquiry and the trail before the court-martial involved Carter's execution of the contracts in question, and his business relations with both the contractors and with Westcott. In both investigations Carter claimed, then as now, that his large personal expenditures were met by gifts to his wife and, after her death, to himself by Mr. Westcott, and that in the purchase of large amounts of securities and other property he had only acted for Mr. Westcott. The testimony of Mr. Westcott was vital to his defense upon the merits. The board of inquiry sat in the fall of 1897, and the court-martial later. Westcott was living during both proceedings; but he appeared in neither, though urged to appear by General Gillespie, the president of the board. When the evidence

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3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 405 was taken in the pending case he was dead, having died in July, 1901. If it be conceded that the testimony of one not in the service could not have been required in a purely military investigation, it was within Westcott's power to have voluntarily testified as many other witnesses did. After Carter had been convicted there occurred in the city of New York certain removal proceedings before a United States commissioner, for the purpose of removing Greene and Gaynor from New York to Savannah for trial upon indictments there pending for the very fraud here under consideration. Carter was included in the same indictments, but was not a party to the removal proceedings mentioned. In that case Mr. Westcott was examined by the United States. His evidence then de- livered was offered by the United States in the Circuit Court as evidence in this case, but was excluded upon objection, as having been given in a proceeding to which Carter was not a party and without opportunity for cross-examination by him. The objection was rightly sustained. The evidence was, however, admitted for the purpose of fixing notice upon the defendants Lorenzo D. Carter and I. Stanton Carter of the character of the title of their brother, Oberlin M. Carter, to the securities involved in this suit.The evidence was properly admitted solely for the purpose of showing Westcott's disclaimer of any title to or interest in the securities which he handed over to Carter, as shown by his receipts men- tioned above. We, however, exclude any statement made by him as against the defendant Oberlin M. Carter. The significant fact remains that Robert F. Westcott, though the close friend, and, indeed, the affectionate friend of his ex- son-in-law, Oberlin M. Carter, did not voluntarily appear before either of the military tribunals in his defense, and, figuratively, stood by and saw him broken in rank and sent in ignominy to serve a term of five years for having betrayed his trust. It is true that Captain Carter says that he did all he could to persuade Mr. Westcott to appear and testify. Nevertheless the failure of Captain Carter to secure his evidence, in view of their relation, justifies a presumption that it would not have borne out the defense.

The conclusion we must reach is, that Robert F. Westcott was but the agent and representative of Oberlin M. Carter in the receipt of a share in the profit made by Greene and Gaynor.

For whatever gains, profits or gratuities he is shown to have received he must account.

The contention that any recovery must be limited to property or securities into which such illicit gains have been traced is not sound.

The facts stated by the bill and supported by the evidence show that Carter received from Greene and Gaynor, directly or indirectly, something in excess of five hundred thousand dollars as his share in the Greene and Gaynor contracts. Under the legal principle, which we have heretofore announced, the United States may require Captain Carter to account for all he has received by way of gain, gifts or profits out of the Greene and Gaynor contracts, irrespective of the actual damage it has sustained or its ability to follow such gains into specific property. Undoubtedly it may, as by its bill it sought to do, follow the fund so corruptly received and assert title to any property into which such illegal gains

406 CHAPTER 3. RESTITUTION AND GOVERNMENT have gone. But there was a prayer for "other, further and general relief," and under that it was entitled to a judgment, as for money had and received for its use, for any difference between the cost of the specific property recovered and the gains so received which it is unable to trace. The decree against O. M. Carter was for a much less sum than such difference.

Neither did the agreement of November 6, 1901, between the parties, of which we shall speak later, afford any defense to the judgments against I.S. and L. D. Carter. Those judgments were for securities traced to their possession, which had not been disposed of in good faith, in view of the knowledge they had of the character of Captain Carter's title and the legal right of the United States to pursue his illegal gains into the property in their hands. There is no error in the decree below of which the cross-appellants can complain.

There remains for consideration the appeal by the United States. This in- volves allowances made out of the funds in court into which the gains of Carter had been traced, under an agreement between the United States and the defen- dants O. M. Carter and his brothers. . . .

. . . . The errors assigned by the United States are overruled and the decree af- firmed in all particulars.

3.5.1.4 Notes on United States v. Carter

1. Carter differs from Hague in one important respect. In Hague the primary

victims of "Boss" Hague's extortion were the City's employees; "Boss" Hague's wrongful activities deprived the employees of their money, not the City of its money. On the other hand, Captain Carter's sole victim was the government.

2. In Carter it certainly appears that Captain Carter defrauded the United

States, but did the United States prove that at trial? There undoubtedly was evidence that the contractors with whom Carter dealt made unusu- ally large profits, but was there any evidence that the United States was charged more than the fair market value of the work that they performed?

But are these issues relevant? Remember that the Court said:

"If it be once assumed that the defendant Carter did secretly re- ceive from Greene and Gaynor a proportion of the profits gained by them in the execution of the contracts in question, the right of the United States in equity to a decree against him for the share so received is made out. It is immaterial if that appears whether the complainant was able to show any specific abuse of discretion, or whether it was able to show that it had suffered any actual loss by fraud or otherwise."

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3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 407

If the United States could not prove that Captain Carter had abused his discretion and could not prove that it had suffered any actual loss, on what basis was Captain Carter held liable?

3. The relief that the United States sought and obtained in Carter was an

equitable accounting: the trial court had to determine how much money Captain Carter had received in violation of his fiduciary duty and tried to trace where that money went. Some of the money could be traced into assets still held by Carter or by others, who were not bona fide purchasers and who received the money or the assets from him. A constructive trust was imposed on those assets.

But some of the money could not be traced into assets still within Captain Carter's control. As to that money there was no possibility of imposing a constructive trust, but the Court said that the government was "entitled to a judgment, as for money had and received to its use, for any difference between the cost of specific property recovered and the gains so received which it is unable to trace."

In all but the simplest cases where the plaintiff seeks a constructive trust the court will have to order an accounting. If the accounting shows that the defendant received money or other assets which in equity should have gone to the plaintiff, the court will enter a decree for the amount of such money (or the value of such assets) even though a constructive trust cannot be imposed because the money or assets cannot be traced.

3.5.1.5 Snepp v. United States

Snepp v. United States Supreme Court of the United States

444 U.S. 507

1980

Per Curiam. In No. 78-1871, Frank W. Snepp III seeks review of a judgment enforcing an agreement that he signed when he accepted employment with the Central Intelligence Agency (CIA). He also contends that punitive damages are an inap- propriate remedy for the breach of his promise to submit all writings about the Agency for prepublication review. In No. 79-265, the United States condition- ally cross petitions from a judgment refusing to find that profits attributable to Snepp's breach are impressed with a constructive trust. We grant the petitions for certiorari in order to correct the judgment from which both parties seek relief.

In modern practice, even in jurisdictions where law and equity have not been merged,

courts of equity no longer issue decrees requiring the payment of money under penalty of contempt, instead they enter money judgments enforceable by the sheriff. If one wants to be picky, what the court should have said was that the government was "entitled to a decree in the nature of a judgment, as for money, etc."

408 CHAPTER 3. RESTITUTION AND GOVERNMENT

I Based on his experiences as a CIA agent, Snepp published a book about certain CIA activities in South Vietnam. Snepp published the account without submitting it to the Agency for prepublication review. As an express condi- tion of his employment with the CIA in 1968, however, Snepp had executed an agreement promising that he would "not. . . publish. . . any information or material relating to the Agency, its activities or intelligence activities generally, either during or after the term of [his] employment. . . without specific prior approval by the Agency." App. to Pet. for Cert. in No. 78-1871, p. 59a. The promise was an integral part of Snepp's concurrent undertaking "not to disclose any classified information relating to the Agency without proper authorization." Id., at 58a. Thus, Snepp had pledged not to divulge classified information and not to publish any information without prepublication clearance. The Govern- ment brought this suit to enforce Snepp's agreement. It sought a declaration that Snepp had breached the contract, an injunction requiring Snepp to submit future writings for prepublication review, and an order imposing a constructive trust for the Government's benefit on all profits that Snepp might earn from publishing the book in violation of his fiduciary obligations to the Agency.

The District Court found that Snepp had "willfully, deliberately and sur- reptitiously breached his position of trust with the CIA and the [1968] secrecy agreement" by publishing his book without submitting it for prepublication re- view. 456 F. Supp. 176, 179 (ED Va. 1978). The court also found that Snepp deliberately misled CIA oAEcials into believing that he would submit the book for prepublication clearance. Finally, the court determined as a fact that pub- lication of the book had "caused the United States irreparable harm and loss." Id., at 180. The District Court therefore enjoined future breaches of Snepp's agreement and imposed a constructive trust on Snepp's profits.

The Court of Appeals accepted the findings of the District Court and agreed that Snepp had breached a valid contract. It specifically aAErmed the finding that Snepp's failure to submit his manuscript for prepublication review had in- flicted "irreparable harm" on intelligence activities vital to our national security. 595 F. 2d 926, 935 (CA4 1979). Thus, the court upheld the injunction against future violations of Snepp's prepublication obligation. The court, however, con- cluded that the record did not support imposition of a constructive trust. The conclusion rested on the court's perception that Snepp had a First Amendment right to publish unclassified information and the Government's concession--for the purposes of this Litigation--that Snepp's book divulged no classified in- telligence. Id., at 935-936.

In other words, the court thought that Snepp's

fiduciary obligation extended only to preserving the confidentiality of classified

At the time of suit, Snepp already had received about $60,000 in advance payments. His

contract with his publisher provides for royalties and other potential profits. 456 F. Supp. 176, 179 (ED Va. 1978). [footnote by Court, renumbered]

The Government's concession distinguished this litigation from United States v. Marchetti,

466 F. 2d 1309 (CA4), cert. denied, 409 U.S. 1063 (1972). There, the Government claimed that a former CIA employee intended to violate his agreement not to publish any classified

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3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 409 material. It therefore limited recovery to nominal damages and to the possibility of punitive damages if the Government--in a jury trial--could prove tortious conduct.

Judge Hoffman, sitting by designation, dissented from the refusal to find a constructive trust. The 1968 agreement, he wrote, "was no ordinary contract; it gave life to a fiduciary relationship and invested in Snepp the trust of the CIA." Id., at 938. Prepublication clearance was part of Snepp's undertaking to protect confidences associated with his trust. Punitive damages, Judge Hoffman argued, were both a speculative and inappropriate remedy for Snepp's breach. We agree with Judge Hoffman that Snepp breached a fiduciary obligation and that the proceeds of his breach are impressed with a constructive trust.

II Snepp's employment with the CIA involved an extremely high degree of trust. In the opening sentence of the agreement that he signed, Snepp explicitly recognized that he was entering a trust relationship.

The trust agreement

specifically imposed the obligation not to publish any information relating to the Agency without submitting the information for clearance. Snepp stipulated at trial that--after undertaking this obligation--he had been "assigned to various positions of trust" and that he had been granted "frequent access to classified information, including information regarding intelligence sources and methods." 456 F. Supp., at 178.

Snepp published his book about CIA activities on the

basis of this background and exposure. He deliberately and surreptitiously violated his obligation to submit all material for prepublication review. Thus, he exposed the classified information with which he had been entrusted to the risk of disclosure.

Whether Snepp violated his trust does not depend upon whether his book actually contained classified information. The Government does not deny-- as a general principle--Snepp's right to publish unclassified information. Nor does it contend--at this stage of the litigation--that Snepp's book contains classified material. The Government simply claims that, in light of the special trust reposed in him and the agreement that he signed, Snepp should have given the CIA an opportunity to determine whether the material he proposed

information. 466 F. 2d, at 1313. Marchetti therefore did not consider the appropriate remedy for the breach of an agreement to submit all material for prepublication review. By relying on Marchetti in this litigation, the Court of Appeals over-looked the difference between Snepp's breach and the violation at issue in Marchetti. [footnote by court, renumbered]

The first sentence of the 1968 agreement read: "I, Frank W. Snepp, III, understand that

upon entering duty with the Central Intelligence Agency I am undertaking a position of trust in that Agency of the Government. . . ." App. to Pet. for Cert. in No. 78-1871, p. 58a. [footnote by Court, renumbered]

Quite apart from the plain language of the agreement, the nature of Snepp's duties and

his conceded access to confidential sources and materials could establish a trust relationship. See 595 F. 2d, at 939 (Hoffman, J., concurring in part and dissenting in part). Few types of governmental employment involve a higher degree of trust than that reposed in a CIA employee with Senpp's duties. [footnote by court, renumbered]

410 CHAPTER 3. RESTITUTION AND GOVERNMENT to publish would compromise classified information or sources. Neither of the Government's concessions undercuts its claim that Snepp's failure to submit to prepublication review was a breach of his trust.

Both the District Court and the Court of Appeals found that a former in- telligence agent's publication of unreviewed material relating to intelligence ac- tivities can be detrimental to vital national interests even if the published infor- mation is unclassified. When a former agent relies on his own judgment about what information is detrimental, he may reveal information that the CIA-- with its broader understanding of what may expose classified information and confidential sources--could have identified as harmful. In addition to receiv- ing intelligence from domestically based or controlled sources, the CIA obtains information from the intelligence services of friendly nations

and from agents

operating in foreign countries. The continued availability of these foreign sources depends upon the CIA's ability to guarantee the security of information that might compromise them and even endanger the personal safety of foreign agents.

Undisputed evidence in this case shows that a CIA agent's violation of his obligation to submit writings about the Agency for prepublication review im- pairs the CIA's ability to perform its statutory duties. Admiral Turner, Director of the CIA, testified without contradiction that Snepp's book and others like it have seriously impaired the effectiveness of American intelligence operations. He said:

"Over the last six to nine months, we have had a number of sources discontinue work with us. We have had more sources tell us that they are very nervous about contin uing work with us. We have had very strong complaints from a number of foreign intelligence services with whom we conduct liaison, who have questioned whether they should continue ex changing information with us, for fear it will not remain secret. I cannot estimate to you how many potential sources or liaison arrangements have never germinated because people were unwilling to enter into business with us." 456 F. Supp., at 179-180.

In view of this and other evidence in the record, both the District Court and the Court of Appeals recognized that Snepp's breach of his explicit obliga- tion to submit his material--classified or not--for prepublication clearance has irreparably harmed the United States Government. 595 F. 2d, at 935; 456 F. Supp., at 180.

Every major nation in the world has an intelligence service. Whatever fairly may be said

about some of its past activities, the CIA (or its predecessor the OAEce of Strategic Services) is an agency thought by every President since Franklin D. Roosevelt to be essential to the security of the United States and--in a sense--the free world. It is impossible for a government wisely to make critical decisions about foreign policy and national defense without the benefit of dependable foreign intelligence. See generally T. Powers, The Man Who Kept the Secrets (1979). [footnote by Court, renumbered]

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3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 411

III The decision of Court of Appeals denies the Government the most appropri- ate remedy for Snepp's acknowledged wrong. Indeed, as a practical matter, the decision may well leave the Government with no reliable deterrent against sim- ilar breaches of security. No one disputes that the actual damages attributable to a publication such as Snepp's generally are unquantifiable. Nominal damages are a hollow alternative, certain to deter no one. The punitive damages recover- able after a jury trial are speculative and unusual. Even if recovered, they may bear no relation to either the Government's irreparable loss or Snepp's unjust gain.

The Government could not pursue the only remedy that the Court of Appeals left it

without losing the benefit of the bargain it seeks to enforce. Proof of the

tortious conduct necessary to sustain an award of punitive damages might force the Government to disclose some of the very confidences that Snepp promised to protect. The trial of such a suit, before a jury if the defendant so elects, would subject the CIA and its oAEcials to probing discovery into the Agency's highly confidential affairs. Rarely would the Government run this risk. In a letter introduced at Snepp's trial, former CIA Director Colby noted the analogous problem in criminal cases. Existing law, he stated, "requires the revelation in open court of confirming or additional information of such a nature that the potential damage to the national security precludes prosecution." App. to Pet. for Cert. in No. 78-1871, p. 68a. When the Government cannot secure its remedy without unacceptable risks, it has no remedy at all.

A constructive trust, on the other hand, protects both the Government and the former agent from unwarranted risks. This remedy is the natural and cus- tomary consequence of a breach of trust. It deals fairly with both parties by conforming relief to the dimensions of the wrong. If the agent secures prepubli- cation clearance, he can publish with no fear of liability. If the agent publishes unreviewed material in violation of his fiduciary and contractual obligation, the trust remedy simply requires him to disgorge the benefits of his faithlessness. Since the remedy is swift and sure, it is tailored to deter those who would place sensitive information at risk. And since the remedy reaches only funds attributable to the breach, it cannot saddle the former agent with exemplary damages out of all proportion to his gain. The decision of the Court of Ap- peals would deprive the Government of this equitable and effective means of protecting intelligence that may contribute to national security. We therefore reverse the judgment of the Court of Appeals insofar as it refused to impose a constructive trust on Snepp's profits, and we remand the case to the Court of Appeals for reinstatement of the full judgment of the District Court.

Judge Hoffman's dissent suggests that even this remedy may be unavailable if the Govern-

ment must bring suit in a State that allows punitive damages only upon proof of compensatory damages. 595 F. 2d., at 940. The Court of Appeals majority, however, held as a matter of fed- eral law that the nominal damages recoverable for any breach of a trust agreement will support an exemplary award. See id., at 936, and n. 10, 937-938. [footnote by Court, renumbered]

412 CHAPTER 3. RESTITUTION AND GOVERNMENT

So ordered. Mr. Justice Stevens, with whom Mr. Justice Brennan and Mr. Justice Marshall join, dissenting.

In 1968, Frank W. Snepp signed an employment agreement with the CIA in which he agreed to submit to the Agency any information he intended to publish about it for prepublication review. The purpose of such an agreement, as the Fourth Circuit held, is not to give the CIA the power to censor its employees' critical speech, but rather to ensure that classified, nonpublic information is not disclosed without the Agency's permission. 595 F. 2d 926, 932 (1979); see also United States v. Marchetti, 466 F. 2d 1309, 1317 (CA4 1972), cert. denied, 409 U.S. 1063.

In this case Snepp admittedly breached his duty to submit the manuscript of his book, Decent Interval, to the CIA for prepublication review. However, the Government has conceded that the book contains no classified, nonpublic ma- terial.

Thus, by definition, the interest in confidentiality that Snepp's contract

was designed to protect has not been compromised. Nevertheless, the Court today grants the Government unprecedented and drastic relief in the form of a constructive trust over the profits derived by Snepp from the sale of the book. Because that remedy is not authorized by any applicable law and because it is most inappropriate for the Court to dispose of this novel issue summarily on the Government's conditional cross-petition for certiorari, I respectfully dissent.

I The rule of law the Court announces today is not supported by statute, by the contract, or by the common law. Although Congress has enacted a number of criminal statutes punishing the unauthorized dissemination of certain types of classified information, it has not seen fit to authorize the constructive trust remedy the Court creates today. Nor does either of the contracts Shepp signed with the Agency provide for any such remedy in the event of a breach.

The

Court's per curiam opinion seems to suggest that its result is supported by a blend of the law of trusts and the law of contracts.

But neither of these

In response to an interrogatory asking whether it contended that "Decent Interval contains

classified information or any information concerning intelligence or CIA that has not been made public by CIA," the Government stated that "[for] the purpose of this action, plaintiff does not so contend." Record Item No. 24, p. 14. Because of this concession, the District Judge sustained the Government's objections to defense efforts to determine whether Decent Interval in fact contains information that the Government considers classified. See, e.g., the testimony of Admiral Stansfield Turner, Director of the CIA, Tr. 135; and of Herbert Hetu, the CIA's Director of Public Affairs, Tr. 153. [footnote by Justice Stevens, renumbered]

In both his original employment agreement and the termination agreement Snepp acknowl-

edged the criminal penalties that might attach to any publication of classified information. In his employment agreement he also agreed that a breach of the agreement would be cause for termination of his employment. No other remedies were mentioned in either agreement. [footnote by Justice Stevens, renumbered]

In a footnote . . . the Court suggests that it need not look to the common law to support

its holding because the case involves a written contract. But, inasmuch as the contract itself

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3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 413 branches of the common law supports the imposition of a constructive trust under the circumstances of this case.

Plainly this is not a typical trust situation in which a settlor has conveyed legal title to certain assets to a trustee for the use and benefit of designated beneficiaries. Rather, it is an employment relationship in which the employee possesses fiduciary obligations arising out of his duty of loyalty to his employer. One of those obligations, long recognized by the common law even in the ab- sence of a written employment agreement, is the duty to protect confidential or "classified" information. If Snepp had breached that obligation, the common law would support the implication of a constructive trust upon the benefits derived from his misuse of confidential information.

But Snepp did not breach his duty to protect confidential information. Rather, he breached a contractual duty, imposed in aid of the basic duty to maintain confidentiality, to obtain prepublication clearance. In order to jus- tify the imposition of a constructive trust, the majority attempts to equate this contractual duty with Snepp's duty not to disclose, labeling them both as "fiduciary." I find nothing in the common law to support such an approach.

Employment agreements often contain covenants designed to ensure in vari- ous ways that an employee fully complies with his duty not to disclose or misuse confidential information. One of the most common is a covenant not to compete. Contrary to the majority's approach in this case, the courts have not construed such covenants broadly simply because they support a basic fiduciary duty; nor have they granted sweeping remedies to enforce them. On the contrary, be- cause such covenants are agreements in restraint of an individual's freedom of trade, they are enforceable only if they can survive scrutiny under the "rule of reason." That rule, originally laid down in the seminal case of Mitchel v. Reynolds, 1 P. Wms, 181, 24 Eng. Rep. 347 (1711), requires that the covenant be reasonably necessary to protect a legitimate interest of the employer (such as an interest in confidentiality), that the employer's interest not be outweighed by the public interest,

and that the covenant not be of any longer duration or

wider geographical scope than necessary to protect the employer's interest.

does not state what remedy is to be applied in the event of a breach, the common law is the only source of law to which we can look to determine what constitutes an appropriate remedy. [footnote by Justice Stevens, renumbered]

As the court held in Herbert Morris, Ltd. v. Saxelby, [1916] A.C. 688, 704, the em-

ployer's interest in protecting trade secrets does not outweigh the public interest in keeping the employee in the work force:

"[A]n employer can[not] prevent his employee from using the skill and knowledge in his trade or profession which he has learned in the course of his employment by means of directions or instructions from the employer. That information and that additional skill he is entitled to use for the benefit of himself and the benefit of the public who gain the advantage of his having had such admirable instruction. The case in which the Court interferes for the purpose of protection is where use is made, not of the skill which the man may have acquired, but of the secrets of the trade or profession which he had no right to reveal to any one else. . . ."

[footnote by Justice Stevens, renumbered]

414 CHAPTER 3. RESTITUTION AND GOVERNMENT

The Court has not persuaded me that a rule of reason analysis should not be applied to Snepp's covenant to submit to prepublication review. Like an ordinary employer, the CIA has a vital interest in protecting certain types of information; at the same time, the CIA employee has a countervailing interest in preserving a wide range of work opportunities (including work as an author) and in protecting his First Amendment rights. The public interest lies in a proper accommodation that will preserve the intelligence mission of the Agency while not abridging the free flow of unclassified information. When the Govern- ment seeks to enforce a harsh restriction on the employee's freedom, despite its admission that the interest the agreement was designed to protect--the confi- dentiality of classified information--has not been compromised, an equity court might well be persuaded that the case is not one in which the covenant should be enforced.

But even assuming that Snepp's covenant to submit to prepublication re- view should be enforced, the constructive trust imposed by the Court is not an appropriate remedy. If an employee has used his employer's confidential information for his own personal profit, a constructive trust over those profits is obviously an appropriate remedy because the profits are the direct result of the breach. But Snepp admittedly did not use confidential information in his book; nor were the profits from his book in any sense a product of his failure to submit the book for prepublication review. For, even if Snepp had submitted the book to the Agency for prepublication review, the Government's censorship authority would surely have been limited to the excision of classified material. In this case, then, it would have been obliged to clear the book for publication in precisely the same form as it now stands. Thus, Snepp has not gained any profits as a result of his breach; the Government, rather than Snepp, will be unjustly enriched if he is required to disgorge profits attributable entirely to his own legitimate activity.

Despite the fact that Snepp has not caused the Government the type of harm that would ordinarily be remedied by the imposition of a constructive trust, the Court attempts to justify a constructive trust remedy on the ground that the Government has suffered some harm. The Court states that publication of "unreviewed material" by a former CIA agent "can be detrimental to vital national interests even if the published information is unclassified." . . . . It then seems to suggest that the injury in such cases stems from the Agency's inability to catch "harmful" but unclassified information before it is published. I do not believe, however, that the Agency has any authority to censor its employees' publication of unclassified information on the basis of its opinion that publication may be "detrimental to vital national interests" or otherwise "identified as harmful." . . . . The CIA never attempted to assert such power over Snepp in either of the contracts he signed; rather, the Agency itself limited its censorship power to preventing the disclosure of "classified" information. Moreover, even if such a wide-ranging prior restraint would be good national security policy, I would have great diAEculty reconciling it with the demand of the First Amendment.

September 11, 2000

3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 415

The Court also relies to some extent on the Government's theory at trial that Snepp caused it harm by flouting his prepublication review obligation and thus making it appear that the CIA was powerless to prevent its agents from publishing any information they chose to publish, whether classified or not. The Government theorized that this appearance of weakness would discourage for- eign governments from cooperating with the CIA because of a fear that their secrets might also be compromised. In support of its position that Snepp's book had in fact had such an impact, the Government introduced testimony by the Director of the CIA, Admiral Stansfield Turner, stating that Snepp's book and others like it had jeopardized the CIA's relationship with foreign intelligence ser- vices by making them unsure of the Agency's ability to maintain confidentiality. Admiral Turner's truncated testimony does not explain, however, whether these unidentified "other" books actually contained classified information. If so, it is diAEcult to believe that the publication of a book like Snepp's, which does not reveal classified information, has significantly weakened the Agency's position. Nor does it explain whether the unidentified foreign agencies who have stopped cooperating with the CIA have done so because of a legitimate fear that se- crets will be revealed or because they merely disagree with our Government's classification policies.

In any event, to the extent that the Government seeks to punish Snepp for the generalized harm he has caused by failing to submit to prepublication review and to deter others from following in his footsteps, punitive damages is, as the Court of Appeals held, clearly the preferable remedy "since a constructive trust depends on the concept of unjust enrichment rather than deter rence and punishment. See D. Dobbs, Law of Remedies x 3.9 at 205 and x 4.3 at 246 (1973)." 595 F. 2d, at 937.

II The Court's decision to dispose of this case summarily on the Government's conditional cross-petition for certiorari is just as unprecedented as its disposition of the merits.

Snepp filed a petition for certiorari, challenging the Fourth Circuit's decision insofar as it aAErmed the entry of an injunction requiring him to submit all future manuscripts for prepublication review and remanded for a determination of whether punitive damages would be appropriate for his failure to submit Decent Interval to the Agency prior to its publication. The Government filed a brief in opposition as well as a cross-petition for certiorari; the Government specifically stated, however, that it was cross petitioning only to bring the entire case before the Court in the event that the Court should decide to grant Snepp's petition. The Government explained that "[because] the contract remedy provided by the court of appeals appears to be suAEcient in this case to protect the Agency's

One of the Court's justifications for its constructive trust remedy is that "it cannot saddle

the former agent with exemplary damages out of all proportion to his gain." . . . . This solicitude for Snepp's welfare is rather ironic in view of the Draconian nature of the remedy imposed by the Court today. [footnote by justice Stevens, renumbered]

416 CHAPTER 3. RESTITUTION AND GOVERNMENT interest, the government has not independently sought review in this Court." In its concluding paragraph the Government stated that: "[if] this Court grants [Snepp's] . . . petition for a writ of certiorari in No. 78-1871, it should also grant this cross-petition. If the petition in No. 78-1871 is denied, this petition should also be denied." Pet. for Cert. in No. 79-265, p. 5.

Given the Government's position, it would be highly inappropriate, and per- haps even beyond this Court's jurisdiction, to grant the Government's petition while denying Snepp's. Yet that is in essence what has been done. The majority obviously does not believe that Snepp's claims merit this Court's consideration, for they are summarily dismissed in a footnote. . . . It is clear that Snepp's petition would not have been granted on its own merits.

. . . .

III The uninhibited character of today's exercise in lawmaking is highlighted by the Court's disregard of two venerable principles that favor a more conservative approach to this case.

First, for centuries the English-speaking judiciary refused to grant equitable relief unless the plaintiff could show that his remedy at law was inadequate. Without waiting for an opportunity to appraise the adequacy of the punitive damages remedy in this case, the Court has jumped to the conclusion that equitable relief is necessary.

Second, and of greater importance, the Court seems unaware of the fact that its drastic new remedy has been fashioned to enforce a species of prior restraint on a citizen's right to criticize his government. Inherent in this prior restraint is the risk that the reviewing agency will misuse its authority to delay the publication of a critical work or to persuade an author to modify the contents of his work beyond the demands of secrecy. The character of the covenant as a prior restraint on free speech surely imposes an especially heavy burden on the censor to justify the remedy it seeks. It would take more than the Court has written to persuade me that that burden has been met.

I respectfully dissent.

3.5.1.6 Notes on Snepp v. United States

1. Our concern with Snepp is not directed at the First Amendment issues in

the case, but rather at the use of the restitutionary remedy of a construc- tive trust as a means of punishing Snepp for his violation of his fiduciary duty as a spy.

Whatever one may think of the result, Snepp is an excellent demonstration of the importance of remedies as they developed historically. Snepp broke his contract with the Agency, but the government did not pursue the traditional remedy for breach of contract. It appears that the government could not--or would not--show any damages resulting from the breach

September 11, 2000

3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 417

and that punitive damages are historically unavailable in an action for breach of contract. On the other hand, though punitive damages are available in tort actions, it was unlikely that the government could show-- even if it were willing to try to do so--that any tort had been committed.

2. Many employees of organizations other than the government are obliged to

sign non-disclosure (and non-competition) agreements. Many employees-- and all oAEcers--of organizations other than the government are normally considered by the courts to be in a fiduciary relationship to their employ- ers.

Consider the following hypothetical problem: a large computer company named HAL Corporation, requires all of its senior programmers to sign an agreement in which they state that "I understand that upon enter- ing employment with the HAL Corporation I am undertaking a position of trust in that Corporation" and that "I undertake not to publish any information or material relating to the HAL Corporation, its activities or intelligence activities generally, either during or after the term of my employment without specific prior approval by the Corporation."

A senior programmer Nepp, who was employed by HAL Corporation, re- signed several years ago in disgust at the low quality of HAL's products and published, without the prior approval of that Corporation, a book en- titled "The Great Computer Scam" describing, in repellent detail, HAL's activities. HAL Corporation then sued Nepp seeking to impose a con- structive trust upon all royalties that Nepp might receive from the book. At trial HAL's lawyers admit that Nepp did not reveal any confidential information in his book, but insist that their client is still entitled to the constructive trust remedy under the authority of Snepp v. United States.

What will be the outcome of this litigation? As a hint toward the correct answer: will the case of HAL Corp. v. Nepp be governed by state, or by federal, law?

3. The New York Times reported that the Thatcher government in England

was thinking of adopting the CIA's type of employment contract for its spies, in the hopes of having a more effective means of preventing publi- cation than the preventive and punitive relief that is available under the infamous OAEcial Secrets Act. N.Y. Times, Aug. 24, 1987, at A2, col. 3.

418 CHAPTER 3. RESTITUTION AND GOVERNMENT 3.5.2 Regulatory Restitution One area in which restitutionary relief may be of considerable importance is in the enforcement of administrative regulations, particularly those that are intended to control the economy, such as price control laws. Strangely enough, there are almost no articles discussing the use of restitution as a means of regulatory enforcement, although the courts have long recognized the potential of such a remedy.

3.5.2.1 Porter v. Warner Holding Co.

Porter v. Warner Holding Co. Supreme Court of the United States

328 U.S. 395

1946

Mr. Justice Murphy delivered the opinion of the Court. In this case we are concerned with the power of a federal court, in an enforce- ment proceeding under x 205 (a) of the Emergency Price Control Act of 1942, to order restitution of rents collected by a landlord in excess of the permissible maximums.

The Warner Holding Company, the respondent, owns eight apartment houses in Minneapolis, Minnesota, containing approximately 280 dwelling units. Be- tween November 1, 1942, and June 29, 1943, it demanded and received rents in excess of those permitted by the applicable maximum rent regulations issued under the Act. The Administrator of the OAEce of Price Administration then brought this action in the District Court to restrain the respondent from con- tinuing to exceed the rent ceilings. The complaint was later amended to seek, in addition, a decree requiring the respondent "to tender to such persons as are entitled thereto a refund of all amounts collected by defendant from tenants as rent for the use and occupancy of housing accommodations in excess of the max- imum rents established by said Regulation, provided, however, that defendant shall not be required to make such tender to any person who has commenced an action against defendant under Section 205 (e) of the Emergency Price Con- trol Act of 1942 alleging the collection by defendant of rent in excess of the maximum rents established by said Regulation."

The District Court enjoined respondent from continuing to collect rents in excess of the legal maximums but declined to order restitution. 60 F. Supp. 513. The Eighth Circuit Court of Appeals aAErmed the judgment. 151 F. 2d 529. Both courts held that there was no jurisdiction under the statute to order restitution. We granted certiorari because the result was in conflict with that reached by the Sixth Circuit Court of Appeals in Bowles v. Skaggs, 151 F. 2d 817, and because of the obvious importance of the issue in the administration and enforcement of the Emergency Price Control Act.

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3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 419

This proceeding was instituted by the Administrator under x 205 (a) of the Act, which provides: "Whenever in the judgment of the Administrator any person has engaged or is about to engage in any acts or practices which constitute or will constitute a violation of any provision of section 4 of this Act, he may make application to the appropriate court for an order enjoining such acts or practices, or for an order enforcing compliance with such provision, and upon a showing by the Administrator that such person has engaged or is about to engage in any such acts or practices a permanent or temporary injunction, restraining order, or other order shall be granted without bond."

Thus the Administrator invoked the jurisdiction of the District Court to en- join acts and practices made illegal by the Act and to enforce compliance with the Act. Such a jurisdiction is an equitable one. Unless otherwise provided by statute, all the inherent equitable powers of the District Court are available for the proper and complete exercise of that jurisdiction. And since the public inter- est is involved in a proceeding of this nature, those equitable powers assume an even broader and more flexible character than when only a private controversy is at stake. . . . Power is thereby resident in the District Court, in exercising this jurisdiction, "to do equity and to mold each decree to the necessities of the particular case." Hecht Co. v. Bowles, 321 U.S. 321, 329. It may act so as to adjust and reconcile competing claims and so as to accord full justice to all the real parties in interest; if necessary, persons not originally connected with the litigation may be brought before the court so that their rights in the subject matter may be determined and enforced. In addition, the court may go be- yond the matters immediately underlying its equitable jurisdiction and decide whatever other issues and give whatever other relief may be necessary under the circumstances. Only in that way can equity do complete rather than truncated justice.

Moreover, the comprehensiveness of this equitable jurisdiction is not to be denied or limited in the absence of a clear and valid legislative command. Unless a statute in so many words, or by a necessary and inescapable inference, restricts the court's jurisdiction in equity, the full scope of that jurisdiction is to be rec- ognized and applied. "The great principles of equity, securing complete justice, should not be yielded to light inferences, or doubtful construction." Brown v. Swann, 10 Pet. 497, 503.

It is readily apparent from the foregoing that a decree compelling one to disgorge profits, rents or property acquired in violation of the Emergency Price Control Act may properly be entered by a District Court once its equity ju- risdiction has been invoked under x205 (a). Indeed, the language of x205 (a) admits of no other conclusion. It expressly envisages applications by the Ad- ministrator for orders enjoining violations of the Act and for orders enforcing compliance with the Act; and it expressly authorizes the District Court, upon a proper showing, to grant "a permanent or temporary injunction, restraining order, or other order." As recognized in Hecht Co. v. Bowles, supra, 328, the term "other order" contemplates a remedy other than that of an injunction or restraining order, a remedy entered in the exercise of the District Court's equi-

420 CHAPTER 3. RESTITUTION AND GOVERNMENT table discretion. An order for the recovery and restitution of illegal rents may be considered a proper "other order" on either of two theories:

(1) It may be considered as an equitable adjunct to an injunction decree. Nothing is more clearly a part of the subject matter of a suit for an injunction than the recovery of that which has been illegally acquired and which has given rise to the necessity for injunctive relief. To be sure, such a recovery could not be obtained through an independent suit in equity if an adequate legal remedy were available. But where, as here, the equitable jurisdiction of the court has properly been invoked for injunctive purposes, the court has the power to decide all relevant matters in dispute and to award complete relief even though the decree includes that which might be conferred by a court of law.

(2) It may be considered as an order appropriate and necessary to enforce compliance with the Act. Section 205 (a) anticipates orders of that charac- ter, although it makes no attempt to catalogue the infinite forms and variations which such orders might take. The problem of formulating these orders has been left to the judicial process of adapting appropriate equitable remedies to specific situations. In framing such remedies under x 205 (a), courts must act primarily to effectuate the policy of the Emergency Price Control Act and to protect the public interest while giving necessary respect to the private interests involved. The inherent equitable jurisdiction which is thus called into play clearly autho- rizes a court, in its discretion, to decree restitution of excessive charges in order to give effect to the policy of Congress. . . . And it is not unreasonable for a court to conclude that such a restitution order is appropriate and necessary to enforce compliance with the Act and to give effect to its purposes. Future compliance may be more definitely assured if one is compelled to restore one's illegal gains; and the statutory policy of preventing inflation is plainly advanced if prices or rents which have been collected in the past are reduced to their legal maximums.

The legislative background of x 205 (a) confirms our conclusion that the tra- ditional equity powers of a court remain unimpaired in a proceeding under that section so that an order of restitution may be made. The Senate Committee on Banking and Currency, in reporting upon the bill which became the Emergency Price Control Act, stated in regard to x 205 (a): "In common with substantially all regulatory statutes, the bill authorizes the oAEcial charged with the duty of administering the act to apply to any appropriate court, State or Federal, for an order enjoining any person who has engaged or is about to engage in any acts or practices which constitute or will constitute a violation of any provision of the bill. Such courts are given jurisdiction to issue whatever order to enforce compliance is proper in the circumstances of each particular case." S. Rep. No. 931, 77th Cong., 2d Sess., p. 10. The last sentence is an unmistakable acknowl- edgement that courts of equity are free to act under x 205 (a) in such a way as to be most responsive to the statutory policy of preventing inflation.

It is true that x 205 (e) authorizes an aggrieved purchaser or tenant to sue for damages on his own behalf; and if that person has not sued within the statutory period, or for any reason is not entitled to sue, the Administrator may

September 11, 2000

3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 421 institute an action for damages on behalf of the United States.

To the extent

that damages might properly be awarded by a court of equity in the exercise of its jurisdiction under x 205 (a), x 205 (e) supersedes that possibility and provides an exclusive remedy relative to damages. It establishes the sole means whereby individuals may assert their private right to damages and whereby the Administrator on behalf of the United States may seek damages in the nature of penalties. Moreover, a court giving relief under x 205 (e) acts as a court of law rather than as a court of equity. But with the exception of damages, x 205 (e) in no way conflicts with the jurisdiction of equity courts under x 205 (a) to issue whatever "other order" may be necessary to vindicate the public interest, to compel compliance with the Act and to prevent and undo inflationary tendencies.

Restitution, which lies within that equitable jurisdiction,

is consistent with

and differs greatly from the damages and penalties which may be awarded under x 205 (e). When the Administrator seeks restitution under x 205 (a), he does not request the court to award statutory damages to the purchaser or tenant or to pay to such person part of the penalties which go to the United States Treasury in a suit by the Administrator under x 205 (e). Rather he asks the court to act in the public interest by restoring the status quo and ordering the return of that which rightfully belongs to the purchaser or tenant. Such action is within the recognized power and within the highest tradition of a court of equity. Thus it is plainly unaffected by the provisions of x 205 (e).

Nor do we find any other provision of the Act that expressly or impliedly pre- cludes a court from ordering restitution in the exercise of its equity jurisdiction under x 205 (a). This is not a situation where a statute has created a right and has provided a special and exclusive remedy, thereby negativing any jurisdiction that might otherwise be asserted. . . . And it clearly is not an instance where equity jurisdiction is lacking because of a failure to exhaust prescribed admin- istrative remedies. . . . Rather it is an occasion where Congress has utilized, save in one aspect, the broad equitable jurisdiction that inheres in courts and where the proposed exercise of that jurisdiction is consistent with the statutory language and policy, the legislative background and the public interest.

It follows that the District Court erred in declining, for jurisdictional rea- sons, to consider whether a restitution order was necessary or proper under the circumstances here present. The case must therefore be remanded to that court so that it may exercise the discretion that belongs to it. Should the court de-

In case you are wondering why the Administrator brought this proceeding, rather than

one under x 205 (a), the answer probably lies in the fact that, at the time of the overcharges, the latter section had not been amended to permit the Administrator to sue for "damages" in those cases where the victim of the overcharges could have sued, but failed to do so.

Although the Court refers to "damages" and "damages in the nature of penalties" in its discussion of x 205 (a), that section itself never uses such terms, it merely provides for recovery of three times the amount of the overcharges. [pdj]

Is there anything peculiarly equitable about restitution? Are not debt, detinue, ejectment,

and quasi-contractual actions in indebitatus assumpsit--legal actions all--all actions in which the successful plaintiff recovers restitution? [pdj]

422 CHAPTER 3. RESTITUTION AND GOVERNMENT cide to issue a restitution order and should there appear to be conflicting claims and counterclaims between tenants and landlord as to the amounts due, the court has inherent power to bring in all the interested parties and settle the controversies or to retain the case until the matters are otherwise litigated.

Reversed. Mr. Justice Jackson took no part in the consideration or decision of this case.

Mr. Justice Rutledge, dissenting. In the Emergency Price Control legislation Congress was as much concerned with remedies as with substantive prohibitions.

It knew that effectiveness of the

latter depended altogether upon the scheme for enforcement. Accordingly, both in the original Act and in later amendments, it covered the matter of remedies in the greatest detail and precision. Those provisions were both jurisdictional and procedural. The general scheme was to confine as narrowly as the Constitution allows the rights of regulated persons to challenge provisions of the Act and regulations; and at the same time to create broad powers for enforcement, by various civil and criminal sanctions. Congress did not take chances, in either respect, with inference or construction. It is not excessive to say that perhaps no other legislation in our history has equalled the Price Control Act in the wealth, detail, precision and completeness of its jurisdictional, procedural and remedial provisions.

The scheme of enforcement was highly integrated, with the parts precisely tooled and minutely geared. Legal, equitable and criminal sanctions were in- cluded. Injured persons' remedies were dovetailed with and guarded against overlapping those given the Administrator. He can sue for damages and penal- ties, after the injured party has failed to do so in the time allowed; to enjoin violation or secure an order for compliance, with temporary and permanent re- lief; cause institution of criminal proceedings n6; and require licensing of dealers with power to suspend the license and thus drive out of business. This powerful battery of weapons does not call for reinforcement with armor not provided in the Act. It was equal to all tasks of enforcement which conceivably could arise.

Congress could not have been ignorant of the remedy of restitution. It knew how to give remedies it wished to confer. There was no need to add this one. Nor do I think it did so. It did not give it expressly. I do not think "other order" in the context of x 205 (a) includes it. For to have conferred it would have put the statutory scheme out of joint.

Section 205 (e) gives the overcharged person his remedy, for damages with penalty, for a limited time. Thereafter the exclusive right to sue is the Ad- ministrator's, and what he recovers goes into the Federal Treasury, not to the

See H. Rep. No. 1409, 77th Cong., 1st Sess., 12-13; S. Rep. No. 931, 77th Cong., 2d Sess.,

8-9, 25-28; H. Rep. No. 1658, 77th Cong., 2d Sess., 26-27. "Price control which cannot be made effective is at least as bad as no price control at all. It will not stop inflation, and enables those who defy regulation to profit at the expense of the buyers and sellers who unselfishly cooperate in the interests of the emergency." S. Rep. No. 931, supra, p. 8. [Footnote by Rutledge, J., renumbered]

September 11, 2000

3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 423 overcharged person. This includes the amount of the overcharge, which is sued for here. These provisions taken together are a statute of limitations on the pri- vate right of recovery. Once the time goes by, it is cut off and the Government's right takes its place, in vindication of the public interest.

Restitution, as here sought, is inconsistent with both rights. It contemplates return of the unjustly taken enrichment to him from whom it was taken. It is that right the Administrator now seeks to assert. But he does so, I think, in the teeth of the statute. What he recovers is what the Act makes part of a sum it says shall be paid into the Treasury whenever recovered by the Administrator; or into the overcharged person's pocket when recovered by him. And these are mutually exclusive, not alternative, rights of recovery. If the Administrator pays over to the tenants what he recovers in this suit, he will be paying them money which the Act says shall go into the Treasury. Their time for suit has passed and with it their right to recover these amounts. Whether or not the Administrator can sue for these amounts, on behalf of the Government, foregoing the penalties, we are not asked to decide. But we are asked, in effect, to decide that he can take money the Act says shall go into the Treasury and give it to persons whose right to recover it the Act has cut off.

I think the remedy now sought is inconsistent with the remedies expressly given by the statute and contrary to the substantive rights it creates. I think too this is why Congress failed to provide for restitution, indeed cut off that remedy.

This does not imply any restriction upon the creative resources of a court of equity. When Congress is silent in formulating remedies for rights which it has created, courts of equity are free to use these creative resources. But where Congress is explicit in the remedies it affords, and especially where Congress after it has given limited remedies enlarges the scope of such remedies but particularizes them so far as remedies for overcharges are afforded, even courts of equity may not grant relief in disregard of the remedies specifically defined by Congress.

Mr. Justice Reed and Mr. Justice Frankfurter join in this opinion.

3.5.2.2 Notes on Porter v. Warner Holding Co.

1. Up to now, those restitutionary remedies that we have considered that are

administered by courts of equity have included: constructive trusts, equi- table liens, and--as sort of a provisional remedy--equitable accountings.

Under x 205 (e) in the original Act, 56 Stat. 34, the Administrator was entitled to bring

a suit for damages and penalties only when the buyer was not entitled to bring such an action. . . . The Act was subsequently amended to provide, as set out in the text, that the Administrator could bring a suit for damages and penalties also when the injured party had not brought such an action within thirty days from the date of the occurrence of the violation. 58 Stat. 640. . . . The suit at bar was brought before the passage of the amendment, but that fact is of no significance, since x 205 (e), whether taken in its original or amended form, is inconsistent with the remedy of restitution sought by the Government. [Footnote by Rutledge, J., renumbered]

424 CHAPTER 3. RESTITUTION AND GOVERNMENT

Does Warner Holding Co. fit into any of these categories? What type of restitution is involved in Warner ?

2. Porter, the Administrator of the OAEce of Price Administration, the plain-

tiff in Warner Holding Co. was faced with the problem that Congress had apparently limited the available remedies so that, at the time the over- charges occurred, the sole legal remedy to recover the overcharges, that given by x 205 (e), could be pursued only by the victims of the overcharges, who did not bother to bring suit. Thus Porter was constrained to bring his claim for restitution of the overcharges on the theory that "[r]estitution . . . lies within [the] equitable jurisdiction;" a theory that was accepted by the majority of the Court.

But is restitution a remedy that can only be sought from a court of equity? Consider what would have happened if Congress had provided somewhere within x 205 that "the Administrator may bring an action for restitution of any overcharges." Would an action under that hypothetical provision have been treated as one at law? Or in equity?

The amount of the overcharges is always going to be a sum of money, so why could not the administrator bring debt--which is the classic action to recover money due under a statute--or the more newfangled action of indebitatus assumpsit? Both of these actions are, after all, actions at law, not in equity.

3. Why did the Administrator seek "a decree requiring the respondent `to

tender to such persons as are entitled thereto a refund of all amounts collected by defendant from tenants as rent for the use and occupancy of housing accommodations in excess of the maximum rents established by said Regulation' "? Why did he not simply request a decree requiring that the excess rents be paid over to the Treasury of the United States?

One might wonder why anyone would care about this question now that law and equity

are merged and the Federal Rules of Civil Procedure specifically provide that there shall be only one form of action. For our immediate purposes, however, the question is significant because it casts some doubt on the majority's claim that restitution lies within the equitable jurisdiction. In general, the question is significant at least for the purpose of determining whether the defendant is entitled to trial by jury.

Thus, in Dairy Queen, Inc. v. Wood, 369 U.S. 469, 477-78 (1962), the Court said:

The respondents' contention that this money claim is "purely equitable" is based primarily upon the fact that their complaint is cast in terms of an "ac- counting," rather than in terms of an action for "debt" or "damages." But the constitutional right to trial by jury cannot be made to depend upon the choice of words used in the pleadings. The necessary prerequisite to the right to maintain a suit for an equitable accounting, like all other equitable remedies, is . . . the absence of an adequate remedy at law.

See also Curtis v. Loether, 415 U.S. 189 (1974) ("The Seventh Amendment does apply to actions enforcing statutory rights, and requires a jury trial upon demand, if the statute creates legal rights and remedies, enforceable in an action for damages in the ordinary courts of law").

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3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 425

One reason--the obvious reason--is that the Administrator may not even have considered this possibility. How, after all, could the government be entitled to restitution of overpayments made by the tenants?

Another possible reason is that, since the Administrator had the power to seek negative injunctions against future overcharges, it did not seem to be very diAEcult to construe the "other order" language of x 205 (a) as autho- rizing aAErmative injunctions requiring the repayment of past overcharges.

The trouble with the latter reasoning is, of course, that a decree requiring the repayment of overcharges is the functional equivalent of judgment in a legal action of indebitatus assumpsit--or a forbidden action pursuant to x 205 (e). Worse, it is diAEcult to distinguish such a decree in favor of the tenants from a judgment (or decree) for the tenants' damages.

3.5.2.3 S.E.C. v. Texas Gulf Silver Co.

Securities and Exchange Commission v. Texas Gulf Sulphur Co.

United States Court of Appeals, Second Circuit

446 F.2d 1301

1971

Waterman, Circuit Judge: The within appeals bring before us for the second time the well-known com- binations of situations that arose out of Texas Gulf Sulphur's (hereinafter TGS) discovery of rich ore deposits near Timmins, Ontario, and the accompanying stock transactions by the appellants. A detailed description is set forth in our prior opinion, 401 F.2d 833 (2 Cir. 1968) (in banc). In that decision we re- versed the district court with reference to its findings, contained in its opinion, 258 F.Supp. 262 (SDNY 1966), as to several of the defendants who had been found below not to have violated Section 10(b) of the Securities Exchange Act of 1934 (hereinafter the Act), 15 U.S.C. x 78j(b), and Rule 10b-5, 17 CFR 240.10b-5, promulgated thereunder, and we remanded the case for a hearing on the appropriate remedies to be applied and for the resolution of one undecided question of liability. That hearing has been held, and varying sanctions have been applied. The judgment order entered below (1) enjoined defendants Clay- ton and Crawford from future violations of Rule 10b-5, (2) denied injunctions against TGS, and defendants Fogarty, Mollison, Stephens, Darke, Huntington, Holyk, and Kline although each was found to have violated 10b-5, (3) required Darke to pay to TGS the profits which he and his tippees made on TGS stock prior to April 17, 1964, (4) required Holyk, Huntington, and Clayton to pay to TGS the profits which each of them made on the TGS stock prior to April 17, 1964, and (5) required Kline's stock option to be canceled. In deciding the issues presented on this appeal, we have grouped the issues for easier discussion.

426 CHAPTER 3. RESTITUTION AND GOVERNMENT

A. TGS--The April 12 press release. . . . .

B. Injunctions--Clayton and Crawford. . . . .

C. Restitution of Profits. The district court required Holyk, Huntington, Clayton, and Darke to pay to TGS the profits they had derived (and, in Darke's case, also the profits which his tippees had derived) from their TGS stock between their respective purchase dates and April 17, 1964, when the ore strike was fully known to the public. The payments are to be held in escrow in an interest-bearing account for a period of five years, subject to disposition in such manner as the court might direct upon application by the SEC or other interested person, or on the court's own motion. At the end of the five years any money remaining undisposed of would become the property of TGS. To protect the appellants against double liability, any private judgments against these appellants arising out of the events of this case are to be paid from this fund.

Appellants contend that, although the district court is given general equity powers under x 27 of the Act, the SEC does not have authority under the Act to seek anything but injunctive relief under x 21(e), together with whatever ancillary relief is necessary to enforce an injunction, such as the appointment of a receiver. They further contend that the payments required in this case are in essence penalties for they contain no element of compensation to those who may actually have been damaged, and that if it were appropriate to consider the assessment of penalties, it was necessary for the Attorney General to bring a criminal action under x 32.

However, despite some legislative history purportedly to the contrary, we do not read x 21(e)

as restricting the remedies which the SEC can pursue

to injunctive relief. The appellants concede that the courts of appeals have upheld the equity power of the district courts to authorize as ancillary relief the appointment of receivers under the Securities Exchange Act of 1934 at the request of the SEC even though no specific statutory authority exists for such action. . . .

Moreover, in other contexts the Supreme Court has upheld the power of the Government without specific statutory authority to seek restitution, and has upheld the lower courts in granting restitution, as an ancillary remedy in the

x 21(e) (15 U.S.C. x 78u(e)) reads:

Whenever it shall appear to the Commission that any person is engaged or about to engage in any acts or practices which constitute or will constitute a violation * * * it may * * * bring an action * * * to enjoin such acts or practices, and upon a proper showing a permanent or temporary injunction or restraining order shall be granted without bond.

[Footnote by court, renumbered]

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3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 427 exercise of the courts' general equity powers to afford complete relief. Mitchell v. Robert DeMario Jewelry, 361 U.S. 288, 80 S.Ct. 332, 4 L.Ed.2d 323 (1960); United States v. Moore, 340 U.S. 616, 71 S.Ct. 524, 95 L.Ed. 582 (1951); Porter v. Warner Holding Co., 328 U.S. 395, 66 S.Ct. 1086, 90 L.Ed.2d 1332 (1946). There is little doubt that x 27 of the Act confers general equity power upon the district courts. Appellants' contention is that the SEC is without the authority to request the exercise of these powers. However, as stated in Mills v. Electric Auto-Lite Co., 396 U.S. 375, 391, 90 S.Ct. 616, 625, 24 L.Ed.2d 593 (1970): "[We] cannot fairly infer from the Securities Exchange Act of 1934 a purpose to circumscribe the courts' power to grant appropriate remedies." While Mills was dealing with relief to private litigants, we deem the above statement to be fully applicable in enforcement actions by the SEC. Thus we hold that the SEC may seek other than injunctive relief in order to effectuate the purposes of the Act, so long as such relief is remedial relief and is not a penalty assessment.

Appellants, of course, contend that the required restitution is indeed a penalty assessment. . . . This contention overlooks the realities of the situa- tion. In our prior opinion we found that these appellants had violated the Act by their purchases of TGS stock before there had been a public disclosure of the ore discovery. Restitution of the profits on these transactions merely deprives the appellants of the gains of their wrongful conduct. Nor does restitution im- pose a hardship in this case. The lowest purchase price of any of the transactions here was $17.75 per share paid by Clayton on November 15, 1963. The mean average price of the stock on April 17, 1964, has been stipulated by the parties to be $40.375 per share. By May 15, 1964, the stock was selling at $58.25 per share. The court's order requires only restitution of the profits made by the violators prior to general knowledge of the ore strike on April 17, 1964, and, in effect, leaves the appellants all the profits accrued after that date. It would severely defeat the purposes of the Act if a violator of Rule 10b-5 were allowed to retain the profits from his violation. The district court's order corrects this by effectively moving the purchase dates of the violators' purchases up to April 17, 1964.

As to the requirement that Darke make restitution for the profits derived by his tippees, admittedly more of a hardship is imposed. However, without such a remedy, insiders could easily evade their duty to refrain from trading on the basis of inside information. Either the transactions so traded could be concluded by a relative or an acquaintance of the insider, or implied understandings could arise under which reciprocal tips between insiders in different corporations could be given.

Finally, appellants contend that the order is punitive because it contains no element of compensation to those who have been damaged. However, as the New York Court of Appeals in Diamond v. Oreamuno, 24 N.Y.2d 494, 499, 301 N.Y.S.2d 78, 81-82, 248 N.E.2d 910, 912-913 (1969), recognized, a corporate enterprise may well suffer harm "when oAEcers and directors abuse their position to obtain personal profits" since "the effect may be to cast a cloud on the corporation's name, injure stockholder relations and undermine

428 CHAPTER 3. RESTITUTION AND GOVERNMENT public regard for the corporation's securities." Although the sellers of TGS stock who sold before April 17, 1964, may have a higher equity than TGS to recover from appellants the wrongful profits appellants obtained, this fact does not preclude conditional compensation to TGS. Nor, as the appellants appear to imply, is the district court precluded from applying a state concept of harm to the corporation.

We conclude that the requirement of restitution in this case was a proper exercise by the trial judge of the district court's equity powers.

D. Kline--cancellation of stock option. . . . .

E. Crawford-The right to oral argument before an in banc court. . . . .

F. Fogarty, Mollison and Stephens. . . . .

G. Conclusion. In summary, therefore, we aAErm the judgment below as to each of the ap- pellants, with the exception that the order cancelling Kline's stock option is reversed and his case is remanded for a hearing on the appropriateness of that remedy.

3.5.2.4 Citronelle-Mobile Gathering, Inc. v. Herrington Citronelle-Mobile Gathering, Inc. v. Herrington

Temporary Emergency Court of Appeals

826 F.2d 16

1987

Before Gignoux, Grant and Peck, JJ. Grant, Judge. This action was initially filed by Citronelle-Mobile Gathering, Inc., and oth- ers (hereinafter referred to as the Chamberlain Group), seeking declaratory and injunctive relief against oAEcials of the Federal Energy Administration, now the Department of Energy (DOE), and the Secretary of the Department of Com- merce, to establish plaintiffs' legal rights with respect to four sales of crude oil made between December 1973 and April 1974.

The Government counterclaimed, seeking to compel Bart B. Chamberlain (Chamberlain), Citronelle-Mobile Gathering, Inc. (Gathering), and Citmoco Services, Inc. (Services), to make restitution of alleged overcharges received as

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3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 429 a result of the four transfers of crude oil to the Grand Bahamas Petroleum Com- pany, Ltd. (PETCO), a Bahamian corporation, and a wholly-owned subsidiary of an American firm, New England Petroleum Corporation (NEPCO).

The first three shipments of crude oil were sold at a price of $ 14.000 per barrel, and the fourth and final shipment at $ 13.00 per barrel, prices admittedly higher than the price the Chamberlain Group could lawfully have charged had the sales been made in the United States to United States purchasers. The Chamberlain Group, however, contended that these shipments were "export sales" excluded from domestic petroleum pricing regulations.

The counterclaimant sought to compel the Chamberlain Group to make restitution of these alleged overcharges by paying into an escrow account, for subsequent disbursement to appropriate persons, a portion of the revenues they received from the sale of the crude oil, represented by the difference between the payments actually received and the maximum lawful selling price allowed by the Economic Stabilization Act of 1970 (ESA), as amended, 12 U.S.C. x 1904 note; the Emergency Petroleum Allocation Act of 1973 (EPAA), 15 U.S.C. xx 751, et seq.; and the regulations promulgated thereunder which established the ceiling price for the resale of domestic crude oil. See 6 C.F.R. Part 150 and 10 C.F.R. Part 212.

We have jurisdiction under Section 502 of the Department of Energy Orga- nization Act (DOE Act), 42 U.S.C. x 7192; xx 208, 209 and 211 of the Economic Stabilization Act (ESA), 12 U.S.C. xx 1904 note and 1906, as incorporated in x 5(a) of the Emergency Petroleum Act (EPAA), 15 U.S.C. x 754(a), and Sec- tion 208 of the ESA, 12 U.S.C. x 1905. Venue is proper in accordance with 28 U.S.C. x 1391(a).

The Parties Bart B. Chamberlain is a citizen and resident of the State of Alabama. He is President, a director, and ninety (90) percent stockholder of counterclaimant- defendant Gathering, and President, a director, and eighty-seven and a half (87.5) percent stockholder of counterclaimant-defendant Services. Chamberlain is also the owner of certain crude oil produced from the Citronelle Field located in Mobile County, Alabama.

Gathering is a corporation organized and existing under the laws of the State of Delaware, with its principal place of business in Alabama. Gathering is en- gaged in the business of purchasing crude oil produced from the Citronelle Field in Mobile County, Alabama. Gathering is also engaged in the transportation and resale of such crude oil.

Services is a corporation organized and existing under the laws of the State of Delaware, with its principal place of business in Alabama. Services is en- gaged in the business of storage of crude oil purchased, transported, and sold by counterclaimant-defendant Gathering. Services also made one transfer of crude oil on or about May 26, 1974.

430 CHAPTER 3. RESTITUTION AND GOVERNMENT

Counterclaimant is the United States of America, suing on behalf of the DOE, which assumed the powers and functions of the Federal Energy Adminis- tration (FEA) on October 1, 1977.

Background In December 1973, at the height of the Arab oil embargo, and soon after the enactment of the Emergency Petroleum Allocation Act (EPAA), Chamberlain met with Edward M. Carey, Sr. in New York City. According to the testimony of Chamberlain, they reached an agreement by which Chamberlain would sell Carey three cargoes of oil, initially at $ 14.00 per barrel. As a result of this agreement, Chamberlain's companies made four shipments of crude oil totaling nearly a million barrels to PETCO the wholly-owned Bahamian subsidiary of the American corporation NEPCO, which was controlled by Carey. (A fuller factual background is found in the earlier published opinions of Citronelle-Mobile Gathering, Inc. v. O'Leary, 499 F. Supp. 871 (S.D. Ala 1980), and Citronelle- Mobile Gathering, Inc. v. Edwards, 669 F.2d 717 (Temp. Emer. Ct. App.) cert. denied, 459 U.S. 877 (1982).)

Newly promulgated export license regulations of the Department of Com- merce required the Chamberlain Group to establish that the total quantity or quality of petroleum available to the United States would not be diminished. 15 C.F.R. x 377.6(b)(1). To satisfy that requirement, the Chamberlain Group certified that the Citronelle crude oil "will be processed in the [Bahamian] refin- ery into various petroleum products, all of which will be purchased by NEPCO and exported from the Bahamas to the United States of America." Citronelle- Mobile, 499 F. Supp. at 877. The refinery is partially owned by the Carey companies.

The first three export licenses were granted in routine fashion, but the fourth application, while originally denied, was reviewed by a newly organized Petroleum Products Exceptions Committee, consisting of oAEcials from the De- partments of Commerce and State and the Federal Energy OAEce (FEO), which was then responsible for administering the price controls on crude oil.

The Commerce Department finally concluded that it had no authority to deny the export license, whether or not the $ 14.00 per barrel price was a violation of DOE's price regulations (that being a matter within the jurisdiction of the DOE) and, accordingly, the fourth export license also issued.

Prompted by publicity concerning these transactions, the Department of Energy set out to make various inquiries and investigations and issued certain administrative subpoenas. The Chamberlain Group initiated litigation seeking to enjoin any such investigations. Thereafter, the United States counterclaimed, demanding restitution of the alleged overcharges, represented by the difference between the price charged for the oil and the maximum lawful selling price. The Chamberlain Group argued that certain allocation regulations of "export sales" operated to fit their sales within the pricing control exclusion for "exports" under the terms of 10 C.F.R. x 211.1(b)(1). Specifically, the Chamberlain Group relied on 6 C.F.R. x 150.54(d)(1) ("The prices charged for export sales including

September 11, 2000

3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 431 the sale of products to a domestic purchaser who certifies that the product is for export are exempt."), and on 10 C.F.R. x 212.52(a), which contains similar language. The district court denied the offered interpretation of the regulations.

History of this Litigation In its September 15, 1980 Order granting, in part, summary judgment to the government, the district court held that:

(1) the four transactions violated the applicable price control statutes and regulations, 499 F. Supp. at 883-4;

(2) judgment should be entered in favor of the United States and against Citronelle-Mobile Gathering, Inc., Citmoco Services, Inc., and Bart B. Chamberlain, Jr., for restitution of all excess charges in the four transactions, such restitution to be made to the United States Treasury, 499 F. Supp. at 886; the Court ruled that Bart B. Chamberlain was individually liable as a central figure in the ille- gal transactions, but only to the extent that he personally received proceeds from the sales, 499 F. Supp. at 881; and

(3) being "unable to determine from the evidence the amount of restitution to be made, [t]he parties will accordingly be permitted the opportunity to enter a stipulation, failing which, to file appropriate motions." 499 F. Supp. at 888.

Thereafter, the court, pursuant to 28 U.S.C. x 1292(b), granted plaintiffs permission to seek an appeal from the above Order of September 15, 1980 (and another Order not relevant here). In certifying an appeal, in an Order dated March 23, 1986, the district court stated:

The case is postured as having been resolved on the merits with only the amount of damages to be calculated (emphasis added), a task which may prove as arduous as the case itself. This will require the court to determine the prices and destinations of thousands of barrels of oil.

The plaintiffs, in their motion to reconsider . . . have claimed substantial amounts in credits and setoffs for state and federal in- come taxes paid on the proceeds of these transactions.

* * * * * * These considerations and calculations, if granted in whole or in part, will be diAEcult. The dollar amounts involved are substan- tial. In this regard alone, certification will materially advance the ultimate termination of this case. Order at 1, 2.

On appeal, the Chamberlain Group argued that the transactions were export sales, and that the grant of restitution to the United States Treasury was erro- neous. This Court, Citronelle-Mobile Gathering, Inc. v. Edwards, 669 F.2d 717

432 CHAPTER 3. RESTITUTION AND GOVERNMENT (Temp. Emer. Ct. App. 1982) (Pointer, J., concurring in part and dissenting in part), aAErmed the district court's holding that the sales of American crude oil by an American firm to the wholly owned subsidiary of another American firm were not "export sales" within the meaning of the EPAA and its regu- lations, and were, therefore, no exempt from price controls. Such sales were described as involving "a mere hint of foreign participation, were designed so as to take advantage of the established regulations and were completely repugnant to Congress' intent." 669 F.2d at 720-21.

This Court further held that the government was not required to make any showing that damages had been incurred as a result of the violations, 669 F.2d at 722, but that "the government has a duty to try to ascertain those overcharged, and refund them, with interest, from the restitution funds." 669 F.2d at 723 (original emphasis). Thereupon, this Court remanded the case to the district court to determine the amount of restitution and to fashion a plan for the appropriate distribution of those funds.

On remand, the district court reduced the restitutionary awards by the amount of state and federal taxes paid thereon and, further, held that Chamber- lain's liability should be limited to the amount of the proceeds which he actually received from the overcharges. Both sides brought this appeal. We confront the following issues:

I. Whether it is now settled as the "law of the case" that the sales of crude oil by plaintiffs to a Bahamian refinery were not exempt from price controls and regulations;

II. Whether the district court properly determined the extent of Chamberlain's personal responsibility for the overcharges;

III. Whether the district court assessed prejudgment interest at the proper rate;

V. Whether the district court erred in refusing to allow the De- partment of Energy to use its Special Refund Procedures (10 C.F.R. part 205, subpart V) to distribute the moneys repaid?

I The four shipments of crude oil from the Chamberlain Group to PETCO were

not exempt from price controls

In contesting the earlier finding of liability, the Chamberlain Group poses the wrong question. The issue is not, as they seek to phrase it, whether these sales moved in export, but, rather, whether they were exempt from domestic price controls. The fact that the shipments have gone overseas en route to their ultimate destinations does not preclude further inquiry into whether they were export sales in the context of domestic price controls. As we stated in our earlier opinion:

This transaction, admittedly clever, is not original. In 1883, the Attorney General issued an opinion evolving from circumstances in

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3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 433

which whiskey was to be shipped from the United States to Bermuda with the intent that it be returned to the United States after it had been aged. That opinion, holding there was no exportation, was later quoted with approval by the Supreme Court. See Swan & Finch v. United States, 190 U.S. 143, 145, 23 S.Ct. 702, 703, 47 L.Ed. 984 (1903), quoting 17 Op.A.G. 579, 583 (1983). The Court stated:

[T]he legal notion . . . of exportation is a severance of goods from the mass of things belonging to this country with the intention of uniting them to the mass of things belonging to some foreign country.

Id. at 145, 23 S.Ct. at 703. See also United States v. 200 Watches, 66 F. Supp. 228, 230 (S.D.N.Y. 1946). In the case at bar, appellant's intention was that the refined products attributable to the Cham- berlain firm's crude oil be returned to the United States. There was never any intention that the crude oil be joined with the mass of things in the Bahamas.

669 F.2d at 719.

The Chamberlain Group, as the lead issue in their brief and as a principal contention on this appeal, seek to reargue the issue of the applicability of price controls and regulations to the four shipments of crude oil. Apparently, they refuse to accept the results of their first appeal.

In securing export permits from the Department of Commerce, the Cham- berlain Group contended that the entire process should be viewed as a single transaction. They relied on a round-trip-transaction theory and, in support thereof, represented to the Department that the crude oil was not lost to the domestic market, certifying that "the total quantity or quality of petroleum available to the United States would not be diminished." In an effort to avoid the adverse result of their first appeal, the Chamberlain Group now argues that "new evidence" proves that this crude oil was shipped to the "unclean hands" of PETCO in the Bahamas, where the excessive costs were paid, and, arguably, were not passed on to the consumers in the United States. A review of prior pro- ceedings will aAErm that the so-called "new evidence" is not new, and further, has already been effectively answered by this Court.

On an interlocutory appeal limited to the district court's judgment ordering restitution of all excess charges, this Court aAErmed. But we also noted that "payment to the United States Treasury is not restitution, in the true sense of the word, or in the objectives of the statutes here involved." 669 F.2d at 722. Finding the prevention of unjust enrichment to be an important objective of the restitution remedy, this Court then modified the district court's Order, directing the government to provide a plan, to be approved by the district court, for the appropriate distribution of the restitutionary award. In aAErming the district court's finding that the Chamberlain Group had violated domestic price controls, we wrote: "No proof is required that the plaintiff (sic) was damaged, much less the amount of any damage." 669 F.2d at 722 (emphasis supplied).

434 CHAPTER 3. RESTITUTION AND GOVERNMENT

Upon remand, Judge Alaimo, by Order dated September 30, 1985, stated:

Most of the factual issues in the case were previously disposed of on cross-motions for summary judgment. . . . The findings of fact contained herein are made only for the limited purpose of ruling on the amount of restitution to be awarded and are not intended to displace the earlier findings of this Court, which are now the law of the case and are not subject to being relitigated at this late date. (emphasis supplied).

Order at 4 n.1.

We find no reason to further belabor an issue that has been so thoroughly briefed, argued and considered in this case. We reaAErm, as the law of the case, our previous holding that the four shipments of crude oil from the Chamberlain Group to PETCO were not exempt from domestic price controls under the provisions of the EPAA and subsequent regulations, and that the Chamberlain Group must make restitution.

II Chamberlain is personally liable for the entire amount of restitution ordered

The Chamberlain Group and Amicus Chamber of Commerce insist that basic principles of corporate formation preclude this Court from holding Bart Chamberlain personally responsible for the violations committed in the name of the corporate entity. These basic principles teach that corporate shareholders, oAEcers, and directors enjoy limited liability for corporate wrongdoing.

At the outset, we note that the law recognizes occasional exceptions to the general rules. For instance, a shareholder's refusal to respect corporate formality may invite a court to "pierce the corporate veil" in order to reach the individ- ual wrongdoer. Here, however, the government advances a different theory of personal liability. The government has sought a holding of personal liability against Chamberlain on the ground that Chamberlain is a "central figure" in the misconduct of the corporation insofar as his misconduct has brought about the corporate violations of crude oil pricing laws. Although the traditional ra- tionale for piercing the corporate veil is that the corporation is something less than a bona fide independent entity, here, the government urges us to focus on Chamberlain the actor, rather than Chamberlain the owner. His liability is in now way dependent on a finding that his companies are inadequately capital- ized, that his companies are a mere alter ego of Chamberlain, that the corporate form is being used to perpetrate a fraud, or that his companies have failed to comply with corporate formalities. Liability is premised only on finding that Chamberlain committed the wrongful acts.

The Chamberlain Group concedes the existence of this theory of personal liability, but argues that liability is limited to the extent Chamberlain has com- mitted a common law tort or, in other words, that Chamberlain cannot be held liable for conduct which cannot be packaged as a tort under the common law.

September 11, 2000

3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 435 The Chamberlain Group finds particular comfort in this version of the theory, given the trial court's suggestion that Chamberlain and his companies have merely committed an "honest mistake" in running afoul of the export pricing restrictions. The government characterizes such an honest mistake as a gam- bling, miscalculated effort to stretch the limits of the law--as nothing other than a statutory violation which can give rise to personal liability for Chamberlain in the amount of the overcharges.

The Chamberlain Group argues that this Court's decision in Johnson Oil Company, Inc. v. U.S. Dep't of Energy, 690 F.2d 191 (Temp. Emer. Ct. App. 1982), disposes of the liability issue presently before the Court. We disagree. Johnson Oil also involved pricing overcharges, but its holding relating to personal liability was very limited: The corporate oAEcers had not knowingly, willfully, or maliciously authorized violations of the law and, therefore, could not be held individually responsible under 15 U.S.C. x 754(a)(4). Johnson Oil did not present the Court with liability questions premised on theories of individual tortious conduct or piercing the corporate veil. 690 F.2d at 203. In this respect Johnson Oil was entirely unlike this Court's decision in United States v. Arizona Fuels Corporation, 638 F.2d 239 (Temp. Emer. Ct. App. 1980), cert. denied, 451 U.S. 985 (1981), wherein the sole stockholder of Arizona Fuels Corporation was held jointly liable on the basis of a finding that large amounts of corporate funds were diverted for personal use.

This Court's recent decision in United States v. Sutton, 795 F.2d 1040 (Temp. Emer. Ct. App. 1986), cert. denied, 107 S.Ct. 873 (1987), is more relevant. Sut- ton involved miscertification, or "tier laundering," of crude oils--a plan carried out by Sutton under the protective wing of his corporation. Sutton argued, unsuccessfully, that 15 U.S.C. x 754(a)(4) provides the exclusive remedy for knowing and willful violations of the Act by corporate oAEcers (i.e., no personal liability upon the basis of alter ego or tortious conduct). Sutton explicitly re- jects such a narrow view of personal liability. 795 F.2d at 1059. Rather, this Court in Sutton aAErmed the trial court's imposition of personal liability on the alternative basis of Sutton's noncompliance with corporate formalities ("pierc- ing" theory) and, also, Sutton's own decisive role in violating the pricing laws ("central figure" theory). As this Court in Sutton was careful to stress, personal liability premised upon the latter theory "depends upon the individual's acts." 795 F.2d at 1060.

Inasmuch as Chamberlain is the dominant figure of the Citronelle companies, the government urges this Court to recognize his personal responsibility on the strength of a "central figure" theory of liability. The Chamberlain Group, on the other hand, insists that Sutton first requires a finding that Chamberlain has committed a recognizable "tort" before personal liability ensues. We acknowl- edge the tortious conduct language in Sutton. ("A shareholder may be liable if he is the `central figure' in a corporation's tortious conduct." 795 F.2d at 1060). Essentially, however, the Chamberlain Group argues that a corporate oAEcer can- not be held liable for unintentional "tortious conduct." Cross-Appellant Brief at 37. "Tortious conduct," according to the Chamberlain Group, is epitomized

436 CHAPTER 3. RESTITUTION AND GOVERNMENT by the miscertification-fraud scheme of the Sutton case.

The Chamberlain Group finds particular comfort in this view of a central figure theory of liability, based upon the trial court's characterization of their conduct as that of "good faith." 499 F. Supp. at 888. They argue that such a finding precludes the existence of culpable conduct and therefore forecloses a judgment of personal liability. But we cannot accept such an expansive view of the trial court's references to good faith.

First, "good faith" has no meaning without a context. It is an intangible and abstract quality; at one time it might indicate an honest belief, the next time it could signify only the absence of malice. Black's Law Dictionary 623 (5th ed. 1979) Second, the trial court used the term good faith in a context that tells us nothing about the scope of liability the government now urges upon the Court. In considering whether to assess an added penalty on the Chamberlain Group, which would require a finding that they "willfully" violated the FEA pricing regulations, the district court found instead that they "made a good faith effort to comply with the regulations." Id. Therefore the added penalty was not imposed. But the court's statement tells us only that the Chamberlain Group did not act "willfully" to violate the regulations. The statement gives no instruction on whether the Chamberlain Group intended their effort to comply with the spirit of the price control laws and regulations, or whether there ex- isted any sound rationale for believing that their ephemeral success in obtaining permits could excuse their obligation to charge the crude oil price prescribed by law. In short, the court's good faith reference did not close the book on equitable considerations, nor did it preclude our examination of Chamberlain's personal role in violating the pricing laws.

Judges Pittman and Alaimo and the first panel of this Court rested their decision on cases which recognize that personal liability of corporate personnel need not be dependent upon establishing the elements of common law torts.

In LCL Theatres v. Columbia Pictures Industries, 619 F.2d 455 (5th Cir. 1980), the "tortious act" was the nonperformance of a contractual obligation. The court found personal liability because the corporation's president and prin- cipal shareholder authorized, participated in and approved the breach of duty. Similarly, Donsco, Inc. v. Casper Corp., 587 F.2d 602 (3d Cir. 1978), held the president of a corporation personally liable for authorizing the acts of unfair competition which formed the basis for the corporation's liability. Tillman v. Wheaton-Haven Recreation Association, Inc., 517 F.2d 1141 (4th Cir. 1975), held the directors of a community swimming pool association personally liable under the federal civil rights statutes for causing discrimination against black applicants for membership. The court's holding explored the parallel between conduct which violates general principles of tort law, and conduct which in- fringes rights secured by statutes. The court also explicitly rejected as a defense due diligence based on the advice of counsel. A rather different analysis was

The first TECA panel's reference to good faith, 669 F.2d at 722, was made in a similar

vein. [Footnote by court, renumbered]

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3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 437 used in United States v. Pollution Abatement Services of Oswego, Inc., 763 F.2d 133 (2d Cir.) cert. denied, Miller v. United States, 106 S.Ct. 605 (1985). The Second Circuit aAErmed the finding of personal liability for oAEcers of closely held corporation because the oAEcers' activities--failing to prevent the illegal dumping of dangerous wastes--fell within the "proscriptive ambit" of the appli- cable statute. Their liability "was not premised solely on their corporate oAEces or ownership, but was bottomed on their personal involvement in the firm's activities." 763 F.2d at 135.

We believe the sum of the holdings in these cases is that personal responsi- bility for corporate liability may attach when the individual's wrongful conduct causes the violation of a statute and accompanying regulations such as the crude oil pricing laws. But because restitution is an equitable remedy, we would be careful to condition a finding of personal liability on the particular circumstances and equities of each case.

Chamberlain played the central role in the Chamberlain Group's breach of public duty as defined by the statute and pricing regulations. Chamberlain authorized and conducted the very negotiations leading to the violations for which the corporations are now liable. Chamberlain knew the agreement was to charge a price almost three times greater than the domestic price ceilings would permit. He knew domestic customers would be the ultimate consumers of the refined oil, but nevertheless used a "loophole" which he believed would excuse him from charging the lawful price. His companies stood to gain some six million dollars in additional revenue. In rejecting the Chamberlain Group's arguments, the district court, Judge Pittman, remarked that "these transactions had precisely the effect which Congress sought to avoid in enacting the EPAA . . . The court must determine whether the transactions were exempted from pricing regulations by the export license. They were not." 499 F. Supp. at 883. We conclude that Chamberlain's conduct constitutes actual participation in the wrongful acts.

Chamberlain argues that he relied on the advice of counsel. Even if we were to recognize, as a matter of law, the existence of a due diligence defense, we do not believe Chamberlain has established such a case. We balk at embracing this argument for two reasons. First, it suggests that counsel's view of the law must be the law of the Court, that the Court is not permitted to scrutinize the adequacy of counsel's inquiry. Second, we are not persuaded that Cham- berlain's deference to counsel excuses what amounts to acting in disregard of the crude oil pricing restrictions. The due diligence defense would apply if, after diligent effort, it was impossible for Chamberlain to know that his com- panies were violating the law. At the time, Chamberlain directed successful businesses and was experienced in the world of selling oil. All oil corporations knew about the laws Congress passed to cope with the pain of the oil embargo, and Chamberlain was certainly aware of pricing restrictions and the existence of the Department of Energy and its predecessor, the Federal Energy Adminis- tration. Chamberlain's reliance on the "authority" of export permits issued by the Department of Commerce as a justification for his scheme can be charac-

438 CHAPTER 3. RESTITUTION AND GOVERNMENT terized as nothing other than acting in disregard of the pricing controls that he knew existed. Whether Chamberlain hoped, with advice, that the transfers of oil would elude the reaches of the domestic price controls, or whether he sim- ply ignored the better judgment that would have advised greater caution, this Court concludes that Chamberlain's disregard of the price control laws caused a breach of the duty delineated in the energy statutes and pricing regulations. Under a central figure theory of liability, Chamberlain may be held personally liable for restitution.

The district court, Judge Pittman, held Chamberlain personally liable only to the extent he received proceeds from the illegal sales. Liability was thus lim- ited "[b]ecause restitution is predicated upon a finding of unjust enrichment."

499 F. Supp. at 881. On remand after the first appeal, Judge Alaimo adopted the earlier view of the extent of Chamberlain's liability and fixed the amount of restitution accordingly:

The parties have stipulated that Chamberlain earned $ 147,828.50 in excess of the applicable ceiling prices for domestic oil sales. Less the $ 8,869.71 he paid in state severance taxes, Chamberlain person- ally netted $ 138,958.88 from the PETCO sales, and counterclaimant is thus entitled to restitution in that amount.

Order at 12.

The district court declined to "reconsider" whether Chamberlain could be held personally liable for the entire amount awarded against the Chamberlain Group because, in its view, the parties already had the opportunity to appeal personal liability issues to this Court and, therefore, this Court's previous ruling should "remain undisturbed as law of the case." Order at 13.

We reject the district court's finding that the parameters of Chamberlain's personal liability have been established previously as law of the case. The first panel of this Court took the case on interlocutory appeal under 28 U.S.C. x 1292(b). Primarily, the appeal concerned whether the Chamberlain companies had violated the pricing control regulations. As one judge of this Court remarked with respect to restitution issues:

There [was] no cross-appeal by the government under x 1292(b), and there [was] no final judgment in the district court from which appeals might be taken on all issues which bear upon the proper relief, if any, to be granted on proof of statutory violations.

669 F.2d at 727 (Pointer, J., dissenting).

Now, however, the district court has entered a final judgment, this Court has combed through the more comprehensive briefs of the parties, and we can decisively express in what manner we disagree with the decision below.

Now--at last!--you can begin to see why this case is in this casebook. [pdj]

September 11, 2000

3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 439

"Ordinary, the measure of restitution is the amount of enrichment received." Restatement of Restitution x 1 comment a (1937). However, restitution also can serve "to restore the status quo."

Sauder v. Department of Energy, 648 F.2d

1341, 1348 (Temp. Emer. Ct. App. 1981). "[A] person who has been unjustly deprived of his property of its value . . . may be entitled to maintain an action for restitution against another although the other has not in fact been enriched thereby." Restatement of Restitution x 1 comment e (1937).

In Sutton, this Court found that "[a] person who is the `animating force' for regulatory violations is fully liable even though he does not personally receive all benefits of his illegal activities."

795 F.2d at 1063. Consequently, this Court

held Sutton personally responsible for the entire amount of restitution awarded for corporate violations.

Our holding in Sauder is closer factually to this case and equal to Sutton as precedent for holding Chamberlain fully responsible for the amounts awarded as restitution. Sauder was the part owner and operator of three oil leases. He owned a 34% interest in one lease, and a 41% interest in another. He shared ownership of the leases with at least five other persons, and these part owners operated the leases as if they were a single unit. However, they never entered a formal unitization agreement which would combine the separate interests into one tract so that oil could be extracted without regard to surface property lines. This failure to unitize the field proved to be fatal to Sauder's attempt to come within the exemption from price controls for "stripper" well leases. Treated as one lease or "property," Sauder's holdings would have satisfied the language of the exemption for "any lease whose average daily production of crude oil for the preceding calendar year does not exceed 10 barrels per well." 648 F.2d at 1342. Sauder claimed the stripper well exemption because he viewed the leases as one unit. The Department of Energy disagreed, finding that the leases must be considered as three properties and, therefore, outside the exemption.

This Court aAErmed the decision ordering Sauder to refund the full amount of the overcharges on the nonexempt oil. We rejected the argument that Sauder should be responsible only for the amount of his pro rata interest in the leases.

But do not damages also serve to restore the status quo? And when one deprives a

defendant of his unjust enrichment, is that not a case of restoring the status quo (before the unjust enrichment occurred)? [pdj]

This relatively innocent comment in the Restatement is, I am afraid, primarily responsible

for the ridiculous holding in Citronelle-Mobile. But--as you surely must recognize--that comment refers to case where a plaintiff gets restitution on a proprietary, rather than an unjust enrichment theory.

Consider the case where you buy a stolen car worth $5,000 for $5,000. You have not been enriched by the purchase of the car. And now assume that you sell the car for $5,000. Obviously you still have not been enriched. And yet the owner of the car can recover $5,000 from you in a restitutionary action of general assumpsit for money had and received.

That is the kind of case the Restaters were commenting on. [pdj]

But remember Sutton is a case in which the corporate veil was pierced, so of course Sutton

was held liable. The decision in Sutton was correct, even if some of the language about the liability of an `animating force' is unfortunate. [pdj]

440 CHAPTER 3. RESTITUTION AND GOVERNMENT Sauder was the "animating force" who certified that the output of the leases was stripper well oil subject to the exemption. "It can fairly be said that it was he who caused the overcharges." 648 F.2d at 1347.

Similarly, Chamberlain has been the "animating force" behind the sale of Citronelle Field oil to PETCO. Like Sauder, he sought to take advantage of what he considered a "loophole" in a maze of regulations, despite a public policy disfavoring exemptions from domestic oil price controls. Both individuals gambled and lost. Like Sauder, "[i]t can fairly be said that it was [Chamberlain] who caused the overcharges."

In Sauder, we rejected the argument that the common law concept of resti- tution does not permit a court to order an infringer to refund benefits never received by that individual. 648 F.2d at 1348. We refused to characterize the decision to hold Sauder fully responsible in restitution as an attempt to award damages to the victimized party. Rather, we imposed liability in such a manner as to restore the precise amount of the overcharges, "to set things right." 648 F.2d at 1348.

We recognize that the finding of liability is premised upon a "central figure" theory here, and upon an "operator" theory in Sauder. But the distinction is without a material difference. "Central figure" theory is the specific language of the corporate-director realm, whereas "operator" theory need not be so specif- ically applied. The theories accomplish the same thing by holding responsible the primary instruments of illegal conduct. Any doubt that Sauder could be applied in the corporate context was resolved by the reliance Sutton placed on the Sauder decision.

Because a corporate oAEcer's unlawful conduct may form the basis for per- sonal liability if the equities of the case demand it, as they do here, we conclude that the principle of Sauder applies to require us to rule that Chamberlain is fully responsible for making restitution to the injured parties.

III The district court erred by subtracting from the restitutionary recovery the

amount of taxes the appellees had paid thereon

Following remand, Judge Alaimo, in an Order dated September 30, 1985, found that "[s]imple arithmetic reveals that defendant's sales to PETCO gave rise to overcharges totaling $ 6,769,956.76." Order at 6. Notwithstanding that fact, the district court, in an effort to determine "the amount by which defen- dants were unjustly enriched as a result of the illegal sales," Order at 5, reduced that figure by various overhead and administrative expenses and, finally, by the state and federal income taxes each company had paid on the overcharges. The

Sauder can be distinguished on the ground that Sauder was the operator of the wells; there

are several cases in which the Temporary Emergency Court of Appeals held such operators liable for restitution of the entire amount of overcharges received by the investors in the well-- but that liability appears to be the liability of the managing partner of a mining partnership. In any event, the facts in Sauder are very different from those in Citronelle-Mobile. [pdj]

September 11, 2000

3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 441 court found that Chamberlain had earned $ 147,828.59 in excess of the lawful ceiling price from his share of the crude oil which had been collected for the sale to PETCO, and had paid $ 8,869.71 in state severance taxes thereon. There- upon, the court ordered that judgment be entered against Citronelle-Mobile Gathering, Inc. and Citmoco Service, Inc. jointly and severally in the amount of $ 3,400,475.76, plus interest, and against Bart B. Chamberlain in the amount of $ 138,958.88, plus interest. The decision amounted to reducing the restitution by half.

The Chamberlain Group urges this Court to aAErm Judge Alaimo's decision to subtract taxes paid from the restitution award. Their position rests largely on resurrected arguments which attempt to deny their own culpability and which emphasize the district court's apparent inability to find injury. According to the Chamberlain Group, restitutionary payments would simply be windfalls to uninjured and undeserving beneficiaries. Because Chamberlain committed only an "honest error," the Chamberlain Group contends that the district court ruled properly in subtracting taxes in order to prevent "double recovery" by the government.

This line of argument is misdirected, not only because it contests the basis for our finding a violation of the price controls, but because it also posits the scenario of the government "positioning itself " for a windfall recovery. Any illusion the Chamberlain Group has of the federal government padding its wallet may have been created by Judge Pittman's initial decision to award restitution in favor of the U.S. Treasury. But we have already corrected that decision and, consequently, fears of government "positioning" should have been eased.

The district court has broad powers to fashion equitable relief. The equitable remedy of restitution should make victims whole,

unless some compelling rea-

son counsels otherwise. We believe the subtraction of taxes precludes the award of an amount which would make victims whole and we find no compelling reason to detour from pursuing that objective. When the district court strays from its duty to order proper restitution, it is our role "to do equity" and correct the lower court. Citronelle-Mobile, 669 F.2d at 722, 723 (cited in United States v. Exxon Corporation, 733 F.2d 1240, 1284 (Temp. Emer. Ct. App. 1985), cert. denied, 106 S.Ct. 892 (1986)). We conclude that the district court improperly reduced the restitutionary amount and, therefore, failed "to do equity."

Upon the basis of a finding of "good faith" on the part of Chamberlain, Judge Pittman had refused to impose civil penalties in addition to ordering restitution. But a finding of good faith that would relieve a wrongdoer from civil penalties is not equivalent to a finding that should not be required to make restitution. In Exxon, the appellant argued that the "trial Court, as a court of equity, erred in requiring restitution of the full amount of the overcharges with interest." 773 F.2d at 1284. We rejected that argument in Exxon as we do here. As Justice Holmes stated in a different factual situation:

It may be assumed that he intended not to break the law buy only 7

But that is what damages are supposed to do, is that not so? [pdj]

442 CHAPTER 3. RESTITUTION AND GOVERNMENT

to get as near to the line as he could, which he had a right to do, but if the conduct described crossed the line, the fact that he desired to keep within it will not help him. It means only that he misconceived the law.

Horning v. District of Columbia, 254 U.S. 135, 137 (1920).

Moreover, there was no requirement that the government identify the par- ticular persons overcharged. In Exxon, an action for restitution against the op- erator of a unitized oil field, this Court held "there was no need for the district court to attempt the impossible task of attempting to ascertain the damages sustained by individual customers of petroleum products." 773 F.2d at 1286. And as this Court has already said, "[n]o proof is required that the plaintiff was damaged, much less the amount of any damage." Citronelle-Mobile, 669 F.2d at 722.

The allegation of the prospect of a double recovery by the government finds no support in the record, since the presumption that the federal government will be the primary beneficiary of restitution is an unsound one. Repeatedly, the government has sought permission to utilize its Subpart V procedure to locate injured victims. In fact, before any part of the restitution award accrues to the account of the U.S. Treasury, the government first must make efforts to identify overcharge victims and, perhaps, to spread the recovery among certain states. In any event, the reduction for taxes imperils a restitution award that should restore the status quo.

A variation on Chamberlain's central theme is that a decision which does not allow for subtraction of taxes amounts to levying a "double penalty." The Chamberlain Group argues that if it must disgorge the full amount of the over- charges then it should not have been required to pay taxes on the overcharges received. Since the taxes were paid, however, a sum representing taxes paid should be taken off the top of the restitution award. This argument concludes that a dollar-for-dollar reduction from the judgment is necessary because the corporate income for future years will be insuAEcient to fully utilize the tax de- duction that could be taken as the entire restitution award is paid. We find the conclusion to be entirely speculative. We are satisfied that the Chamberlain Group can pursue its tax grievances with the IRS.

IV The district court failed to assess prejudgment interest at the proper rate

The district court entered judgment on the reduced restitutionary amount together with prejudgment interest at the rate of 6% per annum as prescribed by Alabama law. On this appeal, the Chamberlain Group has argued that a lower-than-market rate of interest is justified given the relevant equitable considerations. Once again, we are requested to consider such factors as the advice of counsel, "good faith," the lack of injury, the "windfall" that will flow to the government, and the four-year lapse of time before the government decided the oil transactions were illegal. We have already addressed the relative

September 11, 2000

3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 443 significance of these considerations as they relate to awarding restitution, and have decided, nonetheless, that full restitution is proper.

The duty to make full and adequate restitution must, of necessity, include the benefits the wrongdoer enjoyed by having the use over the years of the money illegally obtained.

Although the district court does have some discretion in

assessing prejudgment interest, the court neglected to offer a reason for choosing the 6% rate applicable to state court judgments, rather than the market rate. As the district court in Exxon stated:

The court's equitable powers to order restitution permit the court to deprive the wrongdoer of all enrichment obtained at the victim's expense, Citronelle-Mobile Gathering, Inc. v. Edwards, supra, 669 F.2d at 722, and that enrichment necessarily includes the benefits Exxon obtained by having the use over the years of the money ille- gally obtained. Accordingly, this court shall order that restitution of Exxon's overcharges shall be made with interest from the date of overcharge.

United States v. Exxon Corporation, 561 F. Supp. at 816, 858 (D.D.C. 1983).

In light of the district court's obligation to order restitution, and its failure to explain why it chose a 6% rate, we cannot say the court has exercised its discretion to fulfill that obligation.

We acknowledge that, although federal law governs the rate of prejudgment interest applicable to this case, state law may be used as a guide for a court exercising its discretion. However, no explanatory comments accompany the district court's selection of Alabama's 6% rate. We defer to our language in Exxon: "Unless a statute in so many words, or by a necessary and inescapable inference, restricts the court's jurisdiction in equity, the full scope of that juris- diction is to be recognized and applied." 773 F.2d at 1278. The district court in Exxon adopted an interest rate schedule bearing "a reasonable relation to the value to Exxon of the funds it unlawfully retained." 561 F. Supp. at 858. We approved of the decision then, and now we adopt the interest rate sched- ule offered by the DOE as having "a reasonable relation to the value to [The Chamberlain Group] of the funds it unlawfully retained." Restitution should disgorge unjust enrichment

and restore the status quo.

Because the DOE interest rate schedule more realistically reflects the full value of money retained by the Chamberlain Group over these years, we meet the equitable objectives of restitution by requiring an award of interest at market rates.

V 8

But remember that Chamberlain is being held liable for benefits that he did not receive.

[pdj]

But, once again, in this case Chamberlain was required to disgorge sums that he had

never received. [pdj]

444 CHAPTER 3. RESTITUTION AND GOVERNMENT

The Court allows use of the special refund procedure established in 10 C.F.R.

part 205, subpart V

The government has requested that the restitution funds be placed in a special escrow account for distribution pursuant to the refund procedure set out in 10 C.F.R. part 205, subpart V. The Chamberlain Group argues that the use of the special procedure will allow the government to place itself in the position of becoming the "beneficiary of the restitutionary fund."

The decisions of the district courts and the first TECA panel placed on the government the day of identifying the injured parties and the extent of their injuries. Each court acknowledged the diAEculty of that role, but believed that such a tracing was necessary before the method for distribution could be settled.

The government has responded that the appropriate procedure for identi- fying those proper recipients of the restitutionary funds is the subpart V pro- ceedings it sought to utilize. Subpart V of the 10 C.F.R. part 205 (10 C.F.R. xx 205.280-205.288 (1986)) presents the procedural mechanisms established by the Department of Energy for identification of the injured parties and disburse- ment of restitution funds. Under these specifications, the OAEce of Hearings and Appeals (OHA) or its appointed administrator solicits, by publication in the Federal Register, applications from any person entitled to a refund. It then processes the applications and approves the refunds. Payments are made to successful applicants from the escrow fund established for this purpose (after satisfaction of costs and charges approved by the OHA).

The district court's Order of December 30, 1985 expressed concerns about the adequacy of the Subpart V procedures. It specifically referred to criticism made in law review notes. Order at 13. However, we are how satisfied that such concerns have been adequately answered by the "significant progress" the OHA has made in implementing the procedures. See In re Dept. of Energy Stripper Well Exemption Lit., 578 F. Supp. 586, 596 (D. Kan. 1983).

The initial step in distribution of restitutionary funds is identification of the injured parties. We believe the Department of Energy should be allowed to use its established procedures to make those findings and to offer solutions to pos- sibly complex remedial problems. This was the comprehensive approach taken by Judge Theis of the District Court of Kansas, to whom TECA remanded the "Stripped Well" case for the task of "appropriate dispensation of the escrowed funds." 578 F. Supp. at 589.

Nevertheless, it is the duty of the courts to award restitution equitably. It is the responsibility of the court, not of an administrative body like the Department of Energy, to exercise its equitable powers in the final determination of appropriate restitution to the power parties. Therefore, jurisdiction over the restitution fund will remain in the district court.

September 11, 2000

3.5. WHEN THE GOVERNMENT SEEKS RESTITUTION 445

Conclusion We conclude that Gathering, Services, and Chamberlain, personally, are jointly and severally liable for the full amount of overcharges, $ 6,769,956.76, plus prejudgment interest according to the market rates set forth in the Ap- pendix.

This Court now remands the case to the district court to maintain jurisdic- tion over the distribution of the restitutionary award. The district court shall have the tasks of establishing an escrow fund, of overseeing the government's implementation of its Subpart V procedures, of making the final determination of the use of the restitution funds upon receipt of the government's factual de- termination and recommendations, and of final dispensation of the escrowed amounts.

Peck, Judge, concurring. I write separately only because ever since my earliest contact with this case I have had a different feeling about Chamberlain's activities than those expressed in the majority opinion. Chamberlain first sought and obtained legal advice from a source which we would be hard pressed to declare incompetent, then followed a procedure "government oAEcials had consistently, if begrudgingly" recognized. Citronelle-Mobile Gathering, Inc. v. Edwards, 669 F.2d 717, 724 Temp. Emer. Ct. App. 1982) (Pointer, J., concurring and dissenting). The fact that the advice was not egregiously erroneous is attested to by the four years which it took government oAEcials to adopt a contrary position. I am similarly concerned with the majority's reliance on United States v. Sutton, 795 F.2d 1040 (Temp. Emer. Ct. App. 1986), cert. denied,---U.S.---(Jan. 12, 1987), which involved criminal activity and overwhelming evidence of intentional wrongdoing, and which seems to be to be inappropriate. As a result, I am uncomfortable with an opinion which impugns Chamberlain's ethics and procedures, but otherwise concur.

446 CHAPTER 3. RESTITUTION AND GOVERNMENT

September 11, 2000 Chapter 4 Restitution as a Remedy for Wrongs

In this chapter we shall be concerned with cases in which the plaintiff, though seeking to enforce a restitutionary right, claims that right because he suffered a wrong at the hands of the defendant. For the most part the cases in this chapter will be legal actions in indebitatus assumpsit.

4.1 Restitution and the Limitation of Actions 4.1.1 H. Russell Taylor's Fire Prevention Service, Inc.,

v. Coca Cola Bottling Corp.

H. Russell Taylor's Fire Prevention Service, Inc., v. Coca Cola

Bottling Corp.

California Fifth District Court of Appeals

99 Cal. App. 3d 711; 160 Cal. Rptr. 411

1979

Zenovich, J.--A complaint filed in Kern County Superior Court alleged that appellant Coca Cola Bottling Corporation (hereafter referred to as Coca Cola) was indebted to appellant H. Russell Taylor's Fire Prevention Service, Inc. (hereafter referred to as Taylor) in excess of $9,500. Taylor's complaint prayed for relief based on the following four causes of action: (1) account stated; (2) open book account; (3) indebitatus assumpsit; and (4) money had and received.

By stipulation of the parties, Taylor amended its complaint in the indebitatus assumpsit count, and Coca Cola amended its answer to assert as a separate aAErmative defense the bar of the statute of limitations set forth in Code of Civil Procedure section 338, subdivision 3.

447

448 CHAPTER 4. RESTITUTION AS A REMEDY FOR WRONGS

Thereafter, the court entered findings of fact and conclusions of law rendering judgment for Taylor in the sum of $7,157. From this judgment Coca Cola appeals. Taylor cross-appeals.

In this case, we must determine whether the limitations period in the Cal- ifornia Uniform Commercial Code (hereafter referred to as Commercial Code) applies to sales contracts implied by operation of law.

In 1957, Coca Cola entered into an oral agreement with Taylor. Taylor was to periodically fill some of its own cylinders with carbon dioxide and supply them to Coca Cola's bottling plant in Bakersfield, California for use as fire extinguishers. The agreement specified that Taylor would furnish carbon dioxide at 16 cents per pound upon Coca Cola's request. Moreover, representatives of both parties agreed that Coca Cola would pay a $1 service charge for each tank filled in lieu of demurrage. Testimony at trial confirmed the fact that no demurrage was ever charged by Taylor for any outstanding cylinder.

Pursuant to the oral agreement, Taylor made deliveries of cylinders to Coca Cola's plant until September 23, 1971. The trial court found that September 23, 1971, was the termination date for Taylor's services. Within 90 days, em- ployees of Taylor demanded return of several hundred cylinders in Coca Cola's possession. Coca Cola began to return many of the cylinders, although 246 in number were still missing at the time of trial.

As of January 31, 1973, Taylor's accounts receivable ledger for Coca Cola disclosed a zero balance. From June 1972 to July 1974, Taylor sent statements of demurrage charges to Coca Cola for $8,494.08. Coca Cola made no reply to these statements. Notwithstanding Coca Cola's silence, Taylor kept records and ledgers of the demurrage charges showing that Coca Cola owed $12,436.08 in late charges as of July 8, 1975.

The trial court found that Coca Cola's failure to return the cylinders was a taking and detaining of goods and chattels. In addition, the court determined that Taylor waived the conversion claim and elected to treat the action as a purchase and sale of the cylinders. Having determined that an implied-in-law sale occurred once the tort was waived, the court applied the four-year statute of limitations of Commercial Code section 2725, subdivision (1), and held the suit timely filed. Moreover, the court also made findings which supported its conclusion that Taylor was not entitled to recover on account stated or open book account theories.

THE COCA COLA APPEAL Coca Cola contends that the trial court erroneously determined that Taylor's third cause of action--indebitatus assumpsit--was governed by the four-year statute of limitations provided in Commercial Code section 2725, subdivision (1).

Since this case involves an issue of first impression, the full text of paragraphs from the

judgment pertinent to the respective appeals are included in appendix A. [Footnote by court, renumbered]

September 11, 2000

4.1. RESTITUTION AND THE LIMITATION OF ACTIONS 449

The trial court determined that Taylor was not entitled to judgment upon the first and second causes of action, a ruling from which Taylor cross-appeals. In addition, Taylor apparently decided, as a matter of trial tactics, to abandon the fourth cause of action for lack of supporting evidence. Thus, the trial court had to rely upon the third cause of action (indebitatus assumpsit) in rendering its judgment.

Procedurally, Taylor filed its complaint on June 4, 1975, more than three years after September 23, 1971, the date upon which demand was made for the outstanding cylinders. The trial court found that the suit was timely filed within the four-year statute of limitations set forth in Commercial Code section 2725, subdivision (1),

since the indebitatus assumpsit theory legally transformed

the tortious conversion of the cylinders into a fictional contract of sale. Coca Cola contends that the trial court erroneously applied the four-year limitations period even though the gravamen of Taylor's claim was for "taking, detaining, or injuring any goods, or chattels," a cause of action governed by the three-year limitations period provided in Code of Civil Procedure section 338, subdivision 3. Under Coca Cola's construction of the action brought by Taylor, the suit would be time barred if the limitations period of the Commercial Code is deemed inapplicable.

In ruling upon the applicability of a statute of limitations, it has been rec- ognized that courts will look to the nature of the rights sued upon rather than to the form of action or to the relief demanded. Neither the caption, form, nor prayer of the complaint will conclusively determine the nature of the liability from which the cause of action flows. Instead, the true nature of the action will be ascertained from the basic facts a posteriori.. . . Since the trial court found the four-year limitations period governing sales contracts applicable, it must be determined whether indebitatus assumpsit--Taylor's cause of action-- is based on contract or tort. In order to pinpoint the proper nature of the rights sued upon, an examination of the theory underlying indebitatus assumpsit is appropriate.

The general contours of the assumpsit cause of action have been summarized by Professor Corbin as follows: "The common counts in assumpsit are merely abbreviated and stereotyped statements that the defendant is indebted to the plaintiff for a variety of commonly recurring reasons, such as. . . goods sold and delivered. They are allegations of indebtedness, and the action may be properly described as indebitatus assumpsit. . . . The common counts could be used for the enforcement of express promises if they were such as to create a money

Although the trial court did not expressly state reliance on Commercial Code section

2725, subdivision (1), its finding that the transaction was a "purchase and sale of said cylin- ders to Defendants [Coca Cola] by Plaintiffs [Taylor]" implicitly applies the four-year period mentioned in the Commercial Code.

Section 2725, subdivision (1), provides: "An action for breach of any contract for sale must be commenced within four years after the cause of action has accrued. By the original agreement the parties may reduce the period of limitation to not less than one year but may not extend it."

[Footnote by court, renumbered]

450 CHAPTER 4. RESTITUTION AS A REMEDY FOR WRONGS debt, as well as for the enforcement of implied promises and quasi contracts." (1 Corbin, Contracts (1st Ed. 1963) x20, p. 51, italics added.)

In Philpott v. Superior Court (1934) 1 Cal.2d 512 [36 P.2d 635, 95 A.L.R. 990] . . ., the California Supreme Court discussed the historical evolution of indebitatus assumpsit. The court stated: "The action of assumpsit, in its devel- opment, had an interesting but stormy career at the common law. Although in existence for some years previous to that time, it came into prominence following the decision in Slade's Case in 1603 (Coke's Rep., vol. 2, p. 505; 2 Harvard Law Review, p. 16). It gradually gained prominence and widened in scope until 1760 when Lord Mansfield, in the case of Moses v. Macfarlan (2 Burr. 1005, English Reports, Full Reprint, King's Bench Book 26, vol. 97, p. 676), described its function as follows: `This kind of equitable action to recover back money, which ought not in justice to be kept, is very beneficial, and therefore much encouraged. It lies only for money which, ex aequo et bono, the defendant ought to refund; it does not lie for money paid by the plaintiff, which is claimed of him as payable in point of honor and honesty, although it could not have been recovered from him by any course of law; as in payment of a debt barred by the statute of limitations, or contracted during his infancy, or to the extent of principal and legal interest upon a usurious contract, or, for money fairly lost at play: because in all these cases, the defendant may retain it with a safe conscience, though by positive law he was barred from recovering. But it lies for money paid by mistake; or upon a consideration which happens to fail; or for money got through imposition (express or implied); or extortion; or oppression; or an undue advantage taken of the plaintiff's situation, contrary to laws made for the protection of persons under those circumstances. In one word the gist of this kind of action is, that the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity to refund the money.'

"Quoting the above, Mr. Holdsworth in his work on the History of English Law, volume 8, page 97, uses this language: `It was thus in the action of indeb- itatus assumpsit that the larger part of our modern law of quasi-contract has originated.'

". . . . "Authorities in support of the prevalent use of this form of action in the courts of the common law could be multiplied indefinitely, but we will close this branch of the discussion by a quotation from Professor Ames in volume 2 of the Harvard Law Review, page 69: `The main outlines of the history of assumpsit have now been indicated. In its origin an action of tort, it was soon transformed into an action of contract, becoming afterwards a remedy where there was neither tort nor contract. Based at first only upon an express promise, it was afterwards supported upon an implied promise, and even upon a fictitious promise. Introduced as a special manifestation of the action on the case, it soon acquired the dignity of a distinct form of action, which superseded Debt, became concurrent with Account, with Case upon a bailment, a warranty, and bills of exchange, and competed with Equity in the case of essentially equitable quasi- contracts growing out of the principle of unjust enrichment. Surely it would be

September 11, 2000

4.1. RESTITUTION AND THE LIMITATION OF ACTIONS 451 hard to find a better illustration of the flexibility and power of self-development of the Common Law.' " (Philpott v. Superior Court, supra, 1 Cal.2d at pp. 518-519, 520-521.) Although recognizing that a tortious act frequently formed the basis for invoking assumpsit, the court determined that " `its contractual quality was always its most distinct feature.' " (Philpott, supra, at p. 526, quoting 7 Holdsworth, History of English Law, p. 441.)

In the instant case, the trial court found that Coca Cola's failure to return the cylinders was conversion. Nonetheless, the court ruled that Taylor had waived the tort after making its demand for return of the chattels and elected to treat the transaction as a sale of the cylinders. This ruling appears to comport with California law, which allows a bailor in Taylor's position to treat the conversion as a fictional or implied by law contract of sale. . . .

Generally, where there

is a waiver of tort and suit in assumpsit, the statute of limitations relating to actions of assumpsit rather than tort applies, although the determination of what limitation period is appropriate may depend on the substance of the action and the nature of the right violated rather than the form of action. . . .

As Philpott and other authorities suggest, the nature of rights inherent in the indebitatus assumpsit cause of action appear to be based in contract prin- ciples. This reasoning is further bolstered by the realization that Taylor had to waive tort remedies in order to avail itself of the assumpsit theory. It has been recognized that when a party entitled to enforce two remedies either institutes an action upon one of such remedies or performs any act in pursuit of such remedy, he will be held to have made an election of such remedy and will not be entitled to pursue any other remedy for the enforcement of his right. . . . Given the binding nature of the election made by proceeding under indebitatus assumpsit, we are of the opinion that the trial court correctly found that the gravamen of Taylor's claims was contractual in nature.

After determining that the nature of the rights was based in contract, the trial court applied the four-year statute of limitations governing sales contracts in Commercial Code section 2725, subdivision (1). Because Taylor's assumpsit claim created a fictional sale, the novel question presented in this case is whether

One treatise summarized the assumpsit cause of action as follows: "[Violation] by a bailee

of his duty to exercise appropriate care for the preservation and safety of property entrusted to him may be regarded either as a tort or as a breach of an implied condition of his contract. Of course, where the bailee's acts amount to a conversion, the plaintiff may waive the tort and sue for the value of the converted property on the basis of goods sold and delivered, in which case his action is on a contract implied by law arising upon a waiver of tort.

"The rule allowing the plaintiff to waive a tort and sue in assumpsit applies to cases involving conversion of personal property. The right of the owner to waive the tort and sue in assumpsit is not limited, as in some jurisdictions, to those cases where the wrongdoer has sold the property or otherwise converted it into money and recovery of the proceeds is sought. The owner may sue for the value of the property converted by proceeding in assumpsit as for goods sold and delivered. The basis of recovery is that he consents to the taking of his property and aAErms the act of the wrongdoer. He treats it as a sale, and may recover the value due him as under a contract of sale." (7 Cal.Jur.3d, Assumpsit, xx11-12 (1979 pocket pt.) pp. 21-22, fns. omitted.)

[Footnote by court, renumbered]

452 CHAPTER 4. RESTITUTION AS A REMEDY FOR WRONGS the limitations period in the Commercial Code applies to sales contracts implied by operation of law. If this section is inapposite to implied-in-law contracts, Taylor's claim would be barred under the more restrictive time period of Code of Civil Procedure section 339, subdivision 1.

Only one reported decision appears to address whether Commercial Code section 2725 encompasses implied-in-law sales contracts. In Al Bryant, Inc. v. Hyman (Pa.Ct.Comm.Pl. 1975) 17 UCC Reporting Service 790, a Pennsylvania lower court was confronted by a seller basing his suit upon a pleaded express oral contract and also suing in quasi-contract for the reasonable value of services provided. In deciding that the Commercial Code statute of limitations did not apply to a quasi-contractual cause of action, the court reasoned: "We find no cases on this question in any jurisdiction. However, the statute [Com. Code, x2725] seems to apply only to actual contracts by its own terms: `An action for breach of any contract for sale must be commenced within four years. . .' [citation]. The word `contract' is defined in [Com. Code] x1-201 to mean `the total legal obligation which results from the parties' agreement.' [Original ital- ics.] A quasi-contract does not arise from an agreement, but by operation of law. [Citations.] It would appear that the writers of the UCC intended the four year limitations period to cover only express and implied contracts." (17 UCC Reporting Service at p. 793, italics added.)

Thus, Bryant found that the statute of limitations applied to express and implied-in-fact contracts, but not to implied-in-law contracts. We are not per- suaded.

Taylor cites Hachten v. Stewart (1974) 42 Cal.App.3d Supp. 1 [116 Cal.Rptr. 631] as authority for the proposition that Commercial Code section 2725 has been extended to implied-in-law contracts in California.

Hachten involved an assignee of Mobil Oil who sought recovery of money based upon a common count " `for goods, wares, and merchandise furnished to defendants at defendants' request, [for] which. . . defendants agreed to pay.'

Code of Civil Procedure section 339, subdivision 1, provides: "[The periods prescribed

for the commencement of actions other than for the recovery of real property, are as follows:]

"Within two years: 1. An action upon a contract, obligation or liability not founded upon an instrument of writing,..."

[Footnote by court, renumbered]

Bryant's reasoning is not helpful in the case at bar due to its reliance on Pennsylvania

contract law. Although partially basing its determination upon a construction of the Com- mercial Code, the court also noted: "It has been held in Saltzman v. Saltzman, 189 F Supp 36 (1960), that the statutory limitations period of six years (12 PS x 31) which applies to con- tracts does not apply to actions in quasi-contract. If the six year general limit does not apply to unjust enrichment, perhaps by analogy the UCC four year limit does not so apply either." (Al Bryant, Inc v. Hyman, supra, 17 UCC Reporting Service at p. 793, italics added.) Under California law, the Saltzman rationale is inapposite because the Legislature has provided a separate limitations period covering contracts "not founded upon an instrument of writing" (such as unjust enrichment) in Code of Civil Procedure section 339, subdivision 1. Since Bryant relied by analogy to legal principles inapplicable to situations in our jurisdiction, its interpretation should not be regarded as dispositive on the issue of extending the four-year limitation provision to implied-in-law sales contracts. [Footnote by court, renumbered]

September 11, 2000

4.1. RESTITUTION AND THE LIMITATION OF ACTIONS 453 " (Hachten v. Stewart, supra, 42 Cal.App.3d Supp. at p. 2.) The trial court granted summary judgment for defendant on the ground that Code of Civil Pro- cedure section 339, subdivision 1, barred an action upon a nonwritten contract not filed within two years. The appellate court in Hachten reversed, holding that "actions on sales contracts may. . . be commenced within four years of accrual of the cause of the action, even if the sales contract is oral." (Id., at p. 3, italics added.) In holding that the plaintiff assignee was entitled to invoke Commercial Code section 2725, the court reasoned that this action was essen- tially one for price due the seller under section 2709, bringing the suit within article II of the Code. (Id., at pp. 2-3.)

In order to determine whether fictional sales contracts are governed by the four-year period, it is pertinent to construe the language contained in the Com- mercial Code's limitation statute.

Commercial Code section 2725 deals with "contract[s] for sale" and, in defini- tional cross-references at the end of the section, makes reference to Commercial Code section 2106. Commercial Code section 2106 defines "contract for sale" as including "both a present sale of goods and a contract to sell goods at a future time."

In addition, the section defines "present sale" as "a sale which is

A decision of the Pennsylvania Supreme Court would initially appear to resolve which

limitations period is pertinent to the instant case. In Gardiner v. Philadelphia Gas Works (1964) 413 Pa. 415 [197 A.2d 612], the court applied the four-year statute of limitations contained in Commercial Code section 2-725, rather than Pennsylvania's two-year limitations period for personal injury claims sounding in negligence, to an assumpsit action by customers against a gas company for injuries allegedly caused by breach of the company's implied war- ranty to transmit gas to customers in a safe manner. (Gardiner, supra, at p. 614.) There are two reasons why Gardiner should not be determinative in the present context. First, Califor- nia has adopted an approach in conflict with Gardiner, holding that personal injury actions based upon a breach of warranty are governed by the one-year limitations period set forth in Code of Civil Procedure section 340, subdivision 3, rather than the statute of limitations pre- scribed by Commercial Code section 2725. (Becker v. Volkswagen of America, Inc. (1975) 52 Cal.App.3d 794, 802 [125 Cal.Rptr. 326].) Second, having once decided that Philpott, supra, 1 Cal.2d 512, established indebitatus assumpsit as a quasi-contractual (rather than tort-based) cause of action, the issue centers upon a contention not considered in Gardiner--namely, whether to apply the limitations period for contracts not founded upon a written instrument (Code Civ. Proc., x339, subd. 1) or the statute of limitations for contracts of sale (Com. Code, x2725, subd. (1)). [Footnote by court, renumbered]

I have always found it diAEcult to make sense out of this definition, since a present sale

of goods was recognized by the common law, and was enforceable by the actions of debt and detinue, for centuries before there anything like the modern "contract" of sale--or of anything else. The difference between a (present) sale and a contract to make a sale in a future is, of course, that the sale passes title and gives the purchaser the immediate right to bring detinue (or replevin) for the goods if they are not delivered (and the seller becomes, in effect, a bailee of the goods).

The problem is that the draftsman of the sales article of the U.C.C. was so busy trying to establish who bears the risk of loss without ever having to refer to who has title, that that article grossly confuses the issue when one wants to know who has title (and does not care who bears the risk of loss).

[pdj]

454 CHAPTER 4. RESTITUTION AS A REMEDY FOR WRONGS accomplished by the making of the contract."

Since "contract" is a key word

in Commercial Code section 2106, illumination is provided by consulting Com- mercial Code section 1201, subdivision (11). This latter provision sates that " `Contract' means the total legal obligation which results from the parties' agreement. . . ." Further clarity is provided by Commercial Code section 1201, subdivision (3), which defines "Agreement" as "the bargain of the parties in fact as found in their language or by implication from other circumstances including course of dealing or usage of trade or course of performance as provided in this code. . . ."

Focusing upon Commercial Code section 1201, subdivision (3), it is impor- tant to note that the drafters of the Commercial Code defined agreement to mean "the bargain of the parties . . . by implication from other circumstances including . . . ." The deliberate insertion of the word "including" denotes that the drafters contemplated agreements which could be implied other than in fact. This is further supported by Commercial Code section 1102, which states that the code should be liberally construed. (Com. Code, x1102.) Given the fact that indebitatus assumpsit is a well-established contractual theory, there is ample reason for allowing Taylor to employ the limitations period for sales contracts contained in Commercial Code section 2725.

Three other reasons also support the conclusion that Commercial Code sec- tion 2725 encompasses implied-in-law sales contracts. First, we are of the opin- ion the literal meaning of the statutory language in Commercial Code section 2725 applies to fictional sales agreements. Commercial Code section 2725 states that the four-year period governs "An action for breach of any contract for sale. . . ." (Italics added.) In construing statutes, it is established that courts are to give effect to statutes according to the usual, ordinary import of the language employed in framing them. . . . In light of the plain meaning of "any contract," it is reasonable to include implied-in-law agreements within the pro- visions of Commercial Code section 2725.

Second, a broad reading of Hachten (see discussion of this case, supra) sup- ports the proposition that Commercial Code section 2725 governs implied-in-law sales contracts. The court in Hachten stated that a complaint based on a com- mon count " `for goods, wares, and merchandise furnished to defendants. . .' " was, in actuality, an action for price due the seller under Commercial Code section 2709. Having determined that the action fell within the Commercial

What contract? If you go to the grocery store and buy a can of beans for cash, is there

any contract made? [pdj]

One can hardly blame the court for this confusion between contract and quasi-contract.

Blame it on the incoherence of the provisions of the U.C.C. that the poor court had to construe. But the facts remain: a sale is not a contract and a "quasi-contract"--a so-called "contract implied in law"--is not a contract and mock-turtle soup is not make out of turtles. [pdj]

Commercial Code section 1103 provides: "Unless displaced by the particular provisions of

this code, the principles of law and equity... shall supplement its provisions." Since indebitatus assumpsit is a principle firmly established in contract law, it can be properly incorporated into the provisions of Commercial Code section 2725. [Footnote by court, renumbered]

September 11, 2000

4.1. RESTITUTION AND THE LIMITATION OF ACTIONS 455 Code, the court then concluded that Commercial Code section 2725 was appli- cable. (Hachten v. Stewart, supra, 42 Cal.App.3d Supp. at pp. 2-3.) Since indebitatus assumpsit is a common count, we are of the opinion that it is an action for "price due the seller" and thereby cognizable under the Commercial Code.

Third, this result is also sanctioned by the recommendation of the Advisory Committee to the Senate on the editorial aspects of the Uniform Commercial Code, which was transmitted to the California Senate Interim Committee on Judiciary prior to legislative enactment of Commercial Code section 2725 in 1967. In its report, the Advisory Committee stated: "The section deals with the Statute of Limitations with respect to contracts of sale and was promulgated to eliminate jurisdictional variations and provide relief for concerns doing business on a nation-wide scale." (1 Sen. J. (1969 Reg. Sess.) p. 1237.) The Legislature apparently responded to the need for consistent treatment of sales transactions when passing this provision, since it had deliberately omitted Commercial Code section 2725 in 1963 because the California State Bar Committee felt that "there is no great need for such uniformity in statutes of limitation, [and] that such statutes may be governed by local policy with little hindrance to commerce among the states,. . .' " (See Cal. Code com. to Cal. U. Com. Code, x2725, 23A West's Ann. Com. Code (1964 ed.) p. 693.) Since application of a four-year limitations period to fictional sales contracts would promote business certainty and uniformity, our construction is buttressed by legislative concerns underlying the enactment of Commercial Code section 2725.

We therefore find that the trial court did not commit error in determining that the four-year limitation period of Commercial Code section 2725 applied to Taylor's claim. Taylor was not barred from pursuing Coca Cola through the assumpsit cause of action.

Coca Cola now contends that there was insuAEcient evidence to support the finding of the trial court that Taylor demanded return of the outstanding cylinders from Coca Cola within 90 days after the parties terminated their business dealings. We disagree.

The trial court found that Taylor had demanded return of the outstanding cylinders on September 23, 1971, from Coca Cola following termination of their business relationship. Coca Cola suggests that the lower court erred in mak- ing this factual finding on the theory that Taylor had demanded return before September 23, 1971, which would bar recovery of most cylinders under tort principles governing conversion actions.

It has been established that where an original taking is wrongful, the bar of the statute of limitations runs from the time of the unlawful taking. Moreover, where the original taking is lawful, the statute is not set in motion until the return of the property has been demanded and refused or until a repudiation of the owner's title is unequivocally brought to his attention. These principles are especially applicable in a bailment situation. . . . Since the parties were in a bailment situation, Coca Cola specifically argues that Taylor's actions in notifying Coca Cola of missing cylinders for purposes of making inventory checks

456 CHAPTER 4. RESTITUTION AS A REMEDY FOR WRONGS was a "demand." Accordingly, it is Coca Cola's contention that the underlying tort of conversion was barred for most cylinders "demanded" before September 23, 1971.

On appeal from a judgment in a civil proceeding, when two or more reason- able inferences can be drawn from the facts, the reviewing court is without power to substitute its deductions for those of the trier of fact. Even though contrary inferences could reasonably have been drawn, the reviewing court cannot make contrary findings where the trial court judgment is supported by substantial proof. . . . Substantial evidence means evidence which is of ponderable legal significance--evidence that is reasonable in nature, credible and of solid value.

The record reveals that representatives of Taylor had asked Coca Cola to return the missing cylinders after September 23, 1971. Although the prior communications between the parties could have been interpreted as "demands," the trial court found that Taylor did so in 1971. In light of the deference which must be paid to the lower court's inferences, we find that there is substantial evidence to support its finding.

THE TAYLOR APPEAL In its conclusions of law, the trial court found that Taylor was not entitled to judgment based on its first cause of action, account stated. This conclusion was based on the court's factual finding that no fixed or readily calculable sum ever became due from Coca Cola to Taylor, since Coca Cola never agreed to pay a demurrage charge. Taylor contends that this finding was erroneous. We disagree.

Taylor more particularly contends that evidence revealed that Taylor's rep- resentatives sent a statement of demurrage charges to Coca Cola on several occasions, with Coca Cola failing to object or respond to such correspondence. It is Taylor's contention that this was an acquiescence to such charges.

To constitute an account stated, it must appear that at the time of the state- ment in indebtedness from one party to the other existed, that a balance was then struck and agreed to be the correct sum owing from the debtor to the cred- itor, and that the debtor expressly or impliedly promised to pay to the creditor the amount thus determined to be owing. In addition, the amount agreed upon must be either specifically stated or readily calculable. (1 Cal.Jur.3d, Accounts and Accounting, x33, p. 255.)

One of the essential elements of an account stated is that a statement of indebtedness must exist between the parties. . . . The trial court found that this statement did not exist because Coca Cola agreed to pay $1 per refill in lieu of demurrage. We are of the opinion that this finding is amply supported through testimony offered by both parties.

Coca Cola apparently suggests that since indebitatus assumpsit initially involves waiver

of the tort action, the prior "demands" cut off the conversion claim which, in turn, precluded the assumpsit cause of action. [Footnote by court, renumbered]

September 11, 2000

4.1. RESTITUTION AND THE LIMITATION OF ACTIONS 457

Furthermore, Taylor's pleadings preclude an assertion of an account stated. Taylor pleaded an account stated "in excess" of $32,013.25. It is elementary law that a claim must be reduced to a definite amount by agreement between the parties before it can form a legitimate portion of an account stated. . . . Thus, we find the trial court's determination that there was no fixed or readily calculable sum proven is supported by the record.

Finally, the argument that Coca Cola acquiesced to the statements submit- ted is without merit. The court in Hemenover v. Lynip . . ., 107 Cal.App. at page 363 stated: "[It] was never intended that through the mere means of send- ing out a claim that thereby a legal and recoverable demand might be created unless the adverse party made prompt and effectual denial. The law was in- tended to preserve and protect legitimate demands but not to create obligations independent of prior indebtedness." (Italics added.)

We therefore are of the opinion that the trial court correctly found that Taylor was precluded from judgment on the claim based upon account stated.

The trial court then concluded that Taylor was not entitled to judgment on the second cause of action because the demurrage charges kept in its account books did not constitute an open book account. This was predicated on the factual findings that the subsequent entries for indebtedness on Taylor's books were demurrage charges which were precluded by the agreement to pay $1 for refills in lieu of rental. Taylor contends that the trial court erred in making these determinations. We disagree.

A book account is created by the agreement or conduct of the parties in a commercial transaction. Nonetheless, the mere recording in a book of transac- tions or the incidental keeping of accounts under an express contract does not of itself create a book account. Parties to a written or oral contract may, however, provide that monies due under such contract shall be the subject of an account between them.

Although Taylor contends that a book account of demurrage charges existed after September 23, 1971, the trial court found otherwise on the basis of the oral agreement to pay for refills pro rata.

In examining suAEciency of evidence to support a questioned finding, an ap- pellate court must accept as true all evidence tending to establish the correctness of a finding as made, adopting all inferences which might reasonably have been thought by the trial court to lead to the same conclusion. . . .

In light of the refill-in-lieu-of-demurrage agreement, the lower court could reasonably have found that the subsequent record keeping was merely incidental, rather than an open book account.

We therefore find that there was suAEcient evidence supporting the trial court's conclusion that Taylor was barred from seeking relief on the basis of an open book account.

The judgment of the trial court in the Coca Cola appeal is aAErmed; the judgment of the trial court in the Taylor cross-appeal is aAErmed, and the cross- appeal is dismissed.

458 CHAPTER 4. RESTITUTION AS A REMEDY FOR WRONGS

Hopper, Acting P.J., and Fretz, J., concurred.

APPENDIX A FINDINGS OF FACT state in pertinent part: "7. It is true: That the failure of Defendants to return cylinders delivered to Defendants by Plaintiffs constituted a taking and/or detaining of goods and chattels; that Plaintiffs elected to waive the refusal of the Defendants to return the cylinders after demand therefor as a tort and has elected to consider said refusal as a purchase and sale of said cylinders to Defendants by Plaintiffs; that said purchase and sale occurred when the Defendants ceased doing business with Plaintiffs as of September 23, 1971; that said cylinders should have been returned as of September 23, 1971 by Defendants to Plaintiffs; that interest has accrued since said date of September 23, 1971, as provided by law.

"8. It is true: That Plaintiff's complaint was filed within four (4) years of the termination of the business relationship of the parties as of September 23, 1971.

"9. It is not true: That Section 339, Subdivision 1 of the Code of Civil Pro- cedure is applicable to this action; that Section 337, Subdivision 2 of the Code of Civil Procedure is applicable to this action; that Section 338, Subdivision 3 of the Code of Civil Procedure is applicable to this action.

"10. It is true: That no specific or fixed amount due from Defendant to Plaintiff was ever agreed upon between the parties orally, in writing, or by ac- quiescence. No fixed or readily calculable sum ever became due from Defendant to Plaintiff in such manner as to constitute an account stated. No balance of accounts were struck between the parties. Defendant was never at any time indebted to plaintiff for demurrage, the one dollar per refill charge being in lieu thereof.

"11. It is true: That Plaintiff's last transaction involving delivery of cylinders to Defendant occurred on September 23, 1971. Plaintiff's books of account discloses [sic] zero balance due from Defendant to Plaintiff as to all transactions between them as of January 31, 1972. All subsequent entries in Plaintiff's books of account are for rental/demurrage. By the agreement of the parties, Defendant was not indebted to Plaintiff for rental or demurrage. Plaintiff's books, ledgers and records do not disclose any indebtedness from Defendant to Plaintiff on a book account."

CONCLUSIONS OF LAW state in pertinent part: "1. That Plaintiff is not entitled to a Judgment on the First Cause of Action on an account stated because Defendant's silence did not amount to an agreement to the accounts rendered to Defendant by Plaintiff. No account was stated between the parties. No sums certain was [sic] agreed upon, either orally, in writing or by acquiescence.

"2. That Plaintiff is not entitled to a Judgment on the Second Cause of Action because the charging of demurrage by Plaintiff in its books of account

September 11, 2000

4.1. RESTITUTION AND THE LIMITATION OF ACTIONS 459 did not constitute an open book account. Plaintiff is not entitled to recover from Defendant on the theory of a book account.

"3. Plaintiff is entitled to a Judgment on the Third Cause of Action for seven thousand one hundred fifty-seven dollars ($7,157.00), together with inter- est thereon from September 23, 1971 at 7% per annum."

4.1.2 Notes on Taylor's Fire Prevention Service

1. The issue of whether the statute of limitations of the U.C.C. relating to

actions for breach of a contract for the sale of goods should be applied to quasi-contractual actions for goods sold and delivered, where there was no actual contract and the basis of the quasi-contractual action is really a conversion, may not have arisen in many cases. There are, however, many cases in which the plaintiff has waived the tort of conversion and instead sued in assumpsit, claiming that the election of the quasi-contractual rem- edy entitled him to the (typically longer) period of limitations for contract, rather than tort, actions.

An obvious diAEculty that arises in all of these cases is that the remedy that the plaintiff is seeking is not one for damages based either on a breach of contract or a tort.

The remedy that is sought is value restitution, and

such value restitution is, as Lord Mansfield put it in Hambly v. Trott, reprinted supra in Section 1.12.1, "founded on property."

There are,

unfortunately, few, if any, statutes of limitations that expressly apply to restitutionary actions (other than to actions in ejectment or replevin).

Though the remedy that is sought is restitutionary, the underlying cause of action is, of course, based on the tort of conversion;

if Coca Cola had not

converted the carbon dioxide cylinders, Taylor's would have had no cause of action whatsoever: no action in conversion to waive, and thus no action in assumpsit based on the waiver of the nonexistent action in conversion. Since the restitutionary action is based on the underlying tort--and since quasi-contractual actions are not based on, and have nothing to do with,

Nor, of course, is it one for the specific performance of a contract or for an injunction

against a continuing tort. Such equitable actions traditionally were not subject to any statute of limitations; the courts of equity, in their typically flexible way, relied upon the doctrine of laches to bar stale claims and did not impose a hard and fast cutoff date, beyond which a claim would be barred. Today, however, many equitable claims have been made subject to the statutes of limitations.

For a rather confused discussion of laches and restitutionary remedies--especially ejectment--see the dissenting opinion of Justice Stevens in County of Oneida v. Oneida Indian Nation, which is reprinted supra in Section 3.2.3 starting at page 342

In that case Lord Mansfield was describing the true nature of a conversion action, but the

description is at least as true when applied to general assumpsit for goods sold and delivered or for money had and received.

Remember, however, that Lord Mansfield characterized conversion as being founded on

property, even though in form it was--with its plea of "not guilty"--clearly tortious.

460 CHAPTER 4. RESTITUTION AS A REMEDY FOR WRONGS

contracts--one would naturally expect the tort statute of limitations to be applied.

The courts, however, have almost universally applied the contract statute of limitations to such cases. In Taylor's v. Coca Cola, after all, the issue was not whether the tort or the contract statute of limitations should be applied. The issue rather was to decide between two contract statutes of limitations.

When one thinks about it, that result makes sense, even if one cannot completely reconcile it with the legislature's unfortunate tendency to as- sume that a cause of action must be based on either a contract or a tort.

The result makes sense because the restitutionary action is one to recover something--or, rather, the value of something--which the defendant has and to which the plaintiff has a better claim. One can see why the leg- islature would provide a relatively short period in which to bring actions based on an injury suffered by the plaintiff that did not enrich the defen- dant. But if the defendant is enriched by his wrongdoing it seems only fair to allow the plaintiff a longer period in which to recover that enrichment.

Thus for example, in Bidleman v. National Feeders Service, Inc., 268 F. Supp. 904 (W.D. Okla. 1967), the court said:

Defendants have moved to dismiss upon the grounds that the statute of limitations bars the action.

The complaint makes no contention that any of the defen- dants benefited from the transaction or that they kept the steers or the proceeds thereof, however, in an amendment to the com- plaint it is alleged that Ridleys d/b/a Oklahoma Livestock Com- mission Co. received at least $23,320.90 from the sale of plain- tiff's steers which has been retained by this defendant.

Title 12, Oklahoma Statutes, Sec. 95(3) prescribes a two year limitation period for conversion of personal property. A three year limitation period is prescribed for an action upon an implied contract, 12 O.S.x95(2). This case was commenced about 2 1/2 years after it accrued so is barred unless plaintiff be permitted to waive the tort and sue in assumpsit.

In some situations the above may be allowed but such pro- cedure is available to a plaintiff only where the defendant tort-

It's not just legislatures and legislators that make this mistake. The majority of law

teachers, law students, and lawyers probably suffer from the same mistaken belief.

You may, of course, wonder whether that argument is persuasive in the instant case.

Coca Cola does not seem to have been enriched by its possession of the cylinders; it seems pretty obvious that the cylinders were misplaced. If that is so, then the underlying tort would be negligence, rather than conversion. It is diAEcult to see how one could waive the tort of negligence and sue in assumpsit for the value of the benefit that the defendant received from his negligence when the defendant did not receive any benefit.

This point is speculative, however. For some reason--maybe the tort period was longer than the period for unwritten contracts--counsel for Coca Cola did not raise it.

September 11, 2000

4.1. RESTITUTION AND THE LIMITATION OF ACTIONS 461

feasor derived a benefit from the conversion....

Since there is no contention here that National Feeders Ser- vice, Inc., or Oklahoma National Stockyards Co., derived any benefit from the alleged conversion the action must be and hereby is dismissed as to them. The amendment to the com- plaint alleges that Fred A. Ridley, Jr., and H. Herbert Ridley, Jr., d/b/a Oklahoma Livestock Commission Co., did derive a benefit from the tort so their motion to dismiss is overruled and they are allowed 15 days within which to answer. Should facts subsequently developed disclose that Ridleys derived no benefit from the transaction they may renew their motion.

2. The action for goods sold and delivered was not one of the possible al-

ternative actions that Lord Mansfield expressly considered in Hambly v. Trott. It would have taken care of the case where the dead converter had consumed the sheep, goats, pigs, oats, and cyder. In 1776, however, although the possibility of waiving the conversion and suing for money had and received had already been recognized, no one had ever waived conversion and sued for goods sold and delivered.

When the possibility of waiving conversion and suing in general assump- sit for goods sold and delivered was first raised in the United States, it was rejected. The leading case is Jones v. Hoar, 22 Mass. (5 Pick.) 285 (1827), reprinted supra in Section 1.14.1. Many states have, like Cali- fornia, rejected the rule of Jones v. Hoar, but others still follow it. See, for example, Janiszewski v. Behrmann, 345 Mich. 8, 75 N.W. 77 (1956) reprinted supra in Section 1.15.

3. In the original meaning of the word "sale" and its cognates, when A sold

the horse Dobbin to B for $10, B ended up owning Dobbin and A ended up owning the $10. That is still what any rational person--as opposed to a lawyer--would think happens. Unfortunately, the draftsmen of the U.C.C. confused things dreadfully by decreeing that a sale is a contract.

Under the view of the matter taken by the U.C.C., a sale is a contract to make a sale, which is a contract to make a contract to make a sale, which is a contract to make a contract to make a contract to make a sale ..., and so on, ad infinitum. Although nothing really depends on the definition of a sale, this perversity does harm than one might expect. The draftsmen of the U.C.C. probably thought that it actually did some good: the idea is that if, after A sells Dobbin to B, someone comes along and offers A more than Dobbin is worth--say $20--, then A--if he still has possession of Dobbin--can sell the poor critter again. Now if the U.C.C. admitted that A had already sold the horse to B, B would be entitled to sue A for conversion of B 's horse or to sue in indebitatus assumpsit

I am not suggesting that one cannot have a contract to make a sale. I am claiming

that--no matter what is written in the U.C.C.--a sale is not a contract to make a sale.

462 CHAPTER 4. RESTITUTION AS A REMEDY FOR WRONGS

for the $20 pounds A had and received.

The draftsmen of the U.C.C.

apparently did not like that result.

So they created the new legal fiction

that a sale is a contract. Perhaps their minds were addled to all references to quasi-contracts that they had seen, not knowing--as you do--that a quasi-contract is not a contract.

The result of all of these shenanigans is that B cannot get the $20. If he has paid the $10, he can sue to recover that sum in an action for money had and received.

And he can sue for damages in any case. The trouble

is that Dobbin was only worth $10, so that, if B has not paid the money to A, he does not have any contract damages,

and if he has paid the

money, then his damages are equal only to $10. Either way, A can make $10 by reneging on his sale.

On the other hand, if it is B who reneges after A delivers Dobbin to B, A can recover his $10. But the draftsmen of the U.C.C. would not admit that it is A's money. According to the draftsmen he does not have the money; he just has a contractual right to the money. The draftsmen will not even admit that A gets specific performance of the contract, even though he recovers the full amount of the sales price. No. According to the draftsmen, when A recovers the $10, it is as damages for breach of contract.

Now all of this is pretty silly, and perhaps should not concern us in a course in restitution. But it was this silliness built into the U.C.C. that made the problem in Taylor's v. Coca Cola diAEcult. Taylor's action was on a restitutionary theory--it was, as Lord Mansfield would have put it, an action founded on property; the underlying rationale of the action was that Coca Cola had converted the cylinders belonging to Taylor's. The action brought by Taylor's was based on the theory that it was entitled to treat the conversion as a sale, a good, old-fashioned, pre-U.C.C. sort of sale. But the U.C.C. did not recognize that Taylor's was suing to get its money; according to the U.C.C. it was suing for breach of a contract of sale, which was a contract of a contract of sale which was ... and so on, ad infinitum.

4. The portion of the opinion dealing with the appeal from the dismissal of

Taylor's counts alleging an account stated and a book account may not seem to have much to do with restitution. But account stated is one of the

Of course, if B had not yet paid the $10 purchase price, that amount would be offset

against the $20 claim.

A is probably a merchant; B probably a consumer. The U.C.C. was not written to protect

consumers.

Failure of consideration is one of the classic bases for an action in general assumpsit. Thus

B is entitled to restitution of the consideration that he paid.

Or any tort damages. On these facts, unless there is some special injury that B has

suffered, he will do just as well--and just as badly--suing for breach of contact as he would suing for conversion.

September 11, 2000

4.1. RESTITUTION AND THE LIMITATION OF ACTIONS 463

common counts in general assumpsit

and a book account is a statutory

cause of action analogous to such a common count.

You should be aware that such actions exist, even if they do not fit comfort- ably into the modern theory of contracts. As is generally true in actions of general assumpsit, in these actions the plaintiff claims a debt that he owns; he most certainly is not suing for breach of contract.

4.1.3 Waters v. Hoadley

Waters v. Hoadley Supreme Court of Alaska

474 P.2d 85

1970

Before Boney, C.J., and Dimond, Rabinowitz, Connor and Erwin, JJ. Connor, Justice On October 6, 1961, the appellees executed a note and mortgage in favor of Jack A. McDonnell and Bernice E. McDonnell on certain property owned by appellees. The trial court found that this note and mortgage were procured by Ronald Waters through duress exerted against the Hoadleys. At the time these instruments were executed, the Hoadleys did not know who the McDonnells were, but assumed they were either fictitious persons or strawmen acting on behalf of Waters. Actually Waters used the note and mortgage to settle certain financial obligations between himself and the McDonnells.

Appellant does not dispute the finding by the trial court that the Hoadleys executed these documents under duress.

The Hoadleys defaulted on the note payment and on July 5, 1963, the Mc- Donnells filed suit to foreclose the mortgage.

Later in the course of this litiga-

tion the Hoadleys filed a cross-claim against Ronald Waters, who was by then

And originally was the basis for bringing an action in debt: the stating of the account

reduced the amount due to a sum certain and debt, as you know, only lies to recover a sum certain.

An action on a book account was created in order to overcome some of the evidentiary

limitations of the common law. In an action on a book account, the plaintiff does not have to produce the testimony of the person who made the entries in the account book and the book itself, being the basis of the action, cannot be excluded as hearsay.

Since we are concerned with the remedy that was granted in this case, we do not need to

know the details that led the trial court to conclude that the appellees were victims of duress. For our purposes it is enough to realize that the most common remedy for duress is not damages--actions for damages caused by duress are often called actions based on extortion-- but rather restitution of whatever benefits the defendant obtained by duress. In fact, there are numerous cases where a plaintiff has been allowed restitution--typically value restitution--for duress, where a court would not find that any tort had been committed. [pdj]

Note that the McDonnells apparently were bona fide purchasers--or, to use the commer-

cial law term, "holders in due course"--of the note and mortgage. Thus the fact that Waters' induced the appellees to issue the note and mortgage under duress could not be used as a defense in a foreclosure action brought by the McDonnells. [pdj]

464 CHAPTER 4. RESTITUTION AS A REMEDY FOR WRONGS a co-defendant in the action. The cross-claim was filed November 4, 1965, al- leging fraud, duress, and usury against Waters. It was also alleged that Waters had fraudulently induced the Hoadleys to deliver certain gold to him as partial security for money advanced to them, and that Waters later falsely claimed that the gold had become lost.

The sole issue on appeal is whether the cross-claim was filed too late because the action sounding in tort was barred by the statute of limitations.

Appellant contends that the two-year statute, AS 09.10.070, applies to this action. It provides as follows:

"Actions to be brought in two years. No person may bring an action (1) for libel, slander, assault, battery, seduction, false impris- onment, or for any injury to the person or rights of another not arising on contract and not specifically provided otherwise; (2) upon a statute for a forfeiture or penalty to the state; or (3) upon a lia- bility created by statute, other than a penalty or forfeiture; unless commenced within two years."

Appellee contends that the six-year statute, AS 09.10.050, applies. It pro- vides:

"Actions to be brought in six years. No person may bring an action (1) upon a contract or liability, express or implied, except- ing those mentioned in xx40 or 55 of this chapter; (2) for waste or trespass upon real property; or (3) for taking, detaining, or injur- ing personal property, including an action for its specific recovery, except those mentioned in x55 of this chapter; unless commenced within six years."

Appellant argues that duress is a species of tort and that the two-year statute, therefore, should govern. This is supported by reference to Restate- ment, Torts, x871 (1939), which defines certain types of duress as a tort. Ap- pellant also argues that because this court in Austin v. Fulton Insurance Co., 444 P.2d 536 (Alaska 1968), held that negligent misrepresentation was a tort falling under the two-year statute of limitations, the same must be true in this case. This overlooks the distinction between right and remedy.

One of the bases of liability may be tortious conduct or, as here, a blend of tortious conduct and usury. But the choices of action arising out of this conduct are several. Plaintiff may elect to sue in quasicontract for restitution of the benefits wrongfully received by the tortfeasor, Waters.

Recovery is premised

not on the fact that his conduct was tortious, but that by coercing the consent

That is very true, even though the court confuses this very issue in the next paragraph.

[pdj]

Up to this point the court is doing just fine. [pdj]

September 11, 2000

4.1. RESTITUTION AND THE LIMITATION OF ACTIONS 465 of the Hoadleys, a voidable contract was created.

Upon the contract being

nullified, the Hoadleys would become entitled to restitution in order to prevent unjust enrichment of Waters. It is the combination of tortious conduct and the receipt of benefits by Waters which gives rise to a quasi-contract in favor of the Hoadleys.

It has long been recognized that the restitutionary obligation to pay, in these circumstances, is a species of implied contract. The doctrine of duress originally arose as a defense to a suit on a sealed instrument, which in the early common law was either the only or one of the few forms of enforceable contract. 5 S. Williston & G. Thompson, A Treatise on the Law of Contracts x1601 (rev. ed. 1937). Later there was an expansion of this doctrine both substantively and remedially through the use of general assumpsit, which still closely tied the remedy to the notion of contract. Slade's Case, 4 Coke 92(b) (K.B. 1602).

Eventually a number of tortious situations were recognized

as providing a basis for quasi-contractual recovery, even though the implied agreement between the parties was an entirely fictitious one.

Although a quasi-

contract action is a hybrid remedy, sometimes, though not always, allowable as an alternative remedy for tort, in the case of a contract extracted through duress it represents a form of relief which sounds heavily in contract. Both the duressed agreement and the restitutionary implied contract to make whole the victim can be regarded as contractual, not tortious, sources of duty.

Thus, while it may be excessive to say that the forms of action rule us from their graves, yet from those graves occasional murmurings are still heard.

There is abundant precedent that, for the purpose of applying statutes of limitation, quasi-contractual recovery is an implied contract. We need not decide the case on so broad a proposition. We need only hold, as we do, that in seeking

But here the court jumps the track.

Think about it. What is that voidable contract? The note? The mortgage? The note and mortgage? They are not voidable; on the contrary, they are valid and can be enforced by the McDonnells as bona fide purchasers (or holders in due course).

Recovery is premised on the fact that Walters was unjustly enriched by his tort (or by his usury) and that the Hoadleys are thus entitled to restitution of the amount of that enrichment.

[pdj]

Unfortunately for the court's argument, Slade's Case had nothing to do with duress. In

Slade's Case, as you should recall, it was held that an action of indebitatus assumpsit could be brought to recover the sales price of goods sold even though an action of debt was also available for the plaintiff. [pdj]

Moses v. Macferlan, 2 Burr 1005 (1760); Jones v. Hoar, 5 Pick. (22 Mass. 285) (1827);

Lamine v. Dorrell, 2 Ld.Raym. 1216 (1705). [Footnote by court, renumbered]

Once again you see how confused courts get when they have to decide whether restitu-

tionary relief sounds in contract or tort. [pdj]

The only reason Maitland's dictum that the forms of action rule us from their graves may

be excessive, lies in the fact that they are not yet dead and buried. The dictum referrs to the law of real property where the old forms of action--the old real actions--are, indeed, dead and buried; indebitatus assumpsit and the action on the case for duress are, on the other hand, very much still with us, even if they no longer have to be pled with finicky precision and now appear to be more a part of our substantive law than of the law of pleadings. [pdj]

466 CHAPTER 4. RESTITUTION AS A REMEDY FOR WRONGS relief from the duressed contract, the action here was on an implied contract under the six-year statute of limitations.

For these reasons we do not pass on the contention by appellees that the duress was of continuing effect, thereby extending the time to sue under the two-year statute.

AAErmed.

4.1.4 Note on Waters v. Hoadley In most cases in which the plaintiff can be said to have waived the tort and sued in assumpsit, the tort that is waived is conversion.

This is, however, not always the case. You will recall, for example, that in Raven Red Ash Coal Co. v. Ball

the tort was trespass to land.

In Waters the tort underlying the Hoadleys' cross-claim was described by the court as "fraud, duress, and usury." But do any, or all, of those three wicked activities constitute a tort?

Fraud was not a charge that was originally cognizable by a court of law. That failure by the common law courts was one of the major reasons that justified the separate jurisdiction of courts of equity. Although today our courts of law recognize deceit as a tort, the availability of an action of deceit does not deprive courts of equity of their jurisdiction to hear a case in which the plaintiff pleads fraud. The fact that the damage remedy in deceit may be "adequate" is quite beside the point; fraud is an equitable claim. Now, since actions in indebitatus assumpsit are based on the equities--even if those actions are administered by the courts of law--and since fraud is the basis of an equitable claim, it does not seem very sensible to say that the Hoadley's waived the tort of deceit. The Hoadley's claim of fraud was a proper basis for an action in indebitatus assumpsit whether or not they had an action in deceit.

Duress, like fraud, is not a recognized label for an action at law. Like fraud it has always been the basis for the intervention of courts of equity, who did some of their earliest and best work protecting ordinary subjects from the depredations of the magnates, who were often powerful enough to thumb their noses at the judges in the courts of law. Not enough information is given in Waters for us to know the nature of the alleged duress. Perhaps it amounted to extortion, which is actionable at law; but, then again, it may not have.

Usury is completely a creature of statute and does not correspond to any common law tort. The typical usury statute does not provide for damages, instead it provides for forfeiture of some or all of the interest--and sometimes,

Reprinted supra in Section 1.17.2.

Courts of equity--including courts of law in quasi-contractual actions--will often give

relief in fraud cases even though the defendant's actions do not amount to actionable deceit. In particular, courts of equity often give relief to plaintiffs who relied on innocent misrepre- sentations made by the defendant.

September 11, 2000

4.2. WHEN THERE IS NO TORT TO WAIVE 467 in the harsher statutes, for forfeiture of the principal of the loan. The forfeiture works defensively: the usurer sues to collect the debt owed to him and is met with the defense of usury. On the other hand, if the debt is repaid--i.e., if the usurer does not have to sue to collect the debt--the usurer will in most jurisdictions be allowed to keep money. If the borrower who has repaid the debt is allowed to sue to recover his usurious payments, that suit will, of course, be on some type of restitutionary, unjust enrichment theory and will not be based on any tort.

The moral to all of this is, as is emphasized by the next case, that one can often waive a tort and sue in assumpsit and that one can also often sue in assumpsit when there is no tort to waive.

4.2 When There Is No Tort to Waive 4.2.1 Artukovich v. Reliance

John A. Artukovich & Sons, Inc., v. Reliance Truck Co.

Supreme Court of Arizona In Banc

126 Ariz. 246, 614 P.2d 327

1980

Appeal from the Superior Court of Pima County

Holohan, Vice Chief Justice After trial to the court plaintiff, John A. Artukovich & Sons, Inc., was granted judgment for compensatory damages of $6,956.59 and punitive dam- ages of $6,000.00 against defendant, Reliance Truck Company, for conversion of plaintiff's crane. The Court of Appeals set aside the trial court's judgment for conversion, and ordered plaintiff's recovery to be reduced to compensatory damages of $1,456.59, which represented the out-of-pocket expenses actually incurred by plaintiff as a result of defendant's unauthorized use of the crane. We granted plaintiff's petition for review. The opinion of the Court of Appeals is vacated.

The facts necessary for determination of this matter are as follows: Plaintiff in an agreement dated July 1, 1975, leased its crane to the Ashton Company for use in Tucson, Arizona, in the construction of the addition to the University Stadium. The lease was for a nine-month term commencing on September 1, 1975, or the first day the crane was actually used, whichever came first, for a stated rental and provided for delivery to Ashton "F.O.B., Tempe, Arizona" on or about July 26, 1975.

Ashton hired the defendant to transport the crane from Tempe to Tucson by August 1, 1975. On Wednesday, July 23, 1975, Reliance dismantled and loaded the crane on its trucks in Tempe for the trip to Tucson. Meantime, Reliance was notified of the arrival in West Phoenix of a 246,000 lb. transformer that Reliance had previously contracted to put into place at a West Phoenix

468 CHAPTER 4. RESTITUTION AS A REMEDY FOR WRONGS Arizona Public Service sub-station. Reliance's operation manager, Sam Curl, called Ashton's equipment manager to request permission to use the crane to unload the transformer prior to the trip to Tucson. The Ashton employee told Curl that he would have to talk to Harold Ashton but he would get back to Curl. The crane was moved to the West Phoenix jobsite on Thursday and reassembled on Friday before Curl called Ashton Company again and was told, "That the deal would have to be made with John Artukovich." Reliance already owed another Artukovich Company some money.

Curl testified he tried unsuccessfully to obtain permission from Artukovich by telephoning of Friday afternoon and left a message. Nevertheless, on Sat- urday Reliance used the crane without ever having received permission from Artukovich. The crane was then delivered to Tucson where after replacement of the cable and a safety inspection it was used by Ashton pursuant to the lease.

There was no evidence that Reliance made any further efforts to seek out Artukovich and pay a rental fee for the use of the crane. Artukovich found out about the unauthorized use from Ashton and sued Reliance on three counts: Counts I and III sounding in tort for the act of conversion and Count II on an implied contract theory. The trial judge's minute entry, dated November 3, 1978, awarded plaintiff judgment as follows: "1. For use of the crane (one month minimum rental) $5,500.00. 2. Crane inspection fee, $493.05. 3. Replaced, cable, $963.54. 4. Attorney's fees in the amount of $3,500.00. 5. Punitive damages in the amount of $2,500.00. 6. Plaintiff's costs."

After defendant's motion for a new trial questioned the correctness of award- ing attorney's fees and punitive damages in the same action, plaintiff's judgment for the lump sum of $12,956.59 was vacated and plaintiff was given judgment in the amount of $6,956.59 for actual damages and $6,000.00 punitive damages plus costs. Defendant filed a timely appeal which resulted in the above described action by the Court of Appeals.

The issues presented are (1) can plaintiff, Artukovich, recover on a theory of conversion from the defendant, Reliance, and (2) if not, is plaintiff entitled to judgment based on an implied contract theory.

Before plaintiff can recover in an action for the wrongful detention of its property it must show that it had a legal right to use the property and was in a position to use it and was prevented from such use only by the defendant's wrongful detention. . . .

Plaintiff's lease to Ashton, provided for delivery of a crane F.O.B. Tempe. Since Ashton had taken possession of the crane by authorizing its agent, Re- liance, to transport the crane to Tucson, plaintiff, Artukovich, no longer had any right to use nor was it in a position to use the crane at the time of Reliance's unauthorized use. Plaintiff, therefore, cannot recover damages for its loss of use of the crane on a theory of conversion.

Although Plaintiff may not recover on its tort theory, Count II of the com- plaint set forth a claim based on implied contract. It is clear from the trial court's minute entry of November 3, 1978, that the trial judge found suAEcient

September 11, 2000

4.2. WHEN THERE IS NO TORT TO WAIVE 469 evidence to support plaintiff's claim based on an implied contract. Our review of the evidence leads us to the same conclusion.

Contracts implied-in-law or quasi-contracts, also called constructive con- tracts, are inferred by the law as a matter of reason and justice from the acts and conduct of the parties and circumstances surrounding the transactions . . . and are imposed for the purpose of bringing about justice without reference to the intentions of the parties. . . .

Restatement of Restitution, x 1 provides, "A person who has been unjustly enriched at the expense of another is required to make restitution to the other." Comment (a) to that section notes that a person is enriched if he received a benefit and is unjustly enriched if retention of that benefit would be unjust. Comment (b) defines a benefit as being any form of advantage. The facts in this case show that the defendant did receive a benefit or advantage through the use of plaintiff's crane. Defendant received $6,000.00 for putting the transformer in place pursuant to a contract with Arizona Public Service. The defendant has acknowledged throughout the litigation that it recognized and intended to pay someone a reasonable rental value for the crane's use.

Thus, the only issue remaining is what should plaintiff recover for the defen- dant's unauthorized use of its crane.

Unjust enrichment does not depend upon the existence of a valid contract . . . nor is it necessary that plaintiff suffer a loss corresponding to the defen- dant's gain for there to be a valid claim for an unjust enrichment, . . . . Thus, even though plaintiff had no right to use the crane at the time of defendant's unauthorized use, the defendant is liable to plaintiff because the defendant re- ceived a benefit by using plaintiff's crane to perform the contract with Arizona Public Service. To allow the defendant to use plaintiff's crane without com- pensating plaintiff for its use would unjustly enrich the defendant and would be inequitable.

The judgment of the trial court is reversed, and the cause is remanded to Superior Court with direction to enter judgment for the plaintiff on Count II of the Complaint, and proceed to re-try only the issue of damages. Each party is to bear their own costs for this appeal.

4.2.2 Note on Artukovich v. Reliance In Artukovich we have the case of a defendant who did something wrong-- Reliance knowingly made use of Artukovich's crane without permission--but who could not be held liable for damages on any theory of tort. But the defen- dant was held liable in quasi-contract for the amount of his unjust enrichment.

On the other hand, in some cases, like the next one, a defendant may be completely innocent and yet liable for a tort, especially the tort of conversion. You will recall that it was the threat that innocent researchers would be held liable for conversion that led the majority of the California Supreme Court to

470 CHAPTER 4. RESTITUTION AS A REMEDY FOR WRONGS its perverse holding in John Moore v. Regents of the University of California., reprinted supra in Section 1.16.1.

4.3 The Inocent Converter 4.3.1 Creach v. Ralph Nichols Co.

Creach v. Ralph Nichols Co.

Tennessee Court of Appeals 37 Tenn. App. 586, 267 S.W.2d 132

1953

Howell, J. The bill in this case alleged that on or about March 22, 1949, complainant was the owner of a 1949 Mercury automobile, Motor No. 9CM-47902, that this car was stolen from the parking area of the Belle Meade Theatre in Nashville, and that complainant had no information as to the whereabouts of his until it was located by the Federal Bureau of Investigation at Los Alamos, New Mexico, in the possession of D.C. McPherson. It is alleged that McPherson purchased the car from the Welsh Motor Company of Tulsa, Oklahoma, and later returned it to that company and it was then in the possession of the Welsh Motor Company, that that Company had purchased the car from one Flippo to whom the car had been sold by the defendant Ralph Nichols Motor Co., and that the complainant at no time parted with the title or right to possession of this car and that the defendant is justly indebted to him for the proceeds of its sale, he having waived any right of action he may have had for tort.

The bill prays that the defendant

be required to answer under oath concerning the proceeds of the sale of the car and that he be given a judgment against the defendant for amount for which it sold the car and interest.

The defendant filed an answer in which it denied that it was indebted to complainant in any amount and sets out: "That defendant has no record of any sale of an automobile bearing motor number 9CM-47902 to any person by the name of Flippo. That complainant's records do reveal that in the usual course of business complainant did sell an automobile which it had bought in the usual course of business on September 6, 1949 to a Mr. O. C. Flippo, of 4422 West 2nd Street, Tulsa, Oklahoma. That the said automobile was a two door Mercury, 1949 model bearing motor number, according to their records, of 9CM-48601.

There are lots of facts in that there sentence. But how many of them are relevant to the

courts decision? [pdj]

I believe that this sentence means that "the plaintiff's bill prays that the defendant be

required to answer under oath concerning the proceeds of the sale of the car and that the plaintiff be given a judgment against the defendant for the amount for which the defendant sold the car and interest."

Pronouns are dangerous things. [pdj]

September 11, 2000

4.3. THE INOCENT CONVERTER 471 Defendant does not know whether this automobile was the automobile alleged to have been stolen from the plaintiff or not, but assumes in view of the differences in motor numbers that it was not the same automobile. Defendant demands strict proof of the fact that the said automobile was the same car, if deemed material by the Court. Defendant admits that the complainant has never had any transactions with the defendant, but denies that it ever knowingly took possession and sold any automobile in which the title or beneficial interests were in complainant."

The case was regularly heard by the Chancellor who found the facts and decreed as follows:

"that on March 22d, 1949, complainant had title to a 1949 Mercury, 6 passenger coupe bearing motor No. 9CM-47902, said automobile was stolen from complainant by persons unknown. That thereafter on September 2d, 1949; the defendant in good faith, and without any knowledge that said automobile was stolen, purchased the said automobile in the usual course of its business from one Thomas M. Ferguson, for the purchase price of $2,053.21. That said sale was made to the defendant under a Michigan Certificate of Title showing a motor number 9CM-48601. That defendant's representatives did not check the motor number on the title certificate and compare it with the true number on the chassis of the car. That four days later on September 6th, 1949, defendant sold said automobile to one O.C. Flippo for the sum of $2,295.00, out of which sum the defendant paid a commission to its salesman of $114.75.

"Complainant had notified all police authorities throughout the United States of the theft of his said automobile and in October, 1952, said car was abandoned when caught in a flash flood in the State of New Mexico, and a police investigation of said vehicle showed it to bear motor number 9CM-47902 and to be the iden- tical automobile stolen from complainant.

"Complainant in the original bill in this cause, waived the tort action against defendant for the conversion of his said automobile, and brought his action, instead, for money had and received, or for the proceeds of the sale in the hands of the defendant.

"The Court is of the opinion that the defendant was at fault

failing to compare the motor number on the evidence of title with the motor number on the chassis of said automobile and that the equities in this cause are with the complainant.

"The Court is further of the opinion that the facts constitute a conversion by defendant. And that complainant has the right of election of remedies, and that he is entitled to waive action based

Does the defendant's fault--or lack of it--have any bearing on the outcome of this case?

[pdj]

472 CHAPTER 4. RESTITUTION AS A REMEDY FOR WRONGS

upon the conversion and to maintain his present action against the defendant for the proceeds of sale in the sum of $2,295.00.

"It Is Therefore Ordered, Adjudged and Decreed by the Court, that the complainant have and recover a judgment against the defen- dant, Ralph Nichols Company, in the amount of $2,295.00, together with the costs of this cause, for all of which execution may issue if necessary."

There is no controversy about the facts. The defendant has appealed to this Court and has assigned errors which raise principally the question as to whether or not the complainant is entitled to recover the value of the automobile or the proceeds of its sale by defendant or the profit made by the defendant in its purchase and sale of the car.

In the old case of McDaniel v. Adams, 1889, 87 Tenn. 756, 11 S.W. 939, 940, the Supreme Court said:

"The defendants acquired no title by their purchase from the thief, however innocent the may have been, and their subsequent sale of the property and their refusal to pay over the proceeds thereof to the true owner, upon demand, was a conversion of the property of plaintiff. See [Merchant's National ] Bank v. Trenholm [& Sons], 12 Heisk. [520] 521, [59 Tenn. 520], where it is held that the bank, which had advanced money upon the pledges by a factor of his principal's goods, was liable in trover to the principal notwithstanding that the goods had been received in pledge and sold for payment of the factor's debt, in good faith and in ignorance of the true title. This case is well supported by authority on principal... In Roach v. Turk, 9 Heisk. 708 [56 Tenn. 708] ... , it is said that where the defendant has either the property of another, wrongfully taken from the true owner, or the proceeds thereof, and refuses to surrender same, it is the assertion of an adverse claim, and constitutes a conversion. It is diAEcult to see how it is any more of a hardship upon the innocent purchaser of property stolen to be held liable for the proceeds of resale, than for the property itself. The withholding of the one is as much a conversion as the withholding of the one is as much a conversion as the withholding of the other."

In the later case of Broadway Furniture Co. v. Bates, 170 Tenn. 36, 91 S.W. (2d) 300, 301, the Supreme Court said:

"The general rule is thus stated in 55 C.J., 1311: `A subsequent purchaser from a buyer may be sued for conversion of the property, although he has resold it and is no longer in possession of it.' The two cases cited to support this text are Elder v. Woodruff Hardware & Mfg. Co., 9 Ga. App. 484, 71 S.E. 806, and Woods v. Nichols, 21 R.I. 537, 45 A. 548, 549, 48 L.R.A. 773. In the Woods Case plaintiff

September 11, 2000

4.3. THE INOCENT CONVERTER 473

sold a buggy on retained title contract to one Barnes, who sold it to the defendant Nichols, who in turn sold it to a third party, Ballou. Nichols' defense was that he bought the buggy in good faith and did not have it in his possession when the suit in trover was brought. The Court said:

" `Such a defense is not suAEcient. It ignores the rule caveat emptor. It is clear that Barnes had no title to sell, and hence neither Nichols nor Ballou acquired any by their purchases. The law, as stated in Cooley, Torts, Sec. 451, which is well supported by authority, is as follows: "One who buys property must, at his peril, ascertain the ownership, and, if he buys of one who has no authority to sell, his taking possession, in denial of the owner's right, is a conversion. * * * So, it is no protection, to one who has received property and disposed of it in the usual course of trade, that he did so in good faith, and in the belief that the person from whom he took it was the owner, in fact the possession of the later was tortious."

" `The mere possession by Barnes under the agreement was not tortious, but possession with an intention to sell, contrary to the agreement, was tortious. Under the agree- ment, he had no right to sell. The law in England and in this country is in harmony on the question before us. In Hollins v. Fowler, L.R. 7 H.L., 757, the subject was most exhaustively considered, and it may be taken as a defini- tive statement of the law in England. The case holds that any person who, however innocently, obtains possession of the goods of a person who has been fraudulently deprived of them, and disposes of them, whether for his own benefit or that of any other person, is guilty of a conversion.'

"The principle involved is the same applied by this court in cases of stolen or wrongfully converted property. McDaniel v. Adams, 87 Tenn. 756, 11 S.W. 939; Merchants' Nat. Bank v. Treuholm, 12 Heisk. 520, 521 [59 Tenn. 520]. Under these authorities and this rule, it is the withholding from the rightful owner of personal property, either the property itself, or the proceeds thereof, that gives rise to the right of action against even an innocent purchaser. As remarked in the McDaniel Case, supra, it is no greater hardship to hold the innocent purchaser liable for the proceeds of the property after sale by him, than for the property itself when found in his

This characterization of Hollins v. Fowler, although technically correct, is likely to be

very misleading. The plaintiff was fraudulently deprived of the possession of his goods, but the fraud did not deprive him of title to those goods. If the party who perpetrated the fraud had obtained title to the foods, as well as their possession, he could have passed good title to a bona fide purchaser, even though his own title was voidable. [pdj]

474 CHAPTER 4. RESTITUTION AS A REMEDY FOR WRONGS

hands." It is further insisted for the defendant that the Chancellor erred in holding that the complainant was entitled to waive his action of tort for the conversion and to maintain the present action for the proceeds of the sale of the car rather than for the amount of defendants profit in the transaction.

In his bill the complainant waived his action in tort and sued for the value of the automobile.

In the case of Kirkman v. Philips' Heirs, 54 Tenn. at page 222, the Supreme Court said:

"The allegations of the bill make a case of tort in the taking of the machinery and iron, and a conversion by Moore and Philips, but they show clearly that complainant is seeking to recover the value of the property, and not the property itself, or damages for the tort or conversion. The value so sought to be recovered is claimed to be a debt due from Philips originally, and now form the devisees of Philips who is charged with the last conversion. The bill is there- fore maintainable, the tort being, by force of the language of the bill waived, and the value of the property claimed as a debt . . . . Al- though there are many authorities in other states holding that it is only after property has been converted into money that the tort can be waived, and an action for the money maintained, yet in our own State the doctrine is fully settled, that in a case of conversion the complainant has an election to insist either upon damages for the conversion, or to waive these and sue for the value of the property. If the original owner of the property elect to sue for the property or for damages for the conversion, the action will be barred by the statute of three years . . . . But if the party elects to sue for the value of the property, the action will be barred in six years. It is true, as argued, that a wrongdoer may obtain a title to the property by a three years adverse possession, and yet be liable for three years after his title is perfected to pay the original owner the value thereof. This is a necessary consequence of the right which the original owner has to elect whether he will sue for property or its value. During six years his right to sue for the value is as perfect as his right to sue for the property within three years. This right is not interfered with by the provisions of the Code abolishing the distinctions in forms of actions. The Statute of Limitations applicable to the cause depends upon the nature and character of the action, and not upon its form. In the case before us, the complainant has elected to waive the tort and to sue for the value of the property converted, and in so doing he is entitled to the benefit of the six years statute. It does not appear on the face of the bill that six years have elapsed from the time of the purchase of the property by Philips until the filing of the bill."

September 11, 2000

4.3. THE INOCENT CONVERTER 475

In another case of McCombs v. Guild, Church & Co., 77 Tenn. 81, the Supreme Court held:

"The action is not in trover, but in contract waiving the tort. It is well settled that a conversion of property will warrant an implica- tion of indebtedness, and the tort may be waived, and an action ex contractu maintained for its value . . . ."

* * * * * * "The conclusion reached in those cases seems to be the logical result of allowing the injured party to elect to sue upon the implied contract. The title to the property becomes absolute in the pos- sessor, as it would do in the case of an unconditional sale, while its value, like the purchase money, becomes a debt subject to the limitation applicable to contract."

In this case the complainant was wrongfully deprived of his automobile and later found that the defendant had secured possession of it and had sold it to O.C. Flippo for the sum of $2,295.

We therefore concur with the Chancellor in the finding of the facts and are of the opinion that the assignments of error should be overruled and the decree of the Chancellor aAErmed. The complainant had a right to and did elect his remedy and waived his action in tort and is therefor entitled to recover from the defendant the proceeds of the sale of his car, $2,295, with interest from the date of judgment, July 6, 1953, and the costs.

AAErmed. Felts and Hickerson, JJ., concur.

4.3.2 Note on Creach v. Ralph Nichols Co. Did you ever notice that courts often cite a large number of other cases when they are unable to justify the rule that they are adopting? What arguments are there to justify the holding that the innocent "converter" must be held liable for the full amount of his

gain when he disposes of the converted goods,

even though the result is that the innocent converter has to pay the plaintiff an amount greater than the plaintiff's damages?

Is Creach best explained on an unjust enrichment theory? Or a property theory?

Innocent, remember.

476 CHAPTER 4. RESTITUTION AS A REMEDY FOR WRONGS 4.4 Real Estate Brokers 4.4.1 Allen v. Powell

Allen v. Powell California Court of Appeals 248 Cal. App. 2d 502; 56 Cal. Rptr. 715; 29 A.L.R.3d 1218

1967

Agee, J. Plaintiffs operate a duly licensed real estate brokerage firm. On July 17, 1961 those defendants who are hereafter referred to as the original owners listed their parcel of commercial real property located in Larkspur with plaintiffs. Under the listing agreement plaintiffs were to receive the standard real estate commission for services rendered in the leasing of said property.

On November 6, 1961 plaintiffs negotiated a 25-year lease of a 4.5-acre por- tion of said property to defendant Lee Bros., Inc., and thereby became entitled to receive a commission of $60,000 from the original owners, who acknowledged such debt in writing on December 15, 1961.

Nothing was ever paid on the commission, and plaintiffs filed this action on November 19, 1962, not only against the original owners but also against Lee Bros.

The general demurrer of Lee Bros. to the first amended complaint was sus- tained without leave to amend. Judgment was thereupon entered in its favor and plaintiffs have appealed therefrom.

The case proceeded to trial against the original owners on the first cause of action alleged in the first amended complaint and resulted in a judgment of $60,000 in favor of plaintiffs. No appeal has been taken from this portion of the judgment.

FIRST COUNT The first cause of action is based on the contract and does not attempt to state a cause of action against Lee Bros. However, we summarize its allegations because they are incorporated by reference in the remaining four causes.

The first cause of action alleges the execution of the listing agreement by the original owners, the procuring of the Lee Bros. lease by plaintiffs, the acknowl- edgment by the original owners of the commission due, and the nonpayment of such commission.

SECOND COUNT The second cause of action alleges a tortious conspiracy between Lee Bros. and the original owners to interfere with and frustrate plaintiffs' contractual right to collect the commission provided for in the listing agreement.

The following allegations are added to those of the first cause of action referred to above: that Lee Bros. knew at the time of the execution of the lease

September 11, 2000

4.4. REAL ESTATE BROKERS 477 that the funds for the payment of plaintiffs' commission were to come from the monthly rental payments provided for in the lease; that the amount of such commission was a part of the total cost of the lease to the lessee, Lee Bros.; that the lease required the original owners to construct certain buildings and other improvements on the leased land and to complete the same on or before October 1, 1962; that no such construction was ever commenced by the original owners; that after said lease was executed the original owners represented to plaintiffs that they were in financial diAEculties and might not be able to meet their commitments under the lease.

With this background, the conspiracy is alleged as follows: that Lee Bros. and the original owners "collusively and without plaintiffs' knowledge and with a joint intent to deprive, and for the purpose of depriving, plaintiffs of the com- mission which plaintiffs had earned, entered into a written contract of sale in which defendant Lee Bros. agreed to purchase the land involved in the lease from defendants Original Owners, and in which defendants Original Owners agreed to sell the said land to defendant Lee Bros."; that the sale was completed on September 6, 1962, for $363,000, which amount was in full payment for the land with no improvements thereon; that Lee Bros. then knew the financial condi- tion of the original owners; that the sale was made in a form which called for payments by Lee Bros. to creditors of the original owners other than plaintiffs, thereby leaving plaintiffs with a claim for their commission against insolvent debtors.

The motive of Lee Bros. in entering into the conspiracy is alleged to be that it thereby acquired the land and the use thereof for an amount which did not include plaintiffs' commission as a part of the cost of such acquisition.

Plaintiffs allege that the damages suffered as the result of the conspiracy is the amount of their commission, $60,000, no part of which has been paid.

Preliminarily, this count arguably might state either of two causes of action: interference with contract on the part of Lee Bros. or conspiracy to interfere with the contract on the part of Lee Bros. and the original owners.

Interference with contract. The elements which must be pleaded for this cause of action are specified in Freed v. Manchester Service, Inc. (1958) 165 Cal.App.2d 186, 189 [331 P.2d 689]: "Specifically, plaintiff must allege the ex- istence of a valid contract [citations]; that the defendant had knowledge of the existence of the contract and intended to induce a breach thereof [citations]; that the contract was in fact breached resulting in injury to plaintiff [citations]; and the breach and resulting injury must have been proximately caused by defendant's unjustified or wrongful conduct. [Citations.]"

The acts which induce the breach need not be unlawful. It is suAEcient if they are lawful, but without justification. Such "[justification] is an aAErmative defense and may not be considered as supporting the trial court's action in sus- taining a demurrer unless it appears on the face of the complaint. [Citations.]" (Herron v. State Farm Mutual Ins. Co. (1961) 56 Cal.2d 202, 207 [14 Cal.Rptr. 294, 363 P.2d 310]; see Imperial Ice Co. v. Rossier (1941) 18 Cal.2d 33, 39 [112

478 CHAPTER 4. RESTITUTION AS A REMEDY FOR WRONGS P.2d 631]; Roberts v. Wachter (1951) 104 Cal.App.2d 281, 290 [231 P.2d 540].)

It was suAEcient in Remillard-Dandini Co. v. Dandini (1941) 46 Cal.App.2d 678, 679 [116 P.2d 641], that the plaintiff there alleged that the defendant went to certain of the plaintiff's creditors to induce them to cease dealing with the plaintiff, as a result of which the plaintiff was unable to procure necessary ma- terials.

Plaintiffs have suAEciently pleaded a cause of action for interference with contract within the rules set forth in these cases. Their position is closely akin to that of a real estate broker who has a listing contract for the sale of property, but who, after he performs by securing a suitable buyer, discovers that the prospective purchaser and the owner consummate the sale in such a way that they intentionally breach the agent's commission contract. In such a case, the agent may recover from the purchaser. . . .

Of course, plaintiffs must prove that Lee Bros. actively induced the original owners to breach their contract with plaintiffs. . . . If it developed in the proof that Lee Bros. merely paid the price requested by the original owners and that the breach of the commission contract resulted from the unilateral acts of the original owners, then Lee Bros. would not be liable for interference.

Lee Bros. argues that plaintiffs had no contractual relationship because they had no right in the lease. Plaintiffs have not claimed any property right in the lease. Rather, they have alleged that the original owners were obligated by a listing contract to pay a $60,000 commission and that Lee Bros. wrongfully interfered with that contract. . . .

Lee Bros. contends that no acts of interference are alleged because it had an absolute right to rescind the lease and substitute in its place a contract of sale, to neglect to provide for the commission due to appellants, and to pay the purchase price to creditors of the original owners other than plaintiffs.

This overlooks the allegation that "defendant Lee Bros. obtained the land and/or the use thereof, for an amount which did not include plaintiffs' commis- sion as a part of the cost of the lease contract; . . ." When coupled with the allegation that all defendants joined together with an intent to deprive plain- tiffs of their commission, it is reasonable to conclude, if plaintiffs can prove their allegations, that Lee Bros. actively induced the breach in order to secure the property for a lower price. This suAEciently alleges acts amounting to an interference with contract.

Lee Bros. contends also that plaintiffs have failed to allege a causal con- nection between the acts of interference and the breach. The first amended complaint alleges that "as a result of said tortious interference by defendant Lee Bros., plaintiffs have been damaged in the amount of [$60,000] . . ." Reading the complaint as a whole, it is clear that the damage suffered is the breach of contract.

Lee Bros. relies on a statement in Hill v. Progress Co. (1947) 79 Cal.App.2d 771, 780 [180 P.2d 956]] that plaintiffs "must establish, by the evidence, that the contract which otherwise would have been performed, was breached and

September 11, 2000

4.4. REAL ESTATE BROKERS 479 abandoned by reason of their wrongful act and that such act was the moving cause thereof." This is the requirement of proximate causation, and the court therein reversed because the evidence was insuAEcient to support a finding of such.

In Augustine v. Trucco (1954) 124 Cal.App.2d 229, 246 [268 P.2d 780], an appeal from a judgment after a general demurrer was sustained without leave to amend, the court almost transformed the statement in the Hill case into a specific, required allegation. "A plaintiff, seeking to hold one liable for unjusti- fiably inducing another to break a contract, must allege that the contract would otherwise have been performed, and that it was breached and abandoned by reason of the defendant's wrongful act and that such act was the moving cause thereof. Unless the act complained of was the proximate cause of the injury, there is no liability." (Italics supplied.)

Lee Bros. seems to seize upon the words emphasized above. In the instant case, plaintiffs nowhere allege that the contract would otherwise have been per- formed except for the acts of Lee Bros. However, plaintiffs have suAEciently alleged that the breach was proximately caused by these acts.

The problem seems to be one of semantics. If the acts are the proximate cause of the breach, then it follows that the contract would otherwise have been performed. If the breach would occur in any event, then the acts cannot be the proximate cause. Thus, no matter how it is phrased, for the purposes of pleading, it is suAEcient if the plaintiff alleges, in substance, proximate causation.

Conspiracy to interfere with contract. "The gist of an action charging civil conspiracy is not the conspiracy but the damages suffered. [Citations.] It is the long established rule that a conspiracy, in and of itself, however atrocious, does not give rise to a cause of action unless a civil wrong has been committed resulting in damage. [Citations.] . . . The advantage to the pleader in charging a conspiracy is to implicate all participating in the common design and thus fasten liability on him who agreed to the plan to commit the wrong as well as on him who actually carried it out. [Citations.] The conspiracy `may be inferred from the nature of the acts done, the relations of the parties, the interests of the alleged conspirators, and other circumstances.' [Citations.]

"To state a cause of action for conspiracy, the complaint must allege (1) the formation and operation of the conspiracy, (2) the wrongful act or acts done pursuant thereto, and (3) the damage resulting from such act or acts. [Citations.]" (Wise v. Southern Pacific Co. (1963) 223 Cal.App.2d 50, 64-65 [35 Cal.Rptr. 652].)

In the instant case, having determined above that the wrongful acts (namely, interference with contract) and the damage to the appellants (breach of con- tract) have been properly alleged as to the cause of action for interference with contract, it is only necessary now to determine if "the formation and operation of the conspiracy" was suAEciently alleged.

Plaintiffs alleged the formation in general terms, "collusively and without plaintiffs' knowledge and with a joint intent to deprive, and for the purpose of

480 CHAPTER 4. RESTITUTION AS A REMEDY FOR WRONGS depriving, plaintiffs of the commission which plaintiffs had earned. . . ." Such general allegations of agreement have been held suAEcient. . . .

Moreover, since the gravamen of the action is the unlawful act or civil wrong done pursuant to the agreement, the conspiracy averment has been held unnec- essary, providing the acts are otherwise suAEciently alleged. . . .

We hold that the second count states a cause of action against defendant Lee Bros. and is good as against a general demurrer.

THIRD COUNT This count seeks recovery for Lee Bros.' unjust enrichment because of the acts alleged in count two. "That as a result of defendant Lee Bros.' said tortious, wrongful and collusive action, defendant Lee Bros. has been unjustly enriched at the expense of and to the detriment of plaintiffs in the sum of [$60,000] . . . in that defendant Lee Bros., by its said collusive action procured said land at a sum which was less than the fair market value thereof by the amount of plaintiffs' $60,000.00 commission; . . ."

Plaintiffs argue that this count is good as a cause of action in quasi contract, based upon section 2224 of the Civil Code which provides: "One who gains a thing by fraud, accident, mistake, undue influence, the violation of a trust, or other wrongful act, is, unless he has some other and better right thereto, an involuntary trustee of the thing gained, for the benefit of the person who would otherwise have had it."

This is the statutory basis for imposing a constructive trust. The remedy is equitable in nature, and the plaintiff's remedy at law must be inadequate. . . .

In the instant case, plaintiffs have not alleged such an inadequacy of the remedy at law. Since the action is basically one for money damages, and an action for tort has been well pleaded in the second count, it would appear that no such allegation can be made.

This count is likewise insuAEcient to state a common count, whereby the plaintiffs waive the tort (here interference with contract) and sue in assumpsit. (2 Witkin, Cal. Procedure (1954) Pleading x265, pp. 1241-1242.)

The essential allegations of a common count "are (1) the statement of indebt- edness in a certain sum, (2) the consideration, i.e., goods sold, work done, etc., and (3) nonpayment." (2 Witkin, Cal. Procedure (1954) Pleading x266, p. 1242.) In the instant case, there is no allegation of nonpayment, although such is obvious from the contents of other counts. This could be cured, at any rate, by amendment.

This is an example of the way that the codification of the law of remedies can lead to

confusion. As a general proposition there is nothing wrong with the restatement of the law set forth in section 2224 of the California Civil Code, but the statement that the wrongdoer becomes an involuntary trustee is misleading in a case like this, where the successful plaintiff would recover a judgment for money in an action corresponding to indebitatus assumpsit for money had and received rather than an equitable remedy. [pdj]

September 11, 2000

4.4. REAL ESTATE BROKERS 481

However, the fatal defect is the lack of an allegation of consideration fur- nished. In fact, such an allegation is impossible. The "consideration" is a fiction when the tort is waived, for there is no intent to give anything as an agreed exchange. But, in order to employ the fiction, there must be something moving to the defendant, to support the implied promise to pay therefor. In the instant case, there is nothing so moving in order for plaintiffs to waive the tort.

No more so, that is, than there would be with an assault and battery or negli- gence case. Plaintiffs must simply rely on the tort, which has been suAEciently alleged in the second count.

The three cases cited by plaintiffs on this point all involve something moving from the plaintiff to the defendant. (Ward v. Taggart (1959) 51 Cal.2d 736 [336 P.2d 534], money; Frank v. Tavares (1956) 142 Cal.App.2d 683 [298 P.2d 887], real property; Major-Blakeney Corp. v. Jenkins (1953) 121 Cal.App.2d 325 [263 P.2d 655], money.)

We hold that the general demurrer to the third count was properly sustained.

FOURTH COUNT This count alleges a conspiracy to defraud, in that the "defendants repre- sented to plaintiffs that the lease would be consummated and that, therefore, said lease was a saleable asset;" however, the defendants "had no intention during this period of ever consummating said lease agreement but made these representations for the sole purpose of misleading plaintiffs," and they "inten- tionally concealed the truth as to their intentions with respect to the lease and as to the sale of the property."

Noticeably lacking is any allegation that plaintiffs relied on the alleged mis- representations to their damage. (2 Witkin, Cal. Procedure (1954) Plead- ing xx362, 363, pp. 1341-1344.) They argue that such "is implicit from the fact that plaintiffs made efforts to find a purchaser for the land, subject to the lease, and from the fact that appellants actually brought in three valid offers for the purchase of the land subject to the lease." Even if such is "implicit" in the first amended complaint, this is not the damage of which plaintiffs complain. Rather, in this count, they are concerned with the loss of their $60,000 commission due under the listing contract.

The contract had been executed and fully performed on appellants' side, with nothing remaining but the payment of money. Thus, it is impossible that

This amply demonstrates that this particular court does not need a codification in order

to get confused.

In the first place, if the assumpsit remedy--called `a common count'--is not available, then the plaintiff cannot get restitution at law, and from that it follows that the remedy at law is inadequate, and thus one must conclude that the court was wrong when it denied the remedy of a constructive trust.

In the second place, despite what the court says, there is an allegation of "something moving to the defendant," to wit, the saving of the $60,000.00 commission. Thus Allen is an example of the perverse idea that a savings cannot be a benefit. See Note 3 of the Notes to Raven Red Ash Coal Co. v. Ball in Chapter I at 141-42. [pdj]

482 CHAPTER 4. RESTITUTION AS A REMEDY FOR WRONGS any misrepresentations subsequently made could cause a reliance resulting in the damage that did occur, namely, the breach of contract.

We hold that the general demurrer to the fourth count was properly sus- tained.

FIFTH COUNT This count is a common count for services rendered. By incorporating certain paragraphs from previous counts, plaintiffs here allege that around July 1961, they contacted Lee Bros. to determine if it was interested in sites for expansion in Marin County. Lee Bros. answered aAErmatively and requested plaintiffs to inform it of any such information they might gain.

Thereafter, plaintiffs brought together Lee Bros. and the original owners pursuant to the listing contract.

The original owners requested plaintiffs to seek a purchaser who would take the property subject to the lease. Plaintiffs thereafter did produce several offers from prospective purchasers. However, the original owners executed a contract of sale with Lee Bros. on September 6, 1962.

Plaintiffs allege "that the entering into of said lease and the later contract of sale was all a part of one continuing transaction, of which plaintiffs had been the procuring cause and through both of which forms defendant Lee Bros. obtained the beneficial use of said land for their merchandising operation and remaining defendants received money for their prior rights."

Based upon this alleged continuity, plaintiffs claim that defendants are "in- debted to the plaintiffs in the sum of $60,000.00 on account of plaintiffs' services as brokers, rendered at the request of defendants, the purchase and sale of said property."

They allege the amount has not been paid.

With the foregoing allegations, plaintiffs have pleaded a good common count:

they have alleged the indebtedness ($60,000), the consideration (services ren- dered), and nonpayment. (See 2 Witkin, Cal. Procedure (1954) Pleading x266, p. 1242; x272, p. 1247.)

The fatal defect, however, is that a real estate broker's commission contract must be in writing to be enforceable. (Civ. Code, x1624, Beazell v. Schrader (1963) 59 Cal.2d 577, 582 [30 Cal.Rptr. 534, 381 P.2d 390]; Ira Garson Realty Co. v. Brown (1960) 180 Cal.App.2d 615 [4 Cal.Rptr. 734].)

Appellants have

The puzzling wording of this allegation appears to be the result of the pleader's inartful

hand. It is clear that appellants are attempting to recover the reasonable value of their services as brokers in the sale of the property rather than merely the lease. [Footnote by court, renumbered]

Indeed, but is this a quasi-contractual common count? Or a common count based on a

contract implied in fact? Does it make any difference? [pdj]

In most circumstances a plaintiff who performed work, labor, and services (or other wised

performed) pursuant to the terms of an oral contract and who is barred from suing by the statute of frauds, will be allowed to bring an action in quasi-contract. The purpose of the statute of frauds is not, after all, to create unjust enrichment.

September 11, 2000

4.4. REAL ESTATE BROKERS 483 failed to allege any facts which would estop Lee Bros. from pleading the statute of frauds. (Pacific Southwest etc. Corp. v. Western Pac. R.R. Co. (1956) 47 Cal.2d 62 [301 P.2d 825]; King v. Tilden Park Estates (1958) 156 Cal.App.2d 824, 830 [320 P.2d 109].)

We hold that the demurrer to the fifth count was properly sustained. The judgment is reversed to the extent it is based on the order sustaining Lee Bros.' general demurrer to the second count, but otherwise aAErmed. The cause is remanded to the trial court with directions to overrule said demurrer to the second count and to grant Lee Bros. a reasonable time to answer, if so advised. Each party is to bear its own respective costs on appeal.

Shoemaker, P.J., and Taylor, J., concurred.

4.4.2 Notes on Allen v. Powell

1. Here the tort that the plaintiffs tried to waive was the tortious interference

with a contract. Since the plaintiffs would have had to prove the tort if they were going to recover under the Third Count, would they have actually been better off if the general demurrer to that count had not been upheld?

2. When real estate brokers bring a quasi-contractual action for their services,

as the plaintiffs did in the Fifth Count, they normally claim--and, if they win, recover--the amount of the commission that they customarily would have received in the locality where they engage in their devious practices. Can this be reconciled with the rule that, in a successful action for work, labor, and services, the plaintiff is entitled to the fair market value of those services?

4.4.3 Ward v. Taggart

William R. Ward v. Marshall W. Taggart

Supreme Court of California in Bank

51 Cal. 2d 736; 336 P.2d 534

1959

Traynor, J. At plaintiff William R. Ward's request in February, 1955, LeRoy Thomsen, a real estate broker, undertook to look for properties that might be of interest to Ward for purchase. During a conversation about unrelated matters, defendant Marshall W. Taggart, a real estate broker, told Thomsen that as exclusive agent

On the other hand, when there is a special statute of frauds aimed at particular types of agreements, like real estate brokerage commission contracts, the courts will allow the defendant in a quasi-contractual action to plead the statute of frauds.

[pdj]

484 CHAPTER 4. RESTITUTION AS A REMEDY FOR WRONGS for Sunset Oil Company he had several acres of land in Los Angeles County for sale. Thomsen said that he had a client who might be interested in acquiring this property. When Thomsen mentioned to Taggart that another broker named Dawson had a "For Sale" sign on the property, Taggart replied that Sunset had taken the listing away from Dawson. With Ward's authorization Thomsen submitted an offer on his behalf to Taggart of $4,000 an acre. Taggart promised to take the offer to Sunset. Taggart later told Thomsen that Sunset had refused the offer and would not take less for the property than $5,000 an acre, one-half in cash. Thomsen conveyed this information to Ward, who directed Thomsen to make an offer on those terms. Thomsen did so in writing. At Taggart's direction, Thomsen inserted in the offer a provision for payment by Sunset of a 10 per cent commission, which Taggart and Thomsen agreed to divide equally. On the following day Thomsen informed Ward of the provision for the commission and Ward agreed to it. Subsequently, Taggart told Thomsen that Sunset had accepted Ward's offer and presented to him proposed escrow instructions naming Taggart's business associate, defendant H. M. Jordan, as seller acting for Taggart. Taggart stated that his designation as principal would enable him to "clear up the Dawson exclusive listing" as well as certain blanket mortgages on the property. Thomsen told Ward of this arrangement when he submitted the escrow instructions to him. When Ward asked why Jordan was to be the payee of the notes and the beneficiary of the trust deeds, Thomsen replied that Taggart had said the arrangement was prompted by certain tax and other problems of the Sunset Oil Company and that the trust deeds would be turned over to Sunset after the escrow. Plaintiffs paid $360,246 for the 72.0492 acres conveyed to them.

Plaintiffs did not learn until after they had purchased the property that Taggart had never been given a listing by Sunset and that he had never presented to Sunset and never intended to present plaintiffs' offers of $4,000 and $5,000 per acre. Instead, he presented his own offer of $4,000 per acre, which Sunset accepted. He falsely represented to plaintiffs that the least Sunset would take for the property was $5,000 per acre, because he intended to purchase the property from Sunset himself and resell it to plaintiffs at a profit of $1,000 per acre. All the reasons he gave for the unusual handling of the sale were fabrications. He never disclosed Ward's offer to Sunset until after the escrow papers were signed. All of the money he used to pay Sunset the purchase price came from the Ward escrow.

Plaintiffs brought an action in tort charging fraud on the part of Taggart and Jordan. The case was tried without a jury, and the court entered judgment against both defendants for $72,049.20 compensatory damages, and against Tag- gart for $36,000 exemplary damages. The judgment also enjoined defendants from transferring notes and trust deeds received from plaintiffs and ordered them to discharge these and thereby reduce the amount of the judgment. Defendants appeal.

Defendants contend that the judgment must be reversed on the ground that, there can be no recovery in a tort action for fraud without proof of the actual

September 11, 2000

4.4. REAL ESTATE BROKERS 485 or "out-of-pocket" losses sustained by the plaintiff and that in the present case there was no evidence that the property was worth less than plaintiffs paid for it. Defendants invoke section 3343 of the Civil Code, which provides that one "defrauded in the purchase, sale or exchange of property is entitled to recover the difference between the actual value of that with which the defrauded person parted and the actual value of that which he received,. . ."

Although, as defendants admit, the evidence is clearly suAEcient to support the finding of fraud, the only evidence submitted on the issue of damages was that the property was worth at least $5,000 per acre, the price plaintiffs paid for it. Since there was no proof that plaintiffs suffered "out-of-pocket" loss, there can be no recovery in tort for fraud. (Bagdasarian v. Gragnon, 31 Cal.2d 744, 762-763 [192 P.2d 935].)

Plaintiffs contend, however, that their recovery is not limited to actual dam- ages, on the ground that section 3343 does not apply to a tort action to recover secret profits. They rely principally on Crogan v. Metz, 47 Cal.2d 398 [303 P.2d 1029]; Savage v. Mayer, 33 Cal.2d 548 [203 P.2d 9]; Terry v. Bender, 143 Cal.App.2d 198 [300 P.2d 119]; Simone v. McKee, 142 Cal.App.2d 307 [298 P.2d 667]; Ramey v. Myers, 111 Cal.App.2d 679 [245 P.2d 360]; and Adams v. Harrison, 34 Cal.App.2d 288 [93 P.2d 237]. These cases all involved situa- tions in which the defendant was the agent of the defrauded person or in which a confidential or fiduciary relationship existed between the parties. They rest on the theory that "the principal's right to recover does not depend upon any deceit of the agent, but is based upon the duties incident to the agency relation- ship and upon the fact that all profits resulting from that relationship belong to the principal." (Savage v. Mayer, supra, 33 Cal.2d at 551.) In the present case, however, there is no evidence of an agency or other fiduciary relationship between plaintiffs and defendant Taggart or defendant Jordan. Plaintiffs dealt at arms length with Taggart through their agent Thomsen. At no time did Taggart purport to act for plaintiffs. There is no evidence of any prior dealings between the parties or any acquaintanceship or special relationship that would create a fiduciary duty of defendants to plaintiffs. In the absence of a fiduciary relationship, recovery in a tort action for fraud is limited to the actual damages suffered by the plaintiff. . . .

Even though Taggart was not plaintiff's agent, the public policy of this state does not permit one to "take advantage of his own wrong" (Civ. Code, x3517), and the law provides a quasi-contractual remedy to prevent one from being unjustly enriched at the expense of another. Section 2224 of the Civil Code provides that one "who gains a thing by fraud. . . or other wrongful act, s, unless he has some other and better right thereto, an involuntary trustee of the thing gained, for the benefit of the person who would otherwise have had it." As a real estate broker, Taggart had the duty to be honest and truthful in his dealings. The evidence is clearly suAEcient to support a finding that Taggart violated this duty. Through fraudulent misrepresentations he received money that plaintiffs would otherwise have had. Thus, Taggart is an involuntary trustee for the benefit of plaintiffs on the secret profit of $1,000 per acre that he made

486 CHAPTER 4. RESTITUTION AS A REMEDY FOR WRONGS from his dealings with them.

Although this theory of recovery was not advanced by plaintiffs in the trial court, it is settled that a change in theory is permitted on appeal when "a question of law only is presented on the facts appearing in the record. . . ." (Panopulos v. Maderis, 47 Cal.2d 337, 341 [303 P.2d 738]; American Auto. Ins. Co. v. Seaboard Surety Co., 155 Cal.App.2d 192, 200 [318 P.2d 84].) The general rule confining the parties upon appeal to the theory advanced below is based on the rationale that the opposing party should not be required to defend for the first time on appeal against a new theory that "contemplates a factual situation the consequences of which are open to controversy and were not put in issue or presented at the trial." (Panopulos v. Maderis, supra, 47 Cal.2d at 341.) Such is not the case here. Although the facts pleaded and proved by plaintiffs do not sustain the judgment on the theory of tort, they are suAEcient to uphold recovery under the quasi-contractual theory of unjust enrichment since that theory does not contemplate any factual situation different from that established by the evidence in the trial court. Defendants were given ample opportunity to present their version of the transaction involved, and the issue of whether or not their actions constituted fraud was decided adversely to them by the trial court.

Accordingly, the judgment for $72,049.20, representing the $1,000 per acre secret profit, against defendant Taggart must be aAErmed. The judgment against defendant Jordan, however, must be reversed. Although she permitted her name to be used in the dual escrows, she did not share in the illicit profit that Taggart obtained. One cannot be held to be a constructive trustee of something he has not acquired.

Taggart contends that if recovery is based on the theory of unjust enrichment, the judgment for exemplary damages must be reversed. The argument runs that under this theory the law implies a promise to return the money wrongfully obtained, that the plaintiff waives the tort and sues in assumpsit on an implied contract, and that since such an action is "contractual" in nature, it does not admit of the exemplary damages allowed under section 3294 of the Civil Code. That section authorizes exemplary damages "in an action for the breach of an obligation not arising from contract, where the defendant has been guilty of oppression, fraud, or malice. . . ." The word "contract" is used in this section in its ordinary sense to mean an agreement between the parties, not an obligation imposed by law despite the absence of any such agreement. Taggart's obligation does not arise from any agreement between him and plaintiffs. It arises from his fraud and violation of statutory duties. His fraud is not waived, for it is the very foundation of the implied-in-law promise to disgorge. (See Corbin, Waiver of Tort and Suit In Assumpsit, 19 Yale L.J. 221, 243-246.) The promise is purely fictitious and unintentional, originally implied to circumvent rigid common law pleading. It was invoked not to deny a remedy, but to create one "for the purpose of bringing about justice without reference to the intention of the parties." 1 Williston, Contracts (rev. ed.) p. 9; see Desny v. Wilder, 46 Cal.2d 715, 735 [299 P.2d 257].) Since Taggart's obligation for his fraud does not arise from contract but is imposed by law, the judgment for exemplary damages clearly

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4.4. REAL ESTATE BROKERS 487 falls within section 3294, . . . the only action sustainable under the pleadings was an action for breach of an agent's contractual duties. In Steiner v. Rowley, 35 Cal.2d 713 [221 P.2d 9], the plaintiff was estopped to allege a cause of action in tort to recover exemplary damages because he had obtained a writ of attachment in pursuit of the contractual remedy, "whereby he has gained advantage over the other party." (35 Cal.2d at 720.)

Courts award exemplary damages to discourage oppression, fraud, or malice by punishing the wrongdoer. (See McCormick, Damages, x79; Morris, Punitive Damages in Tort Cases, 44 Harv.L.Rev. 1173, 1185-1188.) Such damages are appropriate in cases like the present one, where restitution would have little or no deterrent effect, for wrongdoers would run no risk of liability to their victims beyond that of returning what they wrongfully obtained. . . . The record herein discloses no abuse of discretion in the award of exemplary damages. . . .

Taggart finally contends that he is entitled to a deduction of the cost to him of the transaction except those items incurred to accomplish his fraud. He seeks to reduce the compensatory damages by $25,563.10, representing the com- mission of $15,012.30 paid to Thomsen; the $5,900 commission paid to Harvey Nelson, former land manager of Sunset Oil Company; the $616 cost of the two escrows, one of which channeled title from Sunset to Jordan and the other from Jordan to plaintiffs; and the $4,034.80 paid to Dawson, who had an exclusive agency on the property, to cancel his contract. The $5,900 paid to Nelson and the cost of the Jordan escrow were expenses incurred to accomplish the fraud; they would not have been necessary to a legitimate transaction. It is clear that these expenses must be disallowed. Since it is entirely speculative whether the commissions paid to Thomsen and Dawson and the cost of the second escrow would have been paid by plaintiffs or Sunset had the transaction been a legit- imate one, it would be inequitable to permit Taggart to deduct any of these expenses from plaintiffs' recovery. . . .

The judgment against Taggart is aAErmed. The judgment against Jordan is reversed.

Gibson, C.J., Shenk, J., Carter, J., Spence, J., and McComb, J., concurred.

Schauer, J., Concurring and Dissenting.--I concur in the judgment be- cause it comes as close to affording justice to the wronged plaintiffs as appears possible under the presently established decisional law of this state as it inter- prets and applies section 3343 of the Civil Code. In fact this decision, by its ingenious innovation and application of a constructive trust-unjust enrichment- quasi-contractual theory to support an award of exemplary damages as against one of the defendants, avoids much of the evil effect of the majority holding in Bagdasarian v. Gragnon (1948), 31 Cal.2d 744, 759-763 [192 P.2d 935], and is therefore to that extent desirable.

But because the subject section as now interpreted and applied still consti- tutes more of a shield for, than a sword against, fraud perpetrators, I deem it proper to once more direct attention to it in the hope that the Legislature--if

488 CHAPTER 4. RESTITUTION AS A REMEDY FOR WRONGS not this court by forthright overruling of Bagdasarian--may provide a remedy.

The judgment of the trial court is amply supported by the evidence and would clearly be supported by the law as against both defendants were it not for the conclusion reached in the Bagdasarian case that the addition in 1935 of section 3343 to the Civil Code (Stats. 1935, ch. 536, p. 1612, x 1) operated to repeal and supplant the previously existing law governing the measure of damages in fraud cases. It was my view then, and still is, that section 3343 was intended by the Legislature to provide an alternative, not the exclusive, measure of damages in such cases.

As pointed out by Professor Williston, under the construction of the statute adopted by the majority in the Bagdasarian case, "a fraudulent person can in no event lose anything by his fraud. He runs the chance of making a profit if he successfully carries out his plan and is not afterward brought to account for it; and if he is brought to account, he at least will lose nothing by his misconduct." (5 Williston on Contracts (rev. ed.), 3886, x1392.)

In this connection it is to be noted that the legislation as adopted in Califor- nia (Stats. 1935, ch. 536, p. 1612, x 1) expressly declares that "Nothing herein contained shall be deemed to deny to any person having a cause of action for fraud or deceit any legal or equitable remedies to which such person may be entitled." I would prefer to reconsider the ruling in the Bagdasarian case and hold that the remedy added by the statute of 1935 is in truth an addition to, rather than a restriction on, the remedies of the person defrauded. So holding, I would aAErm the judgment of the trial court, including the award of exemplary damages as against both defendants.

Appellants' petition for a rehearing was denied April 8, 1959.

4.4.4 Harper v. Adametz

Fowler V. Harper v. Jere Adametz

Supreme Court of Connecticut 142 Conn. 218; 113 A.2d 136; 55 A.L.R.2d 334

1955

Baldwin, J. This action, based upon fraud, was brought by the plaintiff against the named defendant and his son Walter Adametz. The court rendered judgment for the defendants and the plaintiff has appealed.

The facts found, which are not subject to correction, are as follows: Joseph B. Tesar was conservator of the estate of his father, William Tesar, an incompe- tent, who owned eighty acres of land and the buildings thereon in the town of Haddam. The defendant Jere Adametz, a real estate agent, hereinafter referred to as Jere, was acting as agent for the sale of Tesar's property. Jere advertised a portion of it, consisting of five acres and an old colonial house, for $6200, and the advertisement, in a New Haven newspaper, came to the attention of the plaintiff. On December 6, 1948, the plaintiff wrote to Jere expressing an

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4.4. REAL ESTATE BROKERS 489 interest in the property advertised. Jere acknowledged this letter on December 8. On December 12, Jere showed the plaintiff the eighty-acre farm and told him that the seller was asking $8500 for it but that the buildings and a smaller acreage could be bought for less. The plaintiff made no offer but showed an interest in purchasing the smaller acreage. On the following day, December 13, Jere wrote to Joseph Tesar, the conservator, stating that he had a client who had offered $6500 cash for the farm (meaning eighty acres) and asked for an immediate reply. On December 15, the attorney for Tesar wrote to Jere stating that Tesar would accept the offer for the entire farm subject to the approval of the Probate Court and asking that a written offer with at least a 10 per cent deposit be sent to him.

The plaintiff visited the property on December 19 and 26, and on one of those dates he made an offer to Jere of $7000 for the entire farm. Jere promised to convey this offer to Tesar, but he did not do so. Instead, he sent his own check for $500 to Tesar on December 29 as a deposit on the purported offer of $6500. Jere told Fred Mazanek, a relative of the Tesars, that the plaintiff wanted to purchase only a small portion of the acreage and that he, Jere, would like to obtain the rest for his son but that he did not want to lose his commission. He prevailed upon Mazanek and John Hibbard, a friend of the family, to act as a medium for the passing of title to the farm. On or about January 2, 1949, Jere told the plaintiff that his offer had been rejected because Tesar desired to keep a major portion of the farm in the family and that certain relatives of the Tesars wished to buy most of the acreage, but that he, Jere, could arrange for the plaintiff to buy the buildings and part of the land. The plaintiff then made an offer of $6000 for seventeen acres, including the buildings, and Jere accepted the offer. The plaintiff was satisfied with his purchase.

On January 4, Joseph Tesar signed a contract to sell the entire farm of eighty acres to Mazanek and Hibbard for $6500. The sale was approved by the Probate Court, and a conservator's deed dated January 26 was delivered on February 8 to Mazanek and Hibbard. At the same time, on February 8, they executed and delivered a deed for seventeen acres, including the buildings, to the plaintiff, who paid $6000. On March 11, Mazanek and Hibbard conveyed sixty-three acres, the balance of the farm, to the defendant Walter Adametz, Jere's son. Mazanek and Hibbard were mere "go betweens" who paid nothing when they "bought" the farm and received nothing when they "sold" it to the plaintiff and Walter. Walter paid nothing for the sixty-three acres he acquired. Tesar did not know of the plaintiff's offer of $7000 for the entire farm, and the plaintiff did not know that this offer had not been transmitted to Tesar. The presentation by Jere to Tesar on December 13 that he had a $6500 offer for the farm was false. At the time he sent his own check for $500 to Tesar on the purported offer of $6500, the only offer he had was the plaintiff's offer of $7000. Jere engineered the transactions herein related to obtain sixty-three acres of the farm for himself and Walter at the price of $500 and at the same time collect a commission of $325 for the sale.

On these facts, the court concluded that Jere was the agent for Tesar and

490 CHAPTER 4. RESTITUTION AS A REMEDY FOR WRONGS not for the plaintiff, that there was no contract between Tesar and the plaintiff for the purchase of any property other than the buildings and seventeen acres of land, that the plaintiff sustained no loss by reason of any misrepresentation made by Jere, and that therefore the plaintiff had failed to prove actionable fraud.

It is the general rule that in an action at law for fraud the plaintiff, to recover, must prove that he has been injured. . . . In the ordinary case, this means that the plaintiff must sustain a substantial pecuniary loss. See Prosser, Torts, p. 768; Harper,

Torts, p. 470. The plaintiff in this action did receive that

he paid for. See Gilfillen v. Moorhead, 73 Conn. 710, 714, 49 A. 196. He did not, however, because of Jere's fraud, obtain what he was seeking. While acting as an agent for Tesar but with the intent of making a secret profit for himself, Jere told his principal that he had a cash offer of $6500 for the entire farm. This statement was false, and in making it Jere violated his trust. His conduct was a fraud upon Tesar. . . .

Jere was not the agent of the plaintiff. Nevertheless, he could not deliberately deceive him. It was Jere's advertisement in the newspaper which had aroused the interest of the plaintiff in the property and had brought him to Haddam to inspect it. Jere told the plaintiff at that time that the entire farm was for sale for $8500. When the plaintiff later made an offer of $7000 for it, Jere said nothing about having submitted a bogus offer of $6500, and he promised to submit the plaintiff's offer to Tesar. He failed to do so and later lied to the plaintiff by telling him that Tesar had rejected it. It was not until after this that the plaintiff offered $6000 for seventeen acres and the buildings. It can be claimed that when the plaintiff made his $7000 offer Tesar had already signified his willingness to accept the purported offer of $6500 made by Jere in behalf of a fictitious client and that the plaintiff's offer came too late. But the $6500 offer was a fraud and Tesar was not bound to accept it. He could have revoked Jere's authority. Mansfield v. Mansfield, 6 Conn. 559, 562; 1 Mechem, Agency (2d Ed.) xx 563, 564; Restatement, 1 Agency x 118. Thereafter, he could have sold the property to the plaintiff. Jere's false statements, his concealment of the facts, his promise to submit the plaintiff's offer to Tesar when everything indicates that he had no intention of doing so, worked a fraud upon the plaintiff. . . . As a result, the plaintiff has been denied the right to have his bona fide offer of $7000 submitted to Tesar. In short, the plaintiff has been deprived of his bargain. Jere and Walter, by their fraud, have acquired sixty-three acres of land for $175.

This is an action in equity as well as at law. Equity is a system of positive jurisprudence founded upon established principles which can be adapted to new circumstances where a court of law is powerless to give relief. 1 Pomeroy, Equity Jurisprudence (5th Ed.) p. 78. In equity, as in law, misrepresenta- tion, to constitute fraud, must be material. 3 id., x 876; Bogert, 3 Trusts & Trustees, x 473. That is to say, the representation must prejudice the party

The joke is that Harper on Torts and Harper the plaintiff are the same person. [pdj]

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4.4. REAL ESTATE BROKERS 491 relying upon it. He must suffer some injury or pecuniary loss. Some courts have held that the pecuniary loss need be only slight. 3 Pomeroy, op. cit., pp. 535, 536, and cases cited n.8. Others have held that mere lack of pecuniary injury or loss does not prevent the granting of relief by way of rescission and restitution. 3 id., p. 537, and cases cited n.10. In Brett v. Cooney, 75 Conn. 338, 53 A. 729, the plaintiffs were induced by a series of false statements to sell their property to a person who in turn conveyed to another whom the plaintiffs had previously rejected as an undesirable purchaser. The plaintiffs suffered no financial loss. However, after citing Barnes v. Starr, 64 Conn. 136, 150, 28 A. 980, which states that proof of injury is a prerequisite to recovery for fraud, the court said (p. 342): "But in measuring injury, equity does not concern itself merely with money losses. If it finds that a clear right has been invaded, and that redress can be secured by putting the parties back in their original position, it will seldom refuse its aid because the plaintiff can show no substantial damages to his pecuniary interests." See also Moorrow v. Ursini, 96 Conn. 219, 221, 113 A. 388.

The plaintiff had a clear right to have his offer for the farm transmitted to Tesar. Having been invited by Jere's advertisement to bid for the property, he had a right to assume that Jere would deal honestly with him and be faithful to his principal. Instead, Jere withheld the offer, later lied to the plaintiff about it and, by using the plaintiff's willingness to accept seventeen acres, acquired the farm for himself for less than the plaintiff had offered for it. He induced the plaintiff to make an offer and then used that offer, and the plaintiff's money, to make a secret profit. By his fraudulent misrepresentations, he deprived the plaintiff of his bargain and obtained for himself some of the land which the plaintiff had offered to buy. "If one acquires property by means of a fraudulent misrepresentation of a material fact, equity will assist the defrauded person by fastening a constructive trust on the property." Bogert, 3 Trusts & Trustees, p. 20; 3 Scott, Trusts, x 462.2; Restatement, Restitution, x 133, comment a, xx 160, 169; 4 Pomeroy, Equity Jurisprudence (5th Ed.) x 1044; Millard v. Green, 94 Conn. 597, 601, 110 A. 177; Quinn v. Phipps, 93 Fla. 805, 815, 113 So. 419; Beatty v. Guggenheim Exploration Co., 225 N.Y. 380, 386, 122 N.E. 378; Pound, "The Progress of the Law, 1918-1919: Equity," 33 Harv. L. Rev. 420, 421. It is true that this rule is most often applied in situations where the relationship between the plaintiff and the defendant is one which equity clearly recognizes as fiduciary. But equity has carefully refrained from defining a fiduciary relationship in precise detail and in such a manner as to exclude new situations. It has left the bars down for situations in which there is a justifiable trust confided on one side and a resulting superiority and influence on the other. . . .

Equity will not permit these defendants to keep a benefit which came to them by reason of Jere's fraudulent conduct. It is true that Tesar has not acted to right the wrong done to him. Had he done so, it is probable that the plaintiff could have had the farm. This should not prevent the plaintiff, in his own right from having a remedy for the wrong done to him. The plaintiff has proffered

492 CHAPTER 4. RESTITUTION AS A REMEDY FOR WRONGS $1000, which represents the balance of the amount of his original offer over and above the purchase price he paid for the seventeen acres. Upon the payment of this sum into court, to await further order, an order should enter directing the defendant Walter to convey the sixty-three acres to the plaintiff.

There is error, the judgment is set aside and the case is remanded to the Superior Court for proceedings in accordance with this opinion.

O'Sullivan, J. (dissenting). The case suggests two possible theories for claiming actionable fraud on the part of Jere Adametz, hereinafter called the defendant. The first is based on his failure to disclose to the plaintiff that he had bought the Tesar farm, and the second on certain fraudulent representations made by him to the plaintiff. In other words, the one rests on his silence, the other on what he said. Neither theory, it seems to me, has any merit.

As indicated, the first theory is based on the fact that, which holding himself out as Tesar's agent, the defendant purchased the farm and thereafter sold to the plaintiff, through two dummies, seventeen of the eighty acres without revealing to the plaintiff the true nature of the entire transaction and the furtive steps which he, the defendant, had taken in acquiring the land for his son. Our law is clear that, under the circumstances found by the court to have prevailed, no duty was imposed upon the defendant to refrain from buying the farm himself or to disclose that he had done so, as long as he was not acting at the time as agent for, or did not occupy a confidential relationship towards, the plaintiff. Kurtz v. Farrington, 104 Conn. 257, 265, 132 A. 540. Since the plaintiff concedes that the defendant was not his agent and since the facts do not admit of the existence of any confidential relationship between the parties, neither the defendant's conduct nor his silence about it presents an instance of actionable fraud.

The second theory is grounded on certain representations, fraudulently made by the defendant, to the effect that he had submitted to Tesar the plaintiff's offer to pay $7000 for the entire farm and that Tesar, which rejecting that offer, had authorized the defendant to sell to the plaintiff for $6000 the seventeen acres upon which stood the house and the other buildings. To recover on the basis of these obviously false representations, the plaintiff had to establish (1) that they were made as statements of fact, (2) that they were untrue and known by the defendant to be untrue, (3) that they were made for the purpose of inducing the plaintiff to act upon them, (4) that the plaintiff was in fact induced to act upon them, and (5) that in so acting he was legally injured. . . . All the foregoing essentials must be proven, and the absence of any one of them is fatal to recovery. . . .

It is to be noted that the plaintiff, as a result of the representations, took no positive act respecting the remaining sixty-three acres. It is, of course, true that fraudulent representations may be actionable even in the absence of a positive act, since fraud inducing inaction can be as culpable as fraud which prompts action. . . . Thus, recovery was permitted where the representations caused the plaintiff to refrain from perfecting an inchoate lien, or from rescinding a contract, or from selling his property, or from putting his merchandise on the market. Cases such as those cited, however, give no comfort to the plaintiff,

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4.5. THE CASE OF THE EGG-WASHING MACHINE 493 since his failure to act did not affect any property interest owned by him. The law does not appear to subject a defendant to legal culpability for fraudulent representations in those instances where the person, induced to inaction, sus- tains no damage to his property interests or rights. Such instances would be those of injuria absque damno. . . . They would be fraud without damage. . . .

But even if the law were otherwise, the plaintiff would not be advantaged. Because of the absence of an appendix, the finding cannot be corrected. Prac- tice Book x 447. Since the finding does not disclose that the sixty-three acres are worth over $1000, the plaintiff has failed to establish any pecuniary loss whatsoever.

For the reasons stated above, I must disagree with my colleagues.

4.4.5 Note on Harper v. Adametz Harper v. Adametz seems very similar to Ward v. Taggart, but it is a much more diAEcult case, because there is a third party, William Tesar, an incompetent, lurking just off-stage.

What would happen if Tesar (or his guardian) were now to sue Harper? That would make a good exam question, now wouldn't it?

4.5 The Case of the Egg-Washing Machine 4.5.1 Olwell v. Nye & Nissen Co.

E. L. Olwell v. Nye & Nissen Co.

Court of Washington 26 Wash. 2d 282, 173 P.2d 652, 169 A.L.R. 139

1946

Mallery, J. On May 6, 1940, plaintiff, E. L. Olwell, sold and transferred to the defendant corporation his one-half interest in Puget Sound Egg Packers, a Washington corporation having its principal place of business in Tacoma. By the terms of the agreement, the plaintiff was to retain full ownership in an "Eggsact" egg- washing machine, formerly used by Puget Sound Egg Packers. The defendant promised to make it available for delivery to the plaintiff on or before June 15, 1940.

It appears that the plaintiff arranged for and had the machine stored in a space adjacent to the premises occupied by the defendant but not covered by its lease. Due to the scarcity of labor immediately after the outbreak of the war, defendant's treasurer, without the knowledge or consent of the plaintiff, ordered the egg washer taken out of storage. The machine was put into operation by

494 CHAPTER 4. RESTITUTION AS A REMEDY FOR WRONGS defendant on May 31, 1941, and thereafter, for a period of three years, was used approximately one day a week in the regular course of the defendant's business.

Plaintiff first discovered this use in January or February of 1945, when he happened to be at the plant on business and heard the machine operating. Thereupon, plaintiff offered to sell the machine to defendant for six hundred dollars or half of its original cost in 1929. A counteroffer of fifty dollars was refused, and, approximately one month later, this action was commenced to recover the reasonable value of defendant's use of the machine, and praying for twenty-five dollars per month from the commencement of the unauthorized use until the time of trial. A second cause of action was alleged, but was not pressed and hence is not here involved. The court entered judgment for plaintiff in the amount of ten dollars per week for the period of 156 weeks covered by the statute of limitations, or $ 1,560, and gave the plaintiff his costs.

Defendant has appealed to this court, assigning error upon the judgment, upon the trial of the cause on the theory of unjust enrichment, upon the amount of damages, and upon the court's refusal to make a finding as to the value of the machine, and in refusing to consider such value in measuring damages.

The theory of the respondent was that the tort of conversion could be "waived" and suit brought in quasi contract, upon a contract implied in law, to recover, as restitution, the profits which inured to appellant as a result of its wrongful use of the machine. With this the trial court agreed and, in its findings of facts, found that the use of the machine

". . . resulted in a benefit to the users, in that said use saves the users approximately $ 1.43 per hour of use as against the expense which would be incurred were eggs to be washed by hand; that said machine was used by Puget Sound Egg Packers and defendant, on an average of one day per week from May of 1941, until February of 1945 at an average saving of $ 10.00 per each day of use."

In substance, the argument presented by the assignments of error is that the principle of unjust enrichment, or quasi contract, is not of universal application but is imposed only in exceptional cases because of special facts and circum- stances and in favor of particular persons; that respondent had an adequate remedy in an action at law for replevin or claim and delivery; that any damages awarded to the plaintiff should be based upon the use or rental value of the ma- chine and should bear some reasonable relation to its market value. Appellant therefore contends that the amount of the judgment is excessive.

It is uniformly held that in cases where the defendant tort feasor has bene- fited by his wrong, the plaintiff may elect to "waive the tort" and bring an action in assumpsit for restitution. Such an action arises out of a duty imposed by law devolving upon the defendant to repay an unjust and unmerited enrichment. Woodward, The Law of Quasi-Contracts 439, x 272 (2); Keener on Quasi-Contracts 160. See, also, Professor Corbin's articles, "Waiver of Tort and Suit in Assumpsit," 19 Yale Law Journal 221, and "Quasi-Contractual Obligations," 21 Yale Law Journal 533.

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4.5. THE CASE OF THE EGG-WASHING MACHINE 495

It is clear that the saving in labor cost which appellant derived from its use of respondent's machine constituted a benefit.

According to the Restatement of Restitution 12, x 1 (b), "A person confers a benefit upon another if he gives to the other possession of or some other interest in money, land, chattels, or choses in action, performs services beneficial to or at the request of the other, satisfies a debt or a duty of the other, or in any way adds to the other's security or advantage. He confers a benefit not only where he adds to the property of another, but also where he saves the other from expense or loss. The word `benefit,' therefore, denotes any form of advantage." (Italics ours.)

It is also necessary to show that, while appellant benefited from its use of the egg-washing machine, respondent thereby incurred a loss. It is argued by appellant that, since the machine was put into storage by respondent, who had no present use for it, and for a period of almost three years did not know that appellant was operating it, and since it was not injured by its operation and the appellant never adversely claimed any title to it, nor contested respondent's right of repossession upon the latter's discovery of the wrongful operation, that the respondent was not damaged, because he is as well off as if the machine had not been used by appellant.

The very essence of the nature of property is the right to its exclusive use. Without it, no beneficial right remains. However plausible, the appellant cannot be heard to say that its wrongful invasion of the respondent's property right to exclusive use is not a loss compensable in law. To hold otherwise would be subversive of all property rights, since its use was admittedly wrongful and without claim of right. The theory of unjust enrichment is applicable in such a case.

We agree with appellant that respondent could have elected a "common garden variety of action," as he calls it, for the recovery of damages. It is also true that, except where provided for by statute, punitive damages are not allowed, the basic measure for the recovery of damages in this state being compensation. If, then, respondent had been limited to redress in tort for damages, as appellant contends, the court below would be in error in refusing to make a finding as to the value of the machine. In such case, the award of damages must bear a reasonable relation to the value of the property. Hoff v. Lester, 25 Wn. (2d) 86, 168 P. (2d) 409.

But respondent here had an election. He chose rather to waive his right of action in tort and to sue in assumpsit on the implied contract. Having so elected, he is entitled to the measure of restoration which accompanies the remedy.

"Actions for restitution have for their primary purpose taking from the de- fendant and restoring to the plaintiff something to which the plaintiff is entitled, or if this is not done, causing the defendant to pay the plaintiff an amount which will restore the plaintiff to the position in which he was before the defendant received the benefit. If the value of what was received and what was lost were

496 CHAPTER 4. RESTITUTION AS A REMEDY FOR WRONGS always equal, there would be no substantial problem as to the amount of recov- ery, since actions of restitution are not punitive. In fact, however, the plaintiff frequently has lost more than the defendant has gained, and sometimes the defendant has gained more than the plaintiff has lost.

"In such cases the measure of restitution is determined with reference to the tortiousness of the defendant's conduct or the negligence or other fault of one or both of the parties in creating the situation giving rise to the right to restitution. If the defendant was tortious in his acquisition of the benefit he is required to pay for what the other has lost although that is more than the recipient benefited. If he was consciously tortious in acquiring the benefit, he is also deprived of any profit derived from his subsequent dealing with it. If he was no more at fault than the claimant, he is not required to pay for losses in excess of benefit received by him and he is permitted to retain gains which result from his dealing with the property." (Italics ours.) Restatement of Restitution 595-6.

Respondent may recover the profit derived by the appellant from the use of the machine.

Respondent has prayed "on his first cause of action for the sum of twenty-five dollars per month from the time defendant first commenced to use said machine subsequent to May 1940 (1941) until present time."

In computing judgment, the court below computed recovery on the basis of ten dollars per week. This makes the judgment excessive, since it cannot exceed the amount prayed for.

In Bank of British Columbia v. Port Townsend, 16 Wash. 450, 47 Pac. 247, a definite amount was prayed, but the complaint did not state in express words that the plaintiff was damaged. In holding such an allegation to be unnecessary, we stated:

"It is said by Sutherland, in his work on Damages, x 415, that: " `The controlling part of the complaint, as to the amount of damages, is the prayer for judgment.'

"And in Sedgwick on Damages (8th ed.), x 1260, it is said: " `. . . except as fixing a limit beyond which recovery cannot be had, the averment of the amount of damages is not a material one.' "

"In regard to the amount of damages to be averred, it is only necessary to lay them so high as to cover the injury: for no recovery can be had beyond the amount in the declaration." 4 Sedgwick on Damages (9th ed.) 2590, x 1258.

And in Belle City Mfg. Co. v. Kemp, 27 Wash. 111, 67 Pac. 580, where the prayer was for $ 895, the verdict and judgment were for $ 900.35. We there instructed the court below that the amount in excess of $ 895 must be remitted since the evidence was suAEcient to support the judgment prayed.

We therefore direct the trial court to reduce the judgment, based upon the prayer of the complaint, to twenty-five dollars per month for thirty-six months, or nine hundred dollars.

September 11, 2000

4.5. THE CASE OF THE EGG-WASHING MACHINE 497

The judgment as modified is aAErmed. Appellant will recover its costs. Millard, C.J., Steinert, Simpson and Connelly, JJ., concur.

498 CHAPTER 4. RESTITUTION AS A REMEDY FOR WRONGS

September 11, 2000 Chapter 5 Contracts, Volunteers, and Mistakes

In the last chapter we were concerned with the availability of restitution to prevent the unjust enrichment of someone who had committed a wrong. In this chapter we shall be concerned with cases involving unjust enrichment where there is nothing that can be called a wrong.

We shall therefore consider cases in which the plaintiff intentionally confers a benefit on the defendant and then seeks restitution. An example of this sort of case that we studied in Chapter I is Chinchuretta v. Evergreen Management, Inc., supra at Section 2.5.1.

In this chapter we will also examine some cases in which the plaintiff seeks a restitutionary remedy to undo a mistake. We have already seen two cases in which the plaintiff alleged that the defendants had been unjustly enriched because of a mistake. One case is Norton v. Haggett, which is reprinted in Section 2.7.1; the other is Maricopa County v. Leppla, which is reprinted in Section 3.4.2. Here we will see some additional examples of cases involving mistakes.

One thing that you should notice is that in many of these cases the defen- dant argues that the plaintiff was a volunteer, or even an `oAEcious intermed- dler' and that therefore the plaintiff should not recover. In Norton v. Haggett, Norton--whom the court did call an intermeddler--could have been classified as a volunteer, even though the court did not choose to use that label in its opinion denying him relief. In Chinchuretta, the Christensens, who claimed the payments on unjust enrichment grounds, were accused by Chinchuretta of being a volunteer.

A `volunteer' is one who does an act voluntarily. It is black letter law that a plaintiff cannot recover for benefits that the plaintiff voluntarily conferred upon the defendant. But sometimes he can. Those exceptions form the subject matter of this chapter.

499

500 CHAPTER 5. CONTRACTS, VOLUNTEERS, AND MISTAKES 5.1 Cases Relating to Contracts Although one can argue--as I do--that most contract cases are restitutionary (in the sense that the beneficiary of a contract who is not in default is entitled to specific restitution of the entitlement created by the contract in an equitable proceeding for specific performance or to value restitution of that entitlement in an legal action for what are known, unfortunately, as `expectancy damages'), that is not a suAEcient justification for reprising the entire subject matter of your contracts course in this course in restitution.

There are, however, many cases that start out like regular contracts cases, but then something strange happens, and the ordinary remedies available in run-of-the-mill contracts actions are not available (or are not satisfactory). In such cases the law of restitution often supplies the missing elements. In this chapter we shall examine some cases where that is the case.

We shall also examine cases in which the plaintiff seeks restitution, not of the entitlement created by the contract, but of the consideration that the plaintiff supplied.

5.1.1 Vickery v. Ritchie

Edward J. Vickery v. John Ritchie, Jr.

Supreme Judicial Court of Massachusetts

202 Mass. 247

1909

Knowlton, J.: This is an action to recover a balance of $ 10,467.16, alleged to be due the plaintiff as a contractor, for the construction of a Turkish bath house on land of the defendant. The parties signed duplicate contracts in writ- ing, covering the work. At the time when the plaintiff signed both copies of the contract the defendant's signature was attached, and the contract price therein named was $ 33,721. When the defendant signed them the contract price stated in each was $ 23,200. Until the building was completed the plaintiff held a con- tract under which he was to receive the larger sum, while the defendant held a contract for the same work, under which he was to pay only the smaller sum. This resulted from the fraud of the architect who drew the contracts, and did all the business and made all the payments for the defendant. The contracts were on typewritten sheets, and it is supposed that the architect accomplished the fraud by changing the sheets on which the price was written, before the signing by the plaintiff, and before the delivery to the defendant. The parties did not discover the discrepancy between the two writings until after the building was substantially completed. Each of them acted honestly and in good faith, trust- ing the statements of the architect. The architect was indicted, but he left the Commonwealth and escaped punishment.

The auditor found that the market value of the labor and materials furnished by the plaintiff, not including the customary charge for the supervision of the

September 11, 2000

5.1. CASES RELATING TO CONTRACTS 501 work, was $ 33,499.30, and that their total cost to the plaintiff was $ 32,950.96. He found that the land and building have cost the defendant much more than their market value. The findings indicate that it was bad judgment on the part of the defendant to build such a structure upon the lot, and that the increase in the market value of the real estate, by reason of that which the plaintiff put upon it, is only $ 22,000. The failure of the parties to discover the difference between their copies of the contract was caused by the frequently repeated fraudulent representations of the architect to each of them.

The plaintiff and the defendant were mistaken in supposing that they had made a binding contract for the construction of this building. Their minds never met in any agreement about the price. The labor and materials were furnished at the defendant's request and for the defendant's benefit. From this alone the law would imply a contract on the part of the defendant to pay for them. The fact that the parties supposed the price was fixed by a contract, when in fact there was no contract, does not prevent this implication, but leaves it as a natural result of their relations. Both parties understood and agreed that the work should be paid for, and both parties thought that they had agreed upon the price. Their mutual mistake in this particular left them with no express contract by which their rights and liabilities could be determined. The law implies an obligation to pay for what has been done and furnished under such circumstances, and the defendant, upon whose property the work was done, has no right to say that it is not to be paid for. The doctrine is not applicable to work upon real estate alone. The rule would be the same if the work and materials were used in the repair of a carriage, or of any other article of personal property, under a supposed contract with the owner, if, through a mutual mistake as to the supposed agreement upon the price, the contract became unenforceable.

This rule, that labor and materials furnished for a person at his request are to be paid for, prevails unless there is something in the circumstances or in the relations of the parties to rebut the ordinary presumption, as when the parties are husband and wife, or parent and child, living together in the same family, or when there is something else to indicate that the service is gratuitous. In a case like the present, when the understanding and agreement is that payment shall be made, it would be absurd to say that nothing should be paid because of a failure, through a misunderstanding, fully to agree.

The principle has often been applied when the ground for an implication of an agreement to pay was much less strong than in the present case. In Butterfield v. Byron, 153 Mass. 517, where the owner was to do a part of the work in the erection of a building, and a contractor was to do the rest under an express contract for an agreed price, it was held that, when the building was destroyed by lightning, so that the contract became impossible of performance, the contractor might recover, on a quantum meruit the fair value of the labor and materials that he had furnished. This was on the ground that, when the contract came to an end without the fault of either party, there was an implication that what was furnished was to be paid for, and if it could not be paid for under the contract it should be paid for on a quantum meruit. The same thing had

502 CHAPTER 5. CONTRACTS, VOLUNTEERS, AND MISTAKES been held previously in Cleary v. Sohier, 120 Mass. 210. As was pointed out in Butterfield v. Byron, page 524, the rule is analogous in principle to the right to recover on a quantum meruit for that which has been paid or furnished under an express contract, when there is a failure of the consideration. In the present case the labor and materials were furnished for a consideration supposed by both parties to exist in the form of an agreement by the defendant to pay a stipulated sum. Through the mistake of both parties there was no agreement, and that which was thought to be a valuable consideration failed. What was furnished to the defendant, in accordance with an agreement of both parties on the faith of this supposed consideration, must be paid for when the supposed consideration fails. The principle was applied and restated in Angus v. Scully, 176 Mass. 357. The rule was said to be "that where one is to make repairs or do any other work on the house of another, under a special contract, and his contract becomes impossible of performance on account of the destruction of the house, without any fault on his part, then he may recover for what he has done." In Butterfield v. Byron it was said that under such circumstances "there is an implied assumpsit for what has properly been done by either of them, the law dealing with it as done at the request of the other, and creating a liability to pay for its value, to be determined by the price stipulated in the contract, or in some other way if the contract price cannot be made applicable." To the same effect is the decision in Young v. Chicopee, 186 Mass. 518. The fundamental principle was stated in Hebert v. Dewey, 191 Mass. 403, 411, in this language: "It is a general rule that if an implied condition that fails is of the essence of the contract, and enters largely into the consideration, in such a way that there can be no substantial performance under the conditions, the whole contract will fail, and the parties may have reasonable compensation for what they have done in reliance upon it." In the present case the supposed agreement to pay for the plaintiff's work and materials was of the essence of the contract, and its only consideration. This failed, and with it the whole contract fell to the ground, and the parties may have reasonable compensation for what they have done in reliance upon it. See Hawkes v. Kehoe, 193 Mass. 419, 423, 424. In Eastern Expanded Metal Co. v. Webb Granite & Construction Co. 195 Mass. 356, 362, 363, the principle was applied to a different state of facts, and the plaintiff was allowed to recover the price of labor and materials which had been furnished and used upon a contract which was void for illegality, and which was disaAErmed by the plaintiff for the illegality when it was entirely unexecuted in that part which the law forbade. The court said: "In this Commonwealth, when labor and materials are furnished and used upon real estate under a special contract, and for reasons which are not prejudicial to the plaintiff the contract becomes of no effect, it is held that the party furnishing them may recover upon a quantum meruit for their value as a benefit to the real estate." This case definitely decides that when labor and materials are furnished by a plaintiff under a special contract, and the contract is not binding upon either party, he may recover upon a quantum meruit. . . . The general principle is the same as is always applied by the courts for the protection of parties who have acted under a mutual mistake of fact.

September 11, 2000

5.1. CASES RELATING TO CONTRACTS 503

We think it plain that, under such circumstances as were shown in the present case, the law implies a contract on the part of the defendant to pay for that which the plaintiff furnished.

If the law implies an agreement to pay, how much is to be paid? There is but one answer. The fair value of that which was furnished. No other rule can be applied. Under certain conditions the price fixed by the contract might control in such cases. In this case there was no price fixed.

The defendant contends that because the erection of a Turkish bath house on Carver Street was not a profitable investment, and therefore, through a seeming error of judgment on the part of the defendant, the building did not add to the value of the land so much by a large sum as it cost, the plaintiff must suffer the consequences of the defendant's mistake and be precluded from recovery. It is suggested that Gillis v. Cobe, 177 Mass. 584, 590, allows recovery only in reference to the pecuniary benefit derived by the owner from the change in the character of his real estate produced by the contractor, so that if, through his own bad judgment, the increase in the value of the property from the construc- tion of the building is, as in this case, $ 10,000 to $ 15,000 less than the cost of the building to the contractor, the loss must fall upon the contractor if he seeks to recover under the rule stated in Hayward v. Leonard, 7 Pick. 181. The deci- sion in Gillis v. Cobe was by four justices of the court, while three others of the justices thought that a part of the statement of law in the opinion resulted from a misunderstanding of the meaning and effect of previous decisions of this court. If, in a suit founded on the law laid down in Haywood v. Leonard, the decision in Gillis v. Cobe can be construed as largely diminishing the amount which the contractor would otherwise be entitled to recover for the erection of a building like that in the present case, it is to be noticed that this is the only decision in this Commonwealth in which there has seemed to be any practical difference between the views stated in the opinions in the case, in their application to the facts before the court, and the only one in which the court has had occasion to consider the subject. The evidence did not present for consideration the effect of unwise management by the owner upon a contractor's right to recover. It is also to be noticed that nowhere, so far as we have been able to discover, does the law, as applied to such cases in other jurisdictions, make the right of the contractor depend in any degree upon the profit or loss to the owner, arising from his wisdom or folly, or good fortune or bad fortune, in erecting the building upon his land.

Whatever view may be taken of the law stated in that decision, it has no application to the case at bar. In cases of that class the work is done under an express contract which is binding upon both parties to the day of the trial. If the contractor has tried in good faith to perform his contract, and has per- formed it substantially, the courts hold that it would be unjust for the owner to stand upon the contract and refuse to pay anything because of the contractor's failure to perform it fully. It is therefore held that, on equitable grounds, he must pay under a rule which will give him all equitable rights secured by the contract, whether in regard to damages for non-performance or the rate of pay-

504 CHAPTER 5. CONTRACTS, VOLUNTEERS, AND MISTAKES ment prescribed. If the plaintiff's work and materials had been furnished under a binding contract which had been substantially but not perfectly performed, we should be obliged to determine whether, under the law so often stated in Massachusetts, he could be precluded from recovery by reason of the mistake or misfortune of this defendant in the management of his property. No such question arises on the facts now before us. In this case there was no express contract. The plaintiff's right is to recover upon an implied contract of an owner to pay for labor and materials used upon his property at his request. Whatever may be the reason or the measure of the right of recovery in cases like Haywood v. Leonard, in cases of the class to which the present one belongs the right does not depend upon the ultimate benefit received by the owner.

In Butterfield v. Byron, ubi supra, the destruction of the defendant's prop- erty by lightning was what terminated the contract and gave the plaintiff his right to recover. In each of the cases of Cleary v. Sohier, Angus v. Scully and Young v. Chicopee, ubi supra, the same is true of the destruction of the owner's property by fire. In all cases to which this general principle has been applied, the recovery has been upon a quantum meruit for that which was furnished, sub- ject to diminution of the amount by the price named in the contract, if that was very low. The right of recovery depends upon the plaintiff's having furnished property or labor, under circumstances which entitle him to be paid for it, not upon the ultimate benefit to the property of the owner at whose request it was furnished.

It follows that the plaintiff is entitled to recover the fair value of his labor and materials.

5.1.2 Notes on Vickery v. Ritchie

1. Vickery v. Ritchie is--fortunately--a very rare case. There are not many

cases where there is no `meeting of the minds' between the parties as to an essential term of the contract and where one of the parties still performs in the mistaken belief that there was a contract. Even rarer are cases like Vickery where the term as to which the minds did not meet was the one setting the price to be paid for the plaintiff's performance.

This is not to say, however, that there are not many cases where the parties enter into a contract without having agreed on the exact price (or on a method, such as $10 per hour, for calculating the exact price). But in such cases the courts normally say that the parties have agreed to a `reasonable' price or that there is an `implied term' for the payment of a reasonable price (though, of course, it may take a law suit to determine what that reasonable price actually is).

There are other cases where there is no express agreement between the parties and yet the courts hold that there was a contract--a real contract, not a quasi-contract--implied in fact. For example, many people seek medical attention without determining in advance what the charges are

September 11, 2000

5.1. CASES RELATING TO CONTRACTS 505

going to be--or what the exact performance of the doctor is going to be; in such a case the courts will almost certainly hold that there is a contract implied in fact.

The action for breach of an express contract is special assumpsit; on the other hand, the action for breach of a contract implied in fact is general assumpsit--also known as indebitatus assumpsit--the same action that is used to enforce a so-called contract implied in law--also known as quasi- contract. In Vickery, or in the case where a doctor sues for his fee, the count in general assumpsit will probably be described as "an action for work, labor, and services performed at the request of the defendant."

It thus can be diAEcult in some cases to tell whether an action is based on a contract implied in fact or on quasi-contract. Fortunately, in the cases where it is hard to tell the difference, it probably does not make much matter which way one classifies the action.

2. What would have happened if Ritchie had requested Vickery to build the

Turkish bath house but the parties never discussed the price until the job was completed?

In that case Vickery would have performed work, labor, and services at the request of Ritchie, so one would expect--correctly--that Vickery would have a good cause of action against Ritchie in indebitatus assumpsit for work, labor, and services performed at the request of the defendant. But would that action be a on a contract implied in fact--on an im- plied promise by Ritchie to pay for the work? Or would it be on the quasi-contractual theory of keeping Ritchie from being unjustly enriched at Vickery's expense?

That is not a very significant question.

The important issue is: How

much will Vickery recover?

Given the courts' predilection for using fair market value whenever it can be used to settle issues of valuation, the answer pretty clearly will be--no matter whether the action is deemed to be on a contract implied in fact or in quasi-contract--that Vickery is entitled to the fair market value of his work, labor, and services.

Note that well: The fair market value of the services that Ritchie re- quested, not the increase in the fair market value of Ritchie's land.

3. There is still a problem in such cases with determining fair market value.

Is that value to be calculated at wholesale? Or at retail?

This count is often also labeled quantum meruit--which is Latin for `it merits so much.'

In Vickery the plaintiff's claim might well include, besides the count for work, labor, and services, a count for "goods sold and delivered to the defendant." The count for goods sold and delivered is often also labeled quantum valebat (or valebant)--which is Latin for `its (or their) value is (are) so much.

I think that most courts would say that such an action is based on a contract implied in

fact.

506 CHAPTER 5. CONTRACTS, VOLUNTEERS, AND MISTAKES

In a case like our hypothetical Vickery that means choosing between the cost to a contractor of supplying the work, labor, and services necessary to build the Turkish bath and the cost to a landowner of hiring a contractor to build it. Since the courts tend to feel that the contractor is worthy of his hire, they almost always choose the retail price, which allows the contractor a reasonable return on the job.

4. To return now to the actual case of Vickery v. Ritchie, it appears that

Vickery won exactly the same recovery that he would have won if there had been no contract--rather than two divergent contracts--for the con- struction of the bath house. That is not unreasonable. After all, Vickery did perform the work, labor, and services at the request of Ritchie. The only significant way that the actual case differs from the hypothetical case lies in the fact that in the actual case Ritchie mistakenly thought that he had a contractual right to have the work done for only $ 23,200.

It is not

surprising that the court did not let that unilateral mistake change the outcome of the case.

5. What is surprising. . ., what is shocking is that the court felt that it

was necessary to attack the victim in order to justify its conclusion. The Supreme Judicial Court said: "The findings indicate that it was bad judg- ment on the part of the defendant to build such a structure upon the lot, and that the increase in the market value of the real estate, by reason of that which the plaintiff put upon it, is only $ 22,000," but the defen- dant had, as he thought, contracted to have the structure built for almost exactly that amount. Quite clearly both the plaintiff and the defendant showed good judgment in insisting on the version of the contract that they signed; they were the victims of the architects fraud, not of their own bad judgment.

The underlying problem here is court's the effort to use the concept of quasi-contractual relief for unjust enrichment in a case where the problem is to allocate a loss, rather than enrichment. The defendant requested work that turned out to be worth $ 33,721, so one can say that he was enriched by that amount, but the value of his land was only increased by $ 22,000, which seems a much fairer measure of his enrichment.

But remember that Vickery is a very unusual case. A more common sort would be the case in which Ritchie asked Vickery to build a bath house and there was no purported agreement as to the price. In that case, Ritchie having got exactly what he requested, the courts would say, quite reasonably, that he should pay the value of what he requested, and that it was his own fault that his land's value was not increased by a corresponding amount.

The fact that Vickery mistakenly thought that he had a contractual right to be paid

$ 33,721 for the work is not nearly so significant, since that amount was only $ 221.79 more than the amount that the auditor determined represented the fair market value (at retail) of Vickery's work, labor, and services.

September 11, 2000

5.1. CASES RELATING TO CONTRACTS 507

6. As you should be aware ever since you read Moses v. Macferlan supra in

Section 1.10.1, if you have a special--i.e., an express--contract and the other party is in default, you can always elect to sue in general, rather than special, assumpsit. As Moses v. Macferlan demonstrates, however, in many cases the plaintiff will recover less in general assumpsit than in special assumpsit. There are, however, many cases where that is not so. An example would be a case like Vickery v. Ritchie in which the parties had actually agreed that the price of the work was to be $ 22,000 but the market value of the work turns out to be $ 30,000. In such a case the contractor could sue in general assumpsit, counting in work, labor, and services, for the $ 33,000 value of the work. The contractor could sue in general assumpsit, but the defendant could then use the contract defensively, pointing out to the court that the agreed price was only $ 22,000, and that defense, of course, would prevail.

This means that, in the case where there is an actual contract in which the price term is expressly agreed to, the recovery in general assumpsit will be the lower of the value of the plaintiff's performance and the contract price. (This being the case, it is hard to see how the plaintiff could ever be better off bringing general assumpsit when there is a contract in existence that is binding on the plaintiff

and that contains an express price term.)

7. General assumpsit to recover the value of the plaintiff's services, rather

than the contract price, is often used when there is a failure of considera- tion because performance becomes impossible, as was the case in Butter- field v. Byron

where the plaintiff had contracted to remodel a hotel, and

had done much of the work, before the hotel--the `subject matter of the contract'--was destroyed by an Act of God.

As was said in Vickery, in

Butterfield v. Byron and similar cases:

In all cases to which this general principle has been applied, the recovery has been upon a quantum meruit for that which was furnished, subject to diminution of the amount by the price named in the contract, if that was very low. The right of recovery depends upon the plaintiff's having furnished property or labor, under circumstances which entitle him to be paid for it, not upon the ultimate benefit to the property of the owner at whose request it was furnished.

8. Another type of case where quantum meruit is likely to be used by a

plaintiff, even though there was an express contract, is one where the defendant is in default, and thus is not in the position to assert the express

If the plaintiff can avoid the contract because of the defendant's breach, then--as the next

case suggests--there can be definite advantages to suing in general assumpsit.

153 Mass. 517. This case is discussed at length in Vickery.

Why nasty and fortuitous acts are always ascribed to God is a theological question beyond

the scope of these materials.

508 CHAPTER 5. CONTRACTS, VOLUNTEERS, AND MISTAKES

terms of the contract as a defense, and the value of the plaintiff's services exceeds the contract price. The next case is slightly more complicated than that, but it illustrates the underlying principle. Once again, in this type of case recovery in general assumpsit for work, labor, and services is not limited by the contract price.

5.1.3 Murdock -Bryant Construction, Inc. v. Pearson 5.1.3.1 In the Arizona Court of Appeals

Murdock-Bryant Construction, Inc. v. Pearson Court of Appeals Arizona, Division One, Department A

146 Ariz. 57; 703 P.2d 1206

1984

Eubank, Judge. This appeal arises out of a subcontract for site excavation work on a shop- ping center construction project located in Flagstaff, Arizona. Following a three month trial to an advisory jury, the court awarded appellee-subcontractor dam- ages in quantum meruit, together with attorney's fees. Appellant-contractor appeals from the judgment. We aAErm the judgment as to appellant contractor and surety, but reverse as to appellants Robert Wilbur and University Indus- tries.

The relevant facts are as follows. On July 27, 1977, appellant Taylor Pearson, dba Taylor Pearson Construction Company (Taylor Pearson), entered into a con- tract to develop and construct the University Plaza Shopping Center (University Plaza) in Flagstaff, Arizona. In early July of 1977 Taylor Pearson's construction manager, Tom Short (Short), discussed the excavation and site work for the Uni- versity Plaza project with Bill Murdock (Murdock) of appellee Murdock-Bryant Construction, Inc. (Murdock-Bryant). Short suggested that Murdock-Bryant bid the job at plan plus one elevation,

and on July 15, 1977 Short gave Mur-

dock the site plan and indicated that he wanted Murdock-Bryant's bid right away.

After looking at the site, Murdock-Bryant decided not to submit a bid be- cause they did not have the time to properly estimate the quantities of rock that would have to be blasted. On July 18, 1977 Murdock told Short of this decision, and Short offered to provide Murdock with the rock quantities. Short then gave Murdock the rock quantities, which included a figure of 34,000 cubic yards of blast rock, and told him that the figures agreed, within two to five percent, with the quantities estimated by the other contractors who had bid on the job, and with the Engineering Testing Laboratories' (ETL) seismic report. Murdock-Bryant asserted at trial that Short knew, at the time he made this

Grading the project one foot higher than the plans would reduce the total amount of

material to be excavated. [footnote by court]

September 11, 2000

5.1. CASES RELATING TO CONTRACTS 509 representation, that the quantities he supplied to Murdock-Bryant were in fact considerably different from and substantially less than the quantities of rock estimated by the other bidders.

Using Short's quantities, Murdock-Bryant signed a subcontract with Taylor Pearson on August 1, 1977 providing for the blasting of 34,000 cubic yards of blast rock at a total price of $299,285. The work was to be completed by September 23, 1977. Murdock-Bryant arrived at the site the next day, and after some delays (which appear from the record to have been caused by Taylor Pearson) full-scale operations began on August 19, 1977. By August 30, 1977 all the dirt and "rippable" rock that could be removed without blasting had been removed from the site. Murdock-Bryant, in order to meet its deadline, worked continuously at the site utilizing day and night shifts, using lights, paying additional hourly rent on equipment, and paying overtime to employees.

On September 12, 1977, ETL sent a soil report to Taylor Pearson which indicated that a great deal more rock existed on the site than had been indicated on the original ETL seismic report. Neither Murdock nor Murdock-Bryant received a copy of this report, and they continued to work overtime, encountering vast quantities of rock.

On November 9, 1977, Robert Eason (Eason), Taylor Pearson's project su- perintendent, discovered, after reviewing survey sheets prepared by Taylor Pear- son's surveyor Darrel Edwards (Edwards), that 18,000 cubic yards of rock that had been surveyed had not been included in Taylor Pearson's calculations of the quantity of rock blasted to date, and that Murdock-Bryant had blasted 18,000 cubic yards of rock more than they had billed for. Eason concluded, together with Larry Bryant, that there existed substantially more blast rock on the project than the 34,000 cubic yards quantity upon which the original bid was based, and that this fact explained why the job was progressing so slowly. Murdock-Bryant then requested a meeting with Taylor Pearson representatives.

At the November 14, 1977 meeting Murdock-Bryant sought assurances that it would be paid for any rock blasted over the five percent variance provided for in the subcontract. After Taylor Pearson refused to give those assurances, Murdock-Bryant walked off the site and filed suit on November 16, 1977 for breach of contract and, alternatively, for rescission and damages in quantum meruit.

The complaint demanded payment for the additional rock which had been blasted and removed, the existence of which plaintiffs contended was known or should have been known to Taylor Pearson and which Taylor Pearson concealed from Murdock-Bryant. Since plaintiffs elected to rescind and recover in equity, the jury verdict awarding plaintiffs $392,615, which was in excess of the maxi- mum sum alleged due, was deemed an advisory jury verdict by the trial court. Following the trial, the trial court entered judgment for plaintiffs, on the theo- ries of fraud, negligent or innocent misrepresentation, mutual mistake and lack of mutuality, and awarded damages in quantum meruit for $273,042, together with costs and attorney's fees of $135,000. This appeal followed.

510 CHAPTER 5. CONTRACTS, VOLUNTEERS, AND MISTAKES

Appellants raise four issues on appeal:

1) No reasonable person could find the evidence to be clear and convincing that Murdock-Bryant blasted an additional 18,000 cubic yards of rock;

2) No evidence supports the trial court's holding that Robert Wilbur and University Industries are liable for the acts of Taylor Pearson either as joint venturers or on a ratification theory;

3) There was not suAEcient evidence to support an award of dam- ages of $273,042.37, which included 10% lost profits of $42,049.30;

4) Murdock-Bryant was improperly awarded attorney's fees pur- suant to A.R.S. x 12-341.01. We will discuss these issues in the same order in which they were raised.

STANDARD OF APPELLATE REVIEW The parties agree that the standard of proof for the equitable remedy of rescission in a civil fraud action is one of clear and convincing evidence. Ap- pellants contend, however, that where the trial court's burden of proof is by clear and convincing evidence, the reviewing court has the duty to review the evidence and determine if that higher standard was met. . . .

. . . . On review . . . the quantum of probative evidence required to support the trial court's judgment is the same regardless of what burden of proof was required in the trial court. To hold otherwise would abuse the appellate function, for, as this court recently stated:

If an appellate court were to apply different standards of review depending on the burden of proof required for the particular proceeding, it would be sub- stituting its resolution of factual issues for that of the trier of fact. Therefore, no matter what the burden of proof required in the proceedings below, we can only review the evidence to determine if there is substantial evidence to support the conclusion of the trier of fact. . . .

SUFFICIENCY OF THE EVIDENCE TO SUPPORT A FINDING THAT MURDOCK-BRYANT BLASTED AN ADDITIONAL 18,000 CUBIC YARDS

OF BLAST ROCK

We hold that there was suAEcient evidence to support the trial court's finding that Murdock-Bryant blasted an additional 18,000 cubic yards of blast rock.The evidence introduced at trial was conflicting. Murdock-Bryant presented three theories supporting the additional rock's existence, and Taylor Pearson coun- tered with three other theories explaining why the rock did not exist. In review- ing this evidence, we are governed by the principle that resolutions of conflicts in the evidence, as well as determinations of the credibility of witnesses, are matters within the province of the trier of fact and should not be disturbed on appeal. . . .

September 11, 2000

5.1. CASES RELATING TO CONTRACTS 511

ROBERT WILBUR AND UNIVERSITY INDUSTRIES Appellants next contend that Robert Wilbur (Wilbur) and University In- dustries were not joint venturers with Taylor Pearson and that no evidence was introduced at trial to support the judgment against them.

We agree with appellants that the evidence at trial was insuAEcient to find ei- ther Robert Wilbur or University Industries liable for Short's misrepresentation to Murdock on July 18, 1977. The evidence in the record is insuAEcient to prove either that a joint venture agreement existed prior to the July 18 misrepresenta- tion, or that Wilbur or University Industries ratified or adopted any of Short's misrepresentations with full and complete knowledge of the misrepresentation.

The record shows that Short's misrepresentation to Murdock occurred on July 18, 1977. The sole bases placed into evidence to support a joint venture were a July 28, 1977 indemnity agreement executed by University Industries in favor of appellant Insurance Company of North America (INA) allowing Taylor Pearson to obtain a construction bond, and an August 4, 1977 letter from Wilbur to Taylor Pearson describing their agreements as to Wilbur's participation in the University Plaza project, and promising that "I shall cause a construction bond to be issued . . ."

Appellees argue that the August 4 letter merely reduced to writing an agree- ment that had been previously reached. The only evidence presented indicat- ing that this agreement was reached prior to the July 18 misrepresentation was Taylor Pearson's testimony that University Industries had indemnified him with INA on two previous construction projects, and his testimony that he had ne- gotiated the agreement with University Industries in June or July of 1977. The first evidence of a binding agreement, however, was the August 4 letter. We find the above evidence insuAEcient to establish that a joint venture existed prior to August 4, and conclude, as a matter of law, that no joint venture existed on July 18, 1977, the date of the misrepresentation.

Nor is there suAEcient evidence in the record to support a ratification. Rati- fication requires that a principal have full and actual knowledge of all material facts at the time he, by subsequent act or conduct, binds himself to a previ- ously unauthorized act of an agent. Phoenix Western Holding Corporation v. Gleeson, 18 Ariz. App. 60, 500 P.2d 320 (1972). Ratification is thus based upon full knowledge of all the material facts. . . . Neither Murdock's testimony regarding the misrepresentation nor any other evidence even hints that Wilbur or University Industries ever knew of the misrepresentation. While Wilbur had the contractual right to inspect "copies of the construction contract, estimates prepared for the project . . . as well as plans and specifications," no evidence indicates that he had actual knowledge of the misrepresentation. Furthermore, ratification cannot occur in law unless a contract or joint venture is already in existence, and we have already excluded these possibilities.

We therefore conclude that as a matter of law Robert Wilbur and University Industries are not liable for the July 18 misrepresentation of Taylor Pearson,

512 CHAPTER 5. CONTRACTS, VOLUNTEERS, AND MISTAKES and that their motions for directed verdicts should have been granted by the trial court.

DAMAGES IN QUANTUM MERUIT

Paylor Pearson next contends that the award of quantum meruit damages was excessive and not supported by the evidence.

The jury was instructed

that:

In the event you find that Plaintiffs are entitled to recover dam- ages, I instruct you that Plaintiffs in this case are seeking compen- sation under a theory known as quantum meruit. Under this theory, the measure of relief to which Plaintiffs would be entitled is the rea- sonable value to the Defendants of the work done by the Plaintiff Murdock-Bryant. In assessing any such benefit, you may consider what it would cost the Defendants to obtain the same services from another subcontractor under the same or similar circumstances.

If a person is damaged by the misrepresentation of another, as I have defined that term in these instructions, that person is entitled to recover, in addition to his compensation under quantum meruit, such other additional damages as might be required to make him whole. These damages must have been reasonably and necessarily incurred under the circumstances.

The jury returned a $392,615 verdict for Murdock-Bryant, which the jury fore- man in an aAEdavit said was an attempt to make the plaintiffs "whole" by award- ing interest (a ten percent inflation factor), attorney's fees, a ten percent profit, and Murdock-Bryant's initial capitalization of $50,000. Taylor Pearson, in a motion to reduce the jury verdict, asked that Murdock-Bryant be awarded only $230,993, computed as plaintiffs' total expenses of $420,493 minus the amount already paid by Taylor Pearson to Murdock-Bryant of $189,500.

The trial judge treated the jury verdict as advisory, and awarded Murdock- Bryant $273,042 (together with costs and attorney's fees of $135,000). This figure, $273,042, is reached by taking Murdock-Bryant's total costs of $420,493 and adding a ten percent profit factor to reach $462,540, then subtracting the $189,500 already paid to Murdock-Bryant by Taylor Pearson. The trial judge thus eliminated interest, attorney's fees, and plaintiffs' $50,000 initial capital- ization from the recovery.

I trust that this caption strikes you as being somehow contradictory, for quantum meruit

is normally associated with restitutionary actions in general assumpsit, rather than damages. On the other hand, we cannot expect the courts to distinguish clearly between those two forms of relief. Modern courts are, after all, not likely to have had much exposure to restitutionary concepts. [pdj]

While the jury verdict was advisory, the instruction is pertinent because it shows how the

trial judge viewed the law on recovery of damages in quantum meruit. [Footnote by court, renumbered]

September 11, 2000

5.1. CASES RELATING TO CONTRACTS 513

On appeal Taylor Pearson first objects to Murdock-Bryant's figure of $420,492.97 for their total costs, and cites Spitalny v. Tanner Construction Co., 75 Ariz. 192, 200, 254 P.2d 440, 446 (1953), overruled on other grounds, Schwartz v. Schwerin, 85 Ariz. 242, 250, 336 P.2d 144, 149 (1959), for the proposition that in a quantum meruit recovery:

[T]he measure of the value of the services rendered must be the value to the defendants, not the cost to the plaintiff in performing such services. Thus Taylor Pearson argues that Murdock-Bryant's costs cannot be considered in determining the reasonable value of the services rendered to Taylor Pearson.

"Costs" and "value" constitute a much-debated area of the law of damages, and one that has not been fully addressed in Arizona. While the plaintiff's costs do not necessarily reflect the value of the benefit conferred upon the defendant, the general consensus of opinion is that plaintiff's reasonable costs may represent some evidence of value, but they do not necessarily represent a recoverable item of restitution in and of themselves. D. B. Dobbs, Handbook on The Law of Remedies x 4.5 at 261 (1973) (Dobbs).

Many courts, however, do use plaintiff's costs as a measure of the value to the defendant. Indeed, in Spitalny, the court aAErmed plaintiff's award of damages, which in effect included plaintiff's costs, on the basis that "There is nothing in the evidence . . . to show that the value of the services to defendants was not equal to the amount of the claim of plaintiff." 75 Ariz. at 200; 254 P.2d at 446. In Ruck Corp. v. Woudenberg, 125 Ariz. 519, 522, 611 P.2d 106, 109 (App. 1980), Division Two of this court permitted a contractor to "recover in quantum meruit for the value of the services and expenses reasonably incurred in good faith." (Emphasis added). The court awarded the contractor its "net cost" for steel components and its other expenses, and aAErmed a portion of a trial court award of the reasonable value of labor and materials furnished. Without explicitly saying so, Division Two found the plaintiff's costs to be the proper measure of the benefit to the defendant. See also City of Portland, Etc. v. Hoff- man Const. Co., 286 Or. 789,801-803, 596 P.2d 1305, 1313-1314 (1979) (proper measure is not value of the benefit conferred upon defendant, but rather the reasonable value of the contractor's work itself which is a market value measure and not a reimbursement for actual costs); Petropoulos v. Lubienski, 220 Md. 293, 152 A.2d 801 (1959) (reasonable value of services actually performed, labor, and outlays for materials furnished and work done). Courts have consistently awarded contractors the cost of their performance on a quantum meruit theory, usually measured at their objective market value. Dobbs x 12.24 at 915. The contractor's costs should also include all his indirect costs, such as overhead. Id.; Petropoulos, supra; City of Portland Etc., supra; textscC. T. McCormick, Handbook on the Law of Damages x 165 at 644 (1935) (McCormick).

The United States Court of Appeals for the Fifth Circuit, in a case remark- ably similar to this one, has held that the benefit to the defendant is not the proper measure of the reasonable value of the services. In U.S. v. Stringfellow,

514 CHAPTER 5. CONTRACTS, VOLUNTEERS, AND MISTAKES 414 F.2d 696 (5th Cir. 1969), the court held that the district court properly determined the reasonable value of dirt excavation work performed by plaintiff subcontractor and aAErmed the district court's quantum meruit award. Recog- nizing that the district court was not able to use a precise mathematical formula based upon direct evidence, the fifth circuit held that:

The value of West's (the subcontractor) performance is to be determined "not by the extent to which [Stringfellow's (the contrac- tor)] total wealth has been increased thereby, but by the amount for which such services and materials as constituted the part per- formance could have been purchased from one in [West's] position at the time they were rendered." Restatement of Contracts x 347, comment c (1932), and the costs of such performance are relevant to this determination. E.g., United States for Use of Susi- Contracting Co. v. Zara Contracting Co., 2 Cir. 1944, 146 F.2d 606. 414 F.2d at 700.

Commentators have also hypothesized about the situation sub judice. In Pro- fessor McCormick's treatise, x 165 at 642, he states:

The builder may recover for part performance (a) as an element of damages in an action on the contract based on the second or third formulas mentioned in the next previous section; (b) in an action for quantum meruit, relying again on the contract; (c) in an action for quantum meruit after rescinding the contract.

In all of these types of action, except the suit under the third for- mula where the proportionate part of the price is sought, the normal measure of recovery is the actual cost of the work. In ascertaining the cost of the work done and of the prospective cost of completing the job, account must be taken not only of the ordinary cost of labor and material, but of the cost of supervision, including the plaintiff's own services in the case of an individual builder, use of tools and equipment, insurance, and oAEce expense.

Professor Dobbs, x 4.5 at 263, states:

. . . [S]uppose the contract price does not govern the case because the contract is rescinded for mistake or fraud, and the defendant has improvements he bargained for. The labor and materials are reason- ably worth $10,000, but the land value is increased only by $5,000, because the work ordered by the defendant is ill-suited to the land. In this case the defendant may well be charged with the reasonable value of the goods and services he bargained for, even though this exceeds the increase in his land value. (Footnote omitted).

* * *

September 11, 2000

5.1. CASES RELATING TO CONTRACTS 515

As a practical matter, this situation is most apt to arise where there are price mistakes, and it may be much simpler to hold the defendant liable for the reasonable value of the goods and services.

"Value" has also proven to be an elusive term, and the courts have admittedly had diAEculty in computing the reasonable value of the service to the defendant. Professor Dobbs has observed that:

Dobbs x 4.5 at 260. Here, sub judice, restitution is called for to remedy fraud, and negligent or innocent misrepresentation. Under these circumstances, we find it proper both to measure the benefit conferred upon Taylor Pearson by the market value of Murdock-Bryant's labor and materials, and to hold that Murdock-Bryant may recover the reasonable costs of its performance, including indirect costs such as overhead. See Restatement of Restitution x 152 (1937) (stating that where a person is entitled to restitution from another because the other has obtained his services by fraud, the measure of recovery for the benefit received by the other is the market value of such services irrespective of their benefit to the recipient). Under the circumstances we shall not disturb the trial court's finding that Murdock-Bryant incurred $420,492.97 in total costs.

Appellants also contend that no admissible evidence supports the $420,492.97 cost figure because no expert testimony supports the trial court's findings re- garding the reasonable value of Murdock-Bryant's services. . . . The record before us contains ample evidence that both Larry Bryant and Bill Murdock were, if not formal rock or demolition experts, at the very least qualified in site excavation work, and we find that their testimony was probative on the question of the reasonable value of the services rendered.

Appellants next contend that the amount awarded wrongfully includes lost profits. We agree with appellees that a reasonable profit margin is a proper element of a quantum meruit award, because (as appellants admit) a reasonable profit is an element of the reasonable value of services rendered. . . . In our opinion any quantum meruit award, be it viewed as the reasonable value of services rendered or as the costs incurred by the subcontractor, would encompass what the contractor would have had to pay another subcontractor to do the work performed. This invariably includes a profit.

We recognize that the reasonable value of the services and materials is a reflection of fair

market value and not of costs. See Dobbs x4.5 at 272; City of Portland, Etc., supra, 286 Or. at 803, 596 P.2d at 1314. The jury instruction given indicates that the trial judge favored a fair market value computation and the record contains extensive documentation of Murdock- Bryant's payments on the University Plaza project, which total $420,492.97. We believe these costs do reflect the fair market value of Murdock-Bryant's services and materials. [Footnote by court, renumbered]

516 CHAPTER 5. CONTRACTS, VOLUNTEERS, AND MISTAKES

We reject appellants' contention, based on Ruck Corp., supra, 125 Ariz. at 522, 611 P.2d at 109, that there can be no lost profits where there is no contract to base them on. Ruck Corp. is distinguishable, because there a contract never came into existence due to the failure of a condition precedent, whereas in the case sub judice a contract was in existence until it was rescinded.

We find that a reasonable profit margin is inherent in the value of the services rendered, that both Murdock and Bryant were qualified to testify that the fair and reasonable profit margin was ten to fifteen percent, and aAErm the award of ten percent lost profits.

Appellants next contend that the amount awarded as damages is excessive because it exceeds the contract price, and cite Dey v. Hill, 20 Ariz. 466, 468, 181 P. 462, 462 (1919) for the proposition that a party to a fully executed contract may recover in quantum meruit for the reasonable value of his services, but in no event more than the contract price. Dey is distinguishable from this case because the subcontract sub judice was not fully executed--indeed, in Dey our Supreme Court observed that if the parties had abandoned the contract, then the contract price would not place a ceiling on the plaintiff's quantum meruit recovery.

Id.

We do recognize, however, that the question of whether the contract price places a ceiling on a quantum meruit recovery has been much debated. See, e.g., Dobbs x 4.5 at 269-273, x 12.1 at 794-795, x 12.24 at 915-918; Palmer, The Contract Price as a Limit on Restitution for Defendant's Breach, 20 Ohio St. L.J. 264 (1959); Patterson, Builder's Measure of Recovery for Breach of Contract, 31 Colum. L. Rev. 1286, 1300-1303 (1931). Many courts, in certain circumstances, permit a contractor to recover in excess of the contract price. See, e.g., Johnston v. Star Bucket Pump Co., 274 Mo. 414, 202 SW 1143 (1918); Smith v. Brocton Preserving Co., 251 A.D. 102, 296 N.Y.S. 281 (N.Y. App. Div. 1937). Indeed, Professor McCormick has observed that the better view does not limit the builder's recovery to the contract price. McCormick x 166 at 645. See also Scaduto v. Orlando, 381 F.2d 587, 595 (2d Cir. 1967).

In Clark v. Mayor of New York, 4 N.Y. 338 (Comstock 1850), when the site excavation was more expensive than had been envisioned per cubic yard, the builder was allowed to collect more than the contract price for his perfor- mance. In U.S. v. Stringfellow, supra, while the original subcontract provided for dirt removal at $.45 per cubic yard, the quantum meruit award of $1.15 per cubic yard was deemed proper because of unanticipated diAEculties that the subcontractor had encountered--namely, discovering, as work progressed, that more soil had to be moved than was originally contemplated. The fifth circuit observed that as a result of these on-site diAEculties:

[T]he costs incurred would obviously be significantly higher, and the reasonable value of the work would be similarly greater. 414

This is a reference to the rather peculiar rule that the plaintiff is entitled to a quantum

meruit award for more than the contract price only if the plaintiff has not fully performed under the contract. [pdj]

September 11, 2000

5.1. CASES RELATING TO CONTRACTS 517

F.2d at 700. In this case, Murdock-Bryant likewise encountered onsite diAEculties not en- visioned by the subcontract, and incurred additional expenses as a result. We find that here the reasonable value of the services rendered to Taylor Pearson was higher than the contract price, and that under the circumstances, Murdock- Bryant may recover for those services.

Appellants next claim that the award is excessive because it exceeds the fair market value of substitute performance, as measured by the bids submitted by other contractors which envisioned rock quantities equal to those actually blasted by Murdock-Bryant. We reject this argument because the other bids could not anticipate, and therefore did not include, Murdock-Bryant's additional and unexpected costs resulting from the fraud and misrepresentation.

. . . . For the above reasons, the judgment is reversed with respect to Robert Wilbur and University Industries, and aAErmed in all other respects. Robert Wilbur, University Industries and the appellees are awarded attorney's fees as the successful parties on appeal pursuant to A.R.S. x 12-341.01 and Rule 21(c)(1), Arizona Rules of Civil Appellate Procedure.

5.1.3.2 In the Arizona Supreme Court

Murdock-Bryant Construction, Inc. v. Pearson

Supreme Court of Arizona, En Banc

146 Ariz. 48; 703 P.2d 1197

1985

Feldman, Justice. Murdock-Bryant Construction, Inc. (Murdock), a subcontractor, brought an action seeking recovery for fraud, breach of contract, and restitution against the prime contractor, Taylor Pearson, dba Taylor Pearson Construction Co. (Pear- son). Murdock also joined Robert Wilbur and University Industries, Inc. (UI) as defendants, alleging they were joint venturers with Pearson. All defendants counterclaimed, seeking damages from Murdock for breach of contract.

The case was tried to a jury on the equitable theory of restitution. The jury found for Murdock and against all the defendants, returning a verdict for $392,000. Deeming the verdict advisory only, the trial judge recomputed damages, ruled on various post-trial motions, and entered judgment against all

In so holding we note that we are not adopting the common argument that since the

contract was rescinded it no longer exists, and therefore it cannot provide a price limiting the contractor's recovery. See, e.g., Boomer v. Muir, 24 P.2d 570 (Cal. App. 1933). [Footnote by court, renumbered]

Boomer was a case in which the contractor was allowed to recover far more than the contract price on the ground that the defendant had broken the contract and could not therefore rely on its terms. [pdj]

518 CHAPTER 5. CONTRACTS, VOLUNTEERS, AND MISTAKES defendants, awarding Murdock damages of $273,000 plus attorney's fees and denying all relief on defendants' counterclaims. All defendants appealed. In a thorough opinion, the court of appeals reviewed the facts, defined the standard of appellate review, and held that Murdock had established its claim, that the evidence supported the damages awarded, and that attorney's fees were properly granted by the trial judge. The opinion of the court of appeals on each of these points is approved. However, the court also held that the evidence was insuAEcient to support any judgment against Wilbur and UI. Since the legal issues with respect to this holding are matters of first impression in this state, we granted review. We have jurisdiction under Ariz.Const. art.6, x 5(3) and Rule 23(c), Ariz.R.Civ.App.P., 17A A.R.S.

The precise issue presented is whether defendant may be held liable on a quantum meruit theory to make restitution for benefits received when defendant was neither a party to the contract under which plaintiff rendered services nor a party responsible for the wrong which permitted plaintiff to rescind the contract and seek restitution.

FACTS The facts are fully set out in the opinion of the court of appeals and need not be repeated here. Although the case took three months to try and was fraught with considerable factual controversy, the facts relating to the narrow issue upon which we have taken review are not in dispute. So far as necessary to understand the issue before us, the facts are as follows:

Pearson had entered into an agreement with a landowner to construct a shopping center in Flagstaff. A great deal of excavation and site preparation on the property was necessary and required the blasting of a large quantity of rock. Pearson approached Murdock, asking it to bid on a subcontract for the site work. Murdock decided not to bid on the job because it did not have time to estimate the quantities of rock to be blasted. A Pearson employee then provided Murdock with figures regarding the quantity of rock to be blasted. According to the version of the facts accepted by the trial jury and the trial judge, the figures given Murdock were erroneous. Instead of blasting 34,000 cubic yards of rock, which was the figure upon which Murdock relied in making its bid, Murdock had to blast a total of over 52,000 cubic yards.

The misrepresentations with regard to the quantity of rock to be blasted were made prior to July 27, 1977. The contract between Pearson and Murdock was made on July 27. In August of 1977 Pearson formed a joint venture with Wilbur

for performance of Pearson's contract to develop and construct the

shopping center. In November Murdock discovered that its blasting operation had exceeded by 18,000 yards the estimate provided by the Pearson employee.

As noted by the court of appeals (slip op. at 12, n.4), the letter agreement which memo-

rializes the joint venture was between Pearson and Wilbur. UI is not mentioned. Neither Wilbur's relationship with UI nor UI's relationship with the joint venture is clear in the record or adequately explained by the parties. [Footnote by court, renumbered]

September 11, 2000

5.1. CASES RELATING TO CONTRACTS 519 Additional blasting would be required to complete the subcontract. On Novem- ber 14, 1977 Murdock asked Pearson for assurance that it would be paid for blasting the excess rock. When Pearson refused, Murdock left the job and filed the legal action. At trial Murdock elected to rescind the contract and recover in equity. The trial court entered judgment for restitution against all defendants.

In reversing the judgment against Wilbur and UI, the court of appeals held "as a matter of law, that no joint venture existed on . . . the date of the misrepresentation." (Slip op. at 14.) The court also held that the evidence did not support the theory that Wilbur and UI had become liable by ratifying the misrepresentation. Pointing out that liability through ratification must be supported by evidence that the defendant has "full" and "actual" knowledge of the misrepresentation, the court held the record insuAEcient to establish that Wilbur and UI had the requisite knowledge to adopt or ratify the unauthorized representations made to Murdock by Pearson employees before the formation of the joint venture. The court thus concluded that Wilbur and UI "are not liable for the . . . misrepresentation of Taylor Pearson, and that their motions for directed verdicts should have been granted by the trial court." (Id. at 15.) We agree with the court of appeals' conclusions regarding the ultimate facts. The record does establish that the joint venture was formed after the misrep- resentation. Also, the evidence fails to establish that those misrepresentations were later ratified by Wilbur and UI. Thus, it follows that the latter were not "liable for the . . . misrepresentation of Taylor Pearson." (Id.)

THE NATURE OF THE CLAIM FOR RESTITUTION We start with the premise that Wilbur and UI are neither liable nor re- sponsible for the tort of fraud nor for any misrepresentation by Pearson. They neither made, authorized, nor ratified any misrepresentation. Nor are they li- able for breach of contract, since they neither made, authorized, nor ratified the contract between Murdock and Pearson. In addition, Murdock waived all contract claims. Thus, the judgment against Wilbur and UI cannot be sup- ported on either tort or contract theory. In fact, that judgment was not based on either theory but, instead, on the theory of quantum meruit-restitution made for benefits received. We must determine, therefore, whether a party which has not participated in the tort that caused the damage to the plaintiffs and has breached no contractual obligations to the plaintiff may, nevertheless, be held liable to the plaintiff on the theory of quantum meruit.

Restitution began as an ancient remedy to enforce contractual rights which could not be enforced in common law courts due to lack of formality of the contract.

D. Dobbs, Remedies x 4.2 at 233 (1973). Various forms of action

It seems that the Arizona courts, or at least those that decided Murdock-Bryant, have

concluded that restitution is always an equitable remedy so that even an action sounding in quantum meruit is in equity rather than in a legal action of indebitatus assumpsit. This is, of course, contrary to the history of the common law or the modern practice of most states. (Though, of course, the common law courts did develop the law of quasi-contract, i.e., of indebitatus assumpsit on equitable principles.) [pdj]

520 CHAPTER 5. CONTRACTS, VOLUNTEERS, AND MISTAKES evolved to permit recovery of goods or money on contracts implied in fact-- that is, those which the law implied from the conduct of the party rather than from any explicit words. Id. at 234. Eventually, restitution theory permitted an action to be brought where there was no contract at all, "neither expressed nor implied in fact." Id. at 235. The purpose of such an action was to prevent unjust enrichment of the defendant, and one of the explicit forms of action recognized for that purpose was the so-called quantum meruit action.

Id. at

235-37.

Thus, quantum meruit was the common law count or form of action which allowed recovery where the plaintiff had performed services for the defendant, whether the services were provided at the defendant's request, on a theory of implied-in-fact contract, or without the defendant's request but benefiting him in some way. D. Dobbs, supra, x 4.2 at 237. The recovery allowed for services which had not been requested by defendant was based upon quasi-contract, and theoretically had as its "central core" the "principle against unjust enrichment." Id. at 236. This principle has been adopted by the American Law Institute, which has stated: "A person who has been unjustly enriched at the expense of another is required to make restitution to the other." Restatement of Restitution x 1.

These concepts are a part of Arizona jurisprudence. We have helld a defen- dant liable, on the theory of restitution, for benefits resulting from unauthorized use of plaintiff's property. Artukovich & Sons v. Reliance Truck Co., 126 Ariz. 246, 614 P.2d 327 (1980).

We allowed recovery even though plaintiff had suf-

fered no damage, because defendant had been unjustly enriched by receiving the benefits flowing from the use of plaintiff's property and it would have been "inequitable" to have allowed defendant to retain such benefits without compen- sating plaintiff. Id. at 248, 614 P.2d at 329. Our court of appeals subsequently held that a former wife who had provided the funds necessary for her husband's medical education was entitled, upon divorce, to restitution in quantum meruit to prevent the husband's unjust enrichment resulting from obtaining his educa- tion with funds received through his wife's efforts. Noting that the availability of restitutionary relief is not dependent upon the existence of a valid contract between the parties, the court stated:

In order to be granted restitution, [plaintiff] must demonstrate that [defendant] received a benefit, that by receipt of that benefit [de- fendant] was unjustly enriched at [plaintiff's] expense, and that the circumstances were such that in good conscience [defendant] should make compensation.

Pyeatte v. Pyeatte, 135 Ariz. 346, 352, 661 P.2d 196, 202 (App. 1983). Thus, prior case law indicates that a party may be liable to make restitution for

"Quantum meruit" literally means "as much as he deserves." Black's Law Dictionary

1119 (5th ed. 1979). [Footnote by court, renumbered]

Reprinted supra in Section 4.2.1. [pdj]

September 11, 2000

5.1. CASES RELATING TO CONTRACTS 521 benefits received, even though he has committed no tort and is not contractually obligated to the plaintiff.

The circumstances of this case are somewhat unique. Neither party has cited a case factually on point, and our research discloses none. The Restatement of Restitution contains several sections dealing with the availability of restitution in quantum meruit to those who, without enforceable contracts, have rendered services that enure to the benefit of another. Section 40 specifies when resti- tution is available, but does not cover the factual circumstances present in the case at bench. Section 41 lists the circumstances under which no recovery is available, but also does not cover the circumstances presented by the case at bench. This is not determinative, however, because the remedy of restitution is not confined to any particular circumstance or set of facts. It is, rather, a flex- ible, equitable remedy available whenever the court finds that "the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity" to make compensation for benefits received. D. Dobbs, supra, at 235, quoting Moses v. MacFerlan, 2 Burr. 1005, 97 Eng. Rep. 676 (K.B.1760).

IS RESTITUTION APPROPRIATE IN THIS CASE? We have also recognized the rationale for restitutionary relief, stating that restitution through an implied-in-law contract or quasi-contract is available "as a matter of reason and justice from the acts and conduct of the parties and cir- cumstances surrounding the transactions, . . . and [is] imposed for the purpose of bringing about justice without reference to the intentions of the parties." Artukovich & Sons v. Reliance Truck Co., 126 Ariz. at 248, 614 P.2d at 329. Since we are not bound by the common law forms of action and are free to fashion a remedy wherever circumstances and equity require (D. Dobbs, supra, at 239), our question is simply whether under the facts of this case Wilbur and UI received a benefit and whether it is unjust that they retain that benefit without being required to compensate plaintiff for the value received. In the case at bench, Murdock provided valuable services by way of site preparation. Presumably, the construction of the shopping center would not have been pos- sible without the blasting and other work done by the plaintiff. Wilbur had become a joint venturer with Pearson, so that he had assumed,

with Pearson,

the obligation of constructing the shopping center. As a joint venturer on the contract for construction of the shopping center, Wilbur must have been aware

We do not use the word "assumed" in its technical, legal sense. The letter agreement of

August 27 provides that Wilbur "will acquire a 40% interest in the project." The "project," from Pearson's standpoint, consisted of its obligations and expected benefits from performance of its prime contract with the owner. Under the terms of the letter agreement, Wilbur's con- tribution to performance of that contract mainly consisted of advancing cash to help Pearson meet payroll, equipment costs, and purchases of materials. Wilbur was also to obtain the per- formance bond required by the prime contract. Whether or not Wilbur actually assumed and was liable to the owner for Pearson's performance of the prime contract is open to question. What is certain, however, is that Wilbur had a direct and real pecuniary interest in Pearson's successful performance of the prime contract, stood to gain from its performance and to lose from its nonperformance. [Footnote by court, renumbered]

522 CHAPTER 5. CONTRACTS, VOLUNTEERS, AND MISTAKES that plaintiff, or someone else, would have to perform the site preparation work. Thus, Murdock's work was beneficial to Wilbur and UI because it was necessary for performance of the contract to construct the shopping center. "A benefit may be any type of advantage, including that which saves the recipient from any loss or expense." Pyeatte v. Pyeatte, 135 Ariz. at 352, 661 P.2d at 202, citing Artukovich, supra.

However, the mere receipt of a benefit is insuAEcient. Restitutionary relief is allowable only when it would be inequitable or unjust for defendant to retain the benefit without compensating plaintiff. Pyeatte v. Pyeatte, 135 Ariz. at 353, 661 P.2d at 196. In determining whether it would be unjust to allow the retention of benefits without compensation, a court need not find that the defendant intended to compensate the plaintiff for the services rendered or that the plaintiff intended that the defendant be the party to make compensation. This is because the duty to compensate for unjust enrichment is an obligation implied by law without reference to the intention of the parties. 1 S. Williston, Contracts x 3A at 13 (3rd. ed. 1957). What is important is that it be shown that it was not intended or expected that the services be rendered or the benefit conferred gratuitously, and that the benefit was not "conferred oAEciously." Pyeatte v. Pyeatte, 135 Ariz. at 353, 661 P.2d at 203, citing Osborn v. Boeing Airplane Co., 309 F.2d 99, 102 (9th Cir. 1962).

We believe that the uncontroverted facts here show that restitution is appro- priate. Plaintiff did not render services gratuitously or oAEciously, but pursuant to a contract and with the expectation of compensation for its work. The work performed by plaintiff not only benefited Wilbur and UI but was necessary for the performance of the prime contract, a matter in which Wilbur had a direct pecuniary interest. Here, as in Pyeatte, supra, although there was no enforceable contract between plaintiff and defendant, plaintiff's contract "has importance in considering [the] claim for unjust enrichment because it both evidences [plain- tiff's] expectation of compensation and the circumstances which make it unjust to allow [defendant] to retain the benefits. . . ." Pyeatte v. Pyeatte, 135 Ariz. at 353, 661 P.2d at 203. We hold, therefore, that the judgment for restitution is supported by this record.

. . . .

DAMAGES The final issue, and that which requires remand, pertains to the question of damages. In pertinent part, the trial judge instructed the jury as follows:

If a person is damaged by the misrepresentation of another, . . . that person is entitled to recover, in addition to his compensation under quantum meruit, such other additional damages as might be required to make him whole. These damages must have been rea- sonably and necessarily incurred under the circumstances.

(Emphasis supplied.) This instruction is incorrect as applied to Wilbur, since Wilbur is not liable for the misrepresentation. Of course, part of the error was

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5.1. CASES RELATING TO CONTRACTS 523 cured when the trial judge reduced the damages awarded by the jury, deeming its verdict to have been only advisory. The record does not explain the trial judge's calculations in making the reduction from $392,000, except that he evidently reached it by adding a profit factor to Murdock's total costs and subtracting the money paid to Murdock by Pearson (slip op. at 16). Assuming that this was the formulation used by the trial judge, it is still erroneous as to Wilbur, even though correct as to Pearson. This is because the amount of recovery should correspond to the reasons underlying that recovery. D. Dobbs, supra, x 4.5 at 260.

If there is any one rational principle that might be used to guide restitutionary measurements it is that the measure of restitution should reflect the substantive law purposes that call for restitution in the first place. If the plaintiff built the house on defendant's land by mistake, he may be entitled to restitution for the benefits conferred, but perhaps only for the actual, subjective benefit to the defendant. On the other hand, if the defendant bargained for the house and it was built pursuant to an agreement voidable for mistake . . ., perhaps the benefit to the defendant should be measured by the market value of the plaintiff's labor and supplies. If the plaintiff built the house . . . because he had an oral contract to buy the land that was later repudiated by the defendant, [recovery might be limited to] the increased value of the defendant's land by reason of the building.

Id. at 260-61 (footnotes omitted).

The case at bench presents a clear instance of restitutionary recovery from different defendants based upon different legal principles. Recovery against Pearson is allowed on the basis that Pearson's misrepresentation allowed Mur- dock both to rescind and to recover the market value of labor and materials, the reasonable cost of its work, and a reasonable profit margin as an element of the reasonable value of the services. (Slip op. at 22-25.) Wilbur, however, is in a different category. He is not responsible for the misrepresentation and had no contract with Murdock. Recovery is allowed against him simply because the work performed by Murdock conferred a benefit on Wilbur which equity will not allow him to retain without payment.

Where there is no contract between the parties, and none attempted, the benefit to the recipient is generally measured by its economic value to him. D. Dobbs, supra, x 4.5 at 261-62. However, it has also been recognized that where the recipient has requested the services, he may be held liable for their value "as services." Id. at 263. Other formulations are mentioned by Professor Dobbs and the Restatement as being appropriate, depending upon the peculiar factual situation of each case. We do not believe it appropriate for this court to require the trial judge to adopt any particular measure of damages. Since the trial judge proceeded upon a measure of damages that was appropriate for Pearson but inappropriate for Wilbur, we have no way of knowing what particular factors

524 CHAPTER 5. CONTRACTS, VOLUNTEERS, AND MISTAKES he might find in the evidence upon which to base the proper, equitable measure of restitution. Accordingly, we remand with instructions that the trial judge reconsider the measure of restitution as to Wilbur and apply the measure of damages appropriate under whatever facts he may find to exist.

The judgment is reversed in part and aAErmed in part. The opinion of the court of appeals is approved except with respect to the liability of Wilbur and UI. The case is remanded for further proceedings not inconsistent with this opinion.

5.2 Of Volunteers 5.2.1 Kershaw v. Tracy Collins Bank & Trust Co.

Walter W. Kershaw v. Tracy Collins Bank & Trust Company

Supreme Court of Utah

561 P.2d 683

1977

Baldwin, District Judge: Plaintiff, Walter Kershaw, filed this action against Defendant, Tracy Collins Bank & Trust Company, Administrator of the Estate of Hallie Love Dennis, asking judgment as satisfaction of a claim against the Estate of Mrs. Dennis, for services rendered Mrs. Dennis during her lifetime, and after death of her husband. The District Court, based upon the pleadings, admissions and depo- sition of Plaintiff Kershaw, granted defendant's motion for summary judgment, dismissing the complaint. Appellant makes no claim that there are disputed factual questions for determination other than determination of the value of the services rendered.

Hallie Dennis was the widow of Earl Dennis who died in January 1972. Walter Kershaw, plaintiff, was in his words, the closest friend, "buddy," long- time brother Mason and Shriner and active fellow Presbyterian of Earl Dennis.

Earl Dennis named Tracy Collins Bank & Trust Company as Trustee for Mr. Dennis and the trustee paid what was necessary for her support and main- tenance. Mrs. Dennis died in 1975 and left an estate consisting of a home, a substantial Certificate of Deposit and jewelry. During her lifetime she had her own checking account to pay her personal expenses.

During the three years after death of Earl Dennis, Kershaw by his own account, took over the supervision of the personal life of Mrs. Dennis, until her death. He rendered many services to her, chauffeured her, bought groceries, ran errands, did minor repair work at her home, hired and fired nurses and doctors, arranged for her to get a new lawyer, advised her on gifts she wanted to make and in general was attentive and ran her life.

Kershaw assumed the supervision of Mrs. Dennis' life because he thought he had been "charged" by his Masonic brother to look after Earl's widow. There

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5.2. OF VOLUNTEERS 525 was never any agreement, written or oral, for payment of his services. He never asked for or demanded during her lifetime, any compensation for the services, and Mrs. Dennis never offered or agreed to pay him. She accepted the fact that her husband had "charged" his brother Mason to look after his widow.

Mrs. Dennis died in February 1975. Kershaw filed a claim for $6,600 with the administrator of her estate. The claim was rejected and suit filed for the value of the services rendered for the three-year period. Kershaw did receive as a bequest, a valuable diamond ring, from Mrs. Dennis and the claim of Kershaw credited $2,000 for the ring received, leaving a net claim of $4,600. Mrs. Dennis' will of 1972 contained a provision that gave Kershaw an option to purchase the diamond ring for $2,000. Kershaw arranged for her to obtain the services of a lawyer, selected by Kershaw, and a codicil to the will was executed May 2, 1974, bequesting the ring to Kershaw.

Kershaw admitted she had bequeathed him the ring as compensation for services he rendered to her.

Appellant's claim is one in quantum meruit for the rendering of personal care, preserving her estate and supervising her affairs after the death of her husband.

Clearly every benefit conferred is not recompensable and unjustly received. Purely voluntary services are not compensable and services rendered out of a moral obligation are not compensable. Services rendered gratuitously and with- out expectation by both parties that compensation be paid are not compensable.

This court has recognized the general theory of quantum meruit and in Gleason v. Salt Lake City, (1937) 74 P. 2d 1225, 94 Utah 1, sets forth the general rule as follows:

. . . Ordinarily when services are rendered by one person for another, and voluntarily and knowingly accepted, without more, the law will imply a promise to pay what the services were reasonably worth. . . . [Emphasis ours.]

As set forth in that case, to find an implied promise, all of the facts must be examined to determine the intention of both parties, as to whether pay was expected by the renderer, and to be paid by the recipient of the services.

The Court in Burton v. McLaughlin, (1950) 217 P. 2d 566, 117 Utah 483, decided a quantum meruit case involving personal services rendered to a dece- dent in his lifetime by a neighbor, applied Williston Contracts, Rev. Ed., Para. 36, p. 95:

. . . It is a question of fact if services are accepted whether a reasonable man in the position of the parties would understand that they are offered in return for a fair compensation, or would rather suppose either that they are offered gratuitously, or if not, that the recipient might think so. . . . Intimate friends sometimes render services gratuitously, and how close must relationship be to make

526 CHAPTER 5. CONTRACTS, VOLUNTEERS, AND MISTAKES

one presumption or another applicable? The question is purely one of fact, varying in every case, but with the burden always on the party, who alleges a contract and seeks to enforce it, to prove its existence.

The Court in the Burton case found that the extensive nursing care rendered was not such as could possibly be expected from a neighbor as gratuity; that the neighbor had provided food and medicine for the decedent; that the decedent had admitted that she owed the neighbor reimbursement; and that these facts could make for an implied contract.

The District Court, examining all the facts, could well find that Mrs. Dennis looked upon Kershaw's services as those from a friend and as a gratuity; that she did not expect to pay for them, except by way of the bequest of the ring; that Kershaw was a volunteer; and that he did not expect pay for the services, which were the services normally expected of a friend; and that those facts negated any implied contract.

In McCollum v. Clothier, (1952) 241 P.2d 468, 121 Utah 311, cited at 98 C.J.S. m20, 724, 725 and 727, is restated the general quantum meruit rule:

. . . It is appreciated that this rule should not be applied to bind one under implied contract who merely permits services to be rendered him, or accept benefits from another, under such circum- stances that he may reasonably assume they are given gratuitously. The law should not require everyone to keep on guard against such possibilities by warning persons offering services that no pay is to be expected. It is, therefore, essential that the court should ex- ercise caution in imposing the obligations of implied contract, as contrasted to express contract, where the parties have actually de- fined and agreed to the terms they are to be bound by. With such caution in mind, the test for the court to apply was: Under all the evidence, were the circumstances such that the plaintiff could rea- sonably assume he was to be paid and that the defendant should have reasonably expected to pay for such services. . . .

Justice Wolfe in the McCollum decision, page 473, concurred in the language in the main opinion and said:

. . . My comment on this wise statement is that it appears to me that our courts have merely paid lip service to it or ignored it altogether. It is too easy in this state for one to surprisingly find himself a promisor under an implied contract.

. . . All of us are familiar in life with instances where a seeming volunteer ingratiates himself into the confidence of another only to be later revealed as a self-seeker. . . .

In Manwell v. Oyler, (1961) 361 P. 2d 177, 11 Utah 2d 433, the plaintiff sued to recover payments voluntarily made by him on defendant's land, without any

September 11, 2000

5.2. OF VOLUNTEERS 527 consideration or adequate promise for repayment. Plaintiff claimed that whereas defendant had been materially benefited, defendant had a moral obligation to repay. This court held that a moral obligation by itself is not suAEcient as legal consideration; that circumstances in addition to a purely moral obligation "must be such that it is reasonably to be supposed that the promisee (plaintiff) expected to be compensated in some way therefor."

The general rule that a moral obligation based on relations of friendship and good will is not matter for legal redress is set out in Rask v. Norman, 169 N.W. 704, 141 Minn. 198, 17 A.L.R. 1296. The Minnesota court would not allow recovery on the promise of one business associate to another, in his last illness, to look after and protect the business interests of the latter's wife, which was made on the basis of friendship and good will and was unsupported by pecuniary or material benefit.

Vogl v. Goldrick's Estate, (1929) 224 N.W. 741, 198 Wis. 500, is close in fact. Vogl, a bank president and long-time friend of Mr. Goldrick, performed some manual yard work, clerical services and gave business advice to Mrs. Goldrick, the widow living next door. Only after Mrs. Goldrick's death, Vogl made a claim in quantum meruit for eight years' services. The Wisconsin court denied the claim, saying that the relation existing between those parties would not raise an implied contract. The court added:

. . . Claimants, silent in the lifetime, become voluble when their pretended debtors can no longer speak. Such claims are not favored in law. . . .

Kershaw's own statements prove that any requests and demands made by Mrs. Dennis certainly did not contemplate that she would compensate him. On the contrary, it appears clearly that she was expecting gratuitous service from Kershaw because of their long-standing friendship and because of the known "charge" given to Kershaw by his "buddy" and brother Mason, Earl Dennis.

Kershaw testified in deposition, that he had no agreement with Mrs. Dennis, or any promise by her, for payment, past or future. His services were gratu- itously rendered, and he did not ask or expect pay at the times when rendered or in the future.

Kershaw's services included change of Mrs. Dennis' will. Her will of January 27, 1972, gave to Kershaw an option to buy a certain diamond ring for $2,000 on her death. He "ordered" her attorney who had been employed at the suggestion of Kershaw in 1972 to prepare a codicil to her will. The codicil of 1974 revoked the provision of the will giving Kershaw the option to buy the diamond ring, and it bequested the ring to him outright and he did accept the diamond ring after her death.

Kershaw admitted that Mrs. Dennis knew that Earl Dennis had requested him to take care of her and she accepted the service of Kershaw as form a friend and a fellow member of the Presbyterian church and believing that Kershaw was since in fulfilling his Masonic obligation to protect and care for the widow of a

528 CHAPTER 5. CONTRACTS, VOLUNTEERS, AND MISTAKES brother Mason. Kershaw's services were not necessary. Tracy Collins Bank, did provide whatever necessary for her support and welfare. Kershaw's acts were those which should be expected of a long-time friend, and Hallie did accept them for what they were, namely, gratuities.

The record is abundantly clear that plaintiff did not expect payment and the facts do not establish an express or implied contract for payment of his services. They were given gratuitously and pursuant to what he felt was a moral obligation. No demand for payment was made during the lifetime of Mrs. Dennis and she made no offer or suggestion for payment, other than the bequest of the diamond ring.

The judgment of the District Court is aAErmed.

5.2.2 Aldebot v. Story

Connie Aldebot v. Colleen M. Story

Court of Appeal of Florida, Third District

534 So. 2d 1216

1988

PER CURIAM Connie Aldebot filed a complaint for damages against the personal repre- sentative of the estate of Earl Martin, seeking compensation for nursing and attendant care provided to Martin for five years prior to his death. Aldebot alleged entitlement to payment "on a quantum meruit basis, under the equity powers of this Court." At the beginning of the bench trial, the trial court limited the issue of quantum meruit to the two-year period preceding Martin's death. Several witnesses testified on Aldebot's behalf. At the close of Aldebot's case, the trial court ruled that Aldebot had failed to establish a prima facie case and dismissed the action with prejudice. Aldebot appeals from the judgment of dismissal. For the reasons which follow, we reverse.

Quantum meruit describes the extent of liability on a contract implied in law. As opposed to express contracts and contracts implied in fact, where the assent of the parties is required, "contracts implied in law, commonly called `quasi contracts,' are obligations imposed by law on grounds of justice and equity, and do not rest upon the assent of the contracting parties." Tipper v. Great Lakes Chem. Co., 281 So. 2d 10, 13 (Fla. 1973). Courts will find the existence of an implied contract of employment where "services were performed under circumstances fairly raising a presumption that the parties understood and intended that compensation was to be paid." Id. at 13. Absent such circumstances, the person seeking compensation is no more than an "oAEcious intermeddler." Id. See Hermanowski v. Naranja Lakes Condominium No. Five, Inc., 421 So. 2d 558 (Fla. 3d DCA 1982) (cable television improvements which were oAEciously supplied by partnership did not involve unjust enrichment so as to permit recovery on quantum meruit basis), rev. denied, 430 So. 2d 451 (Fla. 1983).

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5.2. OF VOLUNTEERS 529

The record on appeal does not support the proposition that Aldebot was "no more than an oAEcious provider of services." Hermanowski, 421 So. 2d at 560. Bela Olasz, the manager of the apartment house where Martin lived, gave uncontroverted testimony that Martin had asked him for the name of a nurse for hire. Olasz recommended Aldebot and later introduced Aldebot to martin. Aldebot testified, without contradiction, that she chauffeured martin, monitored his blood pressure, cooked and cleaned for him, and performed gen- eral nurse's aide work. There was unrebutted testimony from Dr. Jeffrey Tardiff that Aldebot provided personal, nursing-home-type care, and, in that capacity, she had brought Martin and other patients to see Dr. Tardiff.

The testimony presented does not indicate that Martin sought out free ser- vices from an "admirable volunteer." Rather, the circumstances raise a fair presumption that Aldebot was to be paid for her services. See Nursing Care Servs., Inc. v. Dobos, 380 So. 2d 516 (Fla. 4th DCA 1980) (where patient was fully aware of her circumstances and readily accepted benefits conferred by nursing care corporation during period of at-home care, contract implied in law was established and patient was liable for services rendered). The rule set forth in Yeats v. Moody, 128 Fla. 658, 661, 175 So. 719, 720 (1937), is controlling.

It is well settled that where services are rendered by one person for another which are knowingly and voluntarily accepted, without more, the law presumes that such services are given and received in the expectation of being paid for, and will imply a promise to pay what they are reasonably worth.

Accordingly, the judgment of dismissal is vacated, and the cause is remanded for a new trial on damages.

Reversed and remanded.

5.2.3 Biggerstaff v. Vanderburgh Humane Society, Inc.

Marion F. Biggerstaff v. Vanderburgh Humane Society, Inc.

Court of Appeals of Indiana, Fourth District

453 N.E.2d 363

1963

Young, J. Defendant-appellant Marion Biggerstaff appeals the Vanderburgh Circuit Court's judgment in favor of plaintiff-appellee Vanderburgh Humane Society, Inc. (hereinafter the Humane Society) for $1,832.00. On appeal, Biggerstaff contends the evidence was insuAEcient to support any legal theory obligating him to reimburse the Humane Society for expenses incurred in caring for his five Great Danes. We aAErm.

The following is a recitation of the facts relevant to this appeal. Pursuant to a search warrant, the five dogs were seized from Biggerstaff on May 11, 1981 and placed with the Humane Society. On August 27, 1981, Biggerstaff was convicted of Cruelty to An Animal, a Class B misdemeanor. On August 31, Biggerstaff

530 CHAPTER 5. CONTRACTS, VOLUNTEERS, AND MISTAKES obtained a court order prohibiting the Humane Society from following its usual practice of placing unwanted animals in adoptive homes or euthanizing them. The order was in effect during the pendency of Biggerstaff's appeal. After the Court of Appeals aAErmed the conviction on June 24, 1982, the Humane Society initiated the civil action against Biggerstaff for the value of goods and services rendered in caring for the dogs from May 11, 1981 to June 24, 1982.

In arguing the trial court erred in awarding the judgment to the Humane Society, Biggerstaff claims there was neither an express contract nor a contract implied in fact or law. As we believe restitution was appropriate in this case, we will limit our discussion to the theory of constructive contract or contract implied in law.

A constructive contract is not a contract in the true sense because it pro- vides for the imposition of liability where there is no mutual assent between the parties. The concept is a legal fiction providing a remedy to prevent unjust enrichment, thereby promoting justice and equity.

To recover under the theory of implied contract or quantum meruit,

the

plaintiff is usually required to establish that the defendant impliedly or expressly requested the benefits conferred. Additionally, relief will be denied if the plaintiff did not contemplate a fee in consideration of the benefit or if the defendant could not reasonably believe the plaintiff expected a fee. Stated more simply, these two rules preclude recovery where the benefit is oAEciously or gratuitously conferred.

Biggerstaff attempts to dodge liability by arguing that the court order can- not be construed as an implied or express request of the Humane Society to continuing caring for the dogs. He argues the court order was his only recourse for protecting the limited rights he retained in the animals.

Biggerstaff's interests in the animals could not have been "protected"

with-

out enlisting the services of the Humane Society. The court order went beyond a request for those services in that the Humane Society had no choice but to continue caring for the animals, thereby incurring substantial expenses. There is no reason to believe, nor any evidence to indicate that the Humane Society would not have put the dogs up for adoption or euthanized them had it not been for the court order.

We also believe the trial court properly ordered reimbursement for expenses incurred in caring for the animals from the time they were seized to the time the court order was issued. We cannot agree with Biggerstaff's argument that the benefits conferred during that period were "oAEciously thrust" upon him.

"OAEciousness" is a term tradionally used to describe interference in the affairs of others that is not justified under the circumstances. Farnsworth, Contracts x 2.20, at 100 (1982). In many instances, courts have allowed

Indiana courts have used the following terms synonymously: quasi-contract, contract

implied in law, constructive contract, and quantum meruit. [footnote by court]

We note the irony implicit in this contention. Had the Humane Society not taken custody

of the animals, it is doubtful Biggerstaff would have had any interests at all. [footnote by court]

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5.3. SERVICES SUPPLIED IN AN EMERGENCY 531 restitution for services performed or goods supplied without request, knowledge, or consent. 66 Am.Jur, x23.

When the dogs were taken into custody, they were found in a filthy build- ing owned by Biggerstaff. The dogs were extremely thin, had rough, lackluster coats, abnormally worn teeth, and their stool was mucousy and loose. Bigger- staff v. State, (1982) Ind.App., 435 N.E.2d 621. The animals were diagnosed as suffering from hook worms and malnutrition. Id. The evidence of neglect was suAEcient to convict Biggerstaff and clearly establishes the animals were in great need of care and attention. The Humane Society's care and custody of the animals was necessary for their continued existence. By caring for the dogs, the Humane Society also preserved Biggerstaff's due process rights. Had he not been convicted, he would have been entitled to have the dogs returned to him. The fact that that event never transpired is inconsequential in determining the issue of liability. Under the circumstances cited above, the Humane Society was clearly justified in taking steps necessary to revive the animals' health. It was entitled to restitution for expenses thereby incurred.

Furthermore, even though Biggerstaff did not request the Humane Society's services prior to the court order, his awareness of the Humane Society's custody coupled with his failure to rant it the authority to follow its regular procedure, acted as a voluntary acceptance of those services. As there is no evidence either party believed the services were gratuitous, Biggerstaff's acceptance provides an additional basis for granting restitution.

The trial court's judgment is aAErmed.

5.3 Services Supplied in an Emergency The next case deals with services that were supplied in a life-threatening emer- gency. In cases where the emergency only threatens property, rather than life, the courts are much more reluctant to award restitution to the rescuer.

5.3.1 In re Crisan Estate

In re Crisan Estate Supreme Court of Michigan 362 Mich. 569, 107 N.W.2d 907

1961

Edwards, J. This appeal presents a situation contemplated by our appellate rules but too rarely achieved--a statement of facts and a legal question agreed on by the opposing parties. It should be added that opposing counsel have

Cases in which restitution has been ordered absent a showing the benefits were requested

typically involve emergency situations and payments mistakenly rendered to a person other than the true creditor. [footnote by court]

532 CHAPTER 5. CONTRACTS, VOLUNTEERS, AND MISTAKES added to this triumph by briefs which are brief and which cogently argue the interesting legal problem involved.

The question is: "Will the law imply a promise to pay for emergency services rendered to an unconscious patient by a public hospital?"

The facts are: Sosa Crisan, hereinafter referred to as the "patient," was an 87-year-old widow of Roumanian origin without any relatives.

While shopping at her grocer's on March 17, 1955, she collapsed and was removed in emergency by the Detroit police department to its Receiving Hospital where she was admitted and remained for 14 days. On March 31st, she was transferred to Central Hospital, an overflow or city-physician's hospital, which took patients under contract with the city of Detroit, where she died without ever regaining consciousness on February 9, 1956, some 11 months later.

Prompt investigation by the city disclosed that the patient owned her own home, whereupon she was classified as a patient with assets and rejected by the Wayne county board of social welfare as, therefore, ineligible for relief.

The city took no steps to appoint a guardian for the patient. Subsequent investigation disclosed that the patient had $50 in cash, and enjoyed an income of $33 per month as rent from an upper flat. The value of the home is $7,000.

After her death, the appellee (city of Detroit, claimant) presented its claim against her estate, viz.:

14 days at Receiving at $29.20/day $ 408.80 315 days at Central at $8.90/day 2,803.50 ambulance 6.00 Total $ 3,218.30

The referee allowed the claim in its entirety and thereafter the probate and circuit courts aAErmed the same. Motion for new trial was denied, and the patient's executor prosecutes the instant appeal.

Appellant's contentions are that there was no meeting of the minds of the parties as to charges for the services rendered, that neither Mrs. Crisan (because of her mental condition), nor the Detroit department of health (because it was only empowered to operate a public hospital, and not to make any charges) was able to contract, and that, under these circumstances, no contract, actual or implied, could arise.

The trial judge answered these arguments succinctly: "It is obvious that there was no express contract or one implied in fact because following her collapse decedent was never able consciously to express her assent. Nevertheless, one who supplies services to another, although act- ing without the other's knowledge or consent, is entitled to restitution therefor

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5.3. SERVICES SUPPLIED IN AN EMERGENCY 533 from the other if he acted unoAEciously and with intent to charge therefor and the services were necessary to preserve the other's life or health, and the one supplying it had no reason to know that the other would not consent to receiv- ing them if mentally competent, and it was impossible for the recipient to give consent because of her physical or mental condition (Restatement, Restitu- tion, x 116). This principle has been approved by the Michigan Supreme Court (In re Dzwonkiewicz Estate, 231 Mich 165).

"The executor's contention that his obligation to pay must be determined by the decedent's ability, tested during her lifetime, is not tenable. The authorities upon which he relies are concerned with a statutory obligation to pay when a person shall have been committed to a hospital through legal process. CL 1948, x 330.21, as amended (Stat Ann x 14.811, as amended). The executor also contends that the city of Detroit may not recover because it was under a duty to furnish treatment regardless of the patient's ability to repay. He directs our attention to no authority for this proposition, and, absent some express limitation, we must conclude that the city of Detroit may charge for services rendered by Receiving Hospital. The city of Detroit is accordingly entitled to recover under a contract implied in law. The order of the probate court is therefore aAErmed and the cause is remanded for further proceedings."

As to the right of Receiving Hospital to make charges to nonwelfare patients, there is indeed astonishingly little authority. The corporation counsel points to State policy providing for reimbursement in parallel situations involving hospi- talization expenses paid by counties or the State department of social welfare.

While the statutes cited to us are obviously not directly applicable to the present case, they tend to negative the assumption for which appellant seeks our endorsement--namely, that a "public" hospital must perforce be one which renders only free care. No statutory, charter, or ordinance provision is cited which imposes a duty of providing free medical care to persons who are able to pay. Like the trial judge, we decline to supply such a requirement.

As to the more diAEcult question of whether or not on these facts a promise to pay will be implied in law, the Restatement provision relied upon by the trial judge provides as follows:

"A person who has supplied things or services to another, although acting without the other's knowledge or consent, is entitled to restitution therefor from the other if

"(a) he acted unoAEciously and with intent to charge therefor, and "(b) the things or services were necessary to prevent the other from suffering serious bodily harm or pain, and

"(c) the person supplying them had no reason to know that the other would not consent to receiving them, if mentally competent; and

"(d) it was impossible for the other to give consent or, because of extreme youth or mental impairment, the other's consent would have been immaterial." Restatement, Restitution, x 116.

534 CHAPTER 5. CONTRACTS, VOLUNTEERS, AND MISTAKES

This Court appears to have considered the problem before us in 2 cases--In re Dzwonkiewicz Estate, 231 Mich 165, and In re Weber's Estate, 256 Mich 61. In each, the Court found a promise to pay implied in law.

In the Dzwonkiewicz Case, there was a statute (CL 1915, x 13968) which made a guardian liable for the "just debts" of a minor, and which is not ap- plicable here. We read the Weber Case, however, as authority for holding that Michigan has previously adopted the essence of the Restatement section which we have quoted.

There is surprisingly little case authority to be found in the reports of the other States upon the problem with which we are concerned. In Cotnam v. Wisdom, 83 Ark 601 (104 SW 164, 12 LRA NS 1090, 119 Am St Rep 157, 13 Ann Cas 25), the supreme court of Arkansas held (Ann Cas headnote):

"A surgeon summoned by a spectator in an emergency to attend an injured and unconscious person from the estate of the patient although the patient dies without ever regaining consciousness."

The court (p 605) relied heavily for its reasoning upon a New Hampshire case which said:

"We regard it as well settled by the cases referred to in the briefs of counsel, many of which have been commented on at length by Mr. Shirley for the defendant, that an insane person, an idiot, or a person utterly bereft of all sense and reason by the sudden stroke of accident or disease, may be held liable, in assumpsit, for necessaries furnished to him in good faith while in that unfortunate and helpless condition. And the reasons upon which this rests are too broad, as well as too sensible and humane, to be overborne by any deductions which a refined logic may make from the circumstance that in such cases there can be no contract or promise in fact,--no meeting of the minds of the parties. The cases put it on the ground of an implied contract; and by this is not meant, as the defendant's counsel seems to suppose, an actual contract,--that is, an actual meeting of the minds of the parties, an actual, mutual understanding, to be inferred from language, acts, and circumstances, by the jury,--but a contract and promise, said to be implied by the law, where, in point of fact, there was no contract, no mutual understanding, and so no promise. The defendant's counsel says it is usurpation for the court to hold, as matter of law, that there is a contract and a promise, when all the evidence in the case shows that there was not a contract, nor the semblance of one. It is doubtless a legal fiction, invented and used for the sake of the remedy. If it was originally usurpation, certainly it has now become very inveterate, and firmly fixed in the body of the law." Sceva v. True, 53 NH 627, 630.

See, also, 3 Page on Contracts (2d ed), x 1521. The rationale of the New Hampshire and Arkansas courts is similar to that of the Restatement rule relied on by the circuit judge. The first comment under the Restatement rule quoted above is:

"Comment:

September 11, 2000

5.4. CASES INVOLVING MISTAKES 535

"a . The rule stated in this section exists in order that a person needing help in an emergency and not able to ask for it should obtain it, the attainment of such a result being aided by assuring compensation to the person rendering the aid if the other is solvent." Restatement, Restitution, x 116, p484.

The judgment appealed from is aAErmed. Costs to appellee. Dethmers, C.J., and Carr, Kelly, Smith, Black, Kavanagh, and Souris, JJ., concurred.

5.4 Cases Involving Mistakes And finally we come to two very different sorts of cases in which a claim is made for restitution based on mistake. As you will see, the two cases involve two very different, but both quite common, types of mistakes.

5.4.1 Duncan v. Akers

Duncan v. Akers Appellate Court of Indiana 147 Ind. App. 511, 262 N.E.2d 402

1970

Carson, J.--This action was instituted in the Shelby Circuit Court wherein plaintiffs-appellees filed their complaint for ejectment.

For the purpose of clarity the facts from the record before us may be sum- marized as follows:

Plaintiffs-appellees own Lot No. 7 in a subdivision known as "Triton Acres". The Duncans, defendants below, own Lot No. 6 in the same subdivision, which lot is identical with and adjacent to Lot No. 7 owned by appellees. On April 2, 1967, the Duncans entered into a written contract with defendant-Lindner Homes, under the terms of which Lindner Homes was to construct a home on said Lot No. 6 owned by the Duncans in consideration of the sum of $16,495. Thereafter, Lindner Homes hired a surveyor to survey Lot No. 6 and indicate the site of construction by placing stakes thereon. The surveyor, by mistake, placed the stakes on Lot No. 7 belonging to appellees, instead of Lot No. 6, owned by the Duncans. After the stakes had been placed, Lindner Homes proceeded with construction of the dwelling during the months of May and June of 1967.

On or about July 5, 1967, appellees notified Lindner Homes that the house was being built on the wrong lot, and to cease construction and vacate the premises. Thereafter, on September 25, 1967, appellees filed suit for ejectment. To plaintiffs-appellees' complaint, defendants-appellants filed answer in denial and two paragraphs of counterclaim. Plaintiffs-appellees then filed a demurrer to each paragraph of counterclaim for failure to state facts suAEcient for a cause of action, and ultimately filed amended demurrers, which were sustained by

536 CHAPTER 5. CONTRACTS, VOLUNTEERS, AND MISTAKES the trial court. Defendants-appellants were ruled to plead over on or before April 12, 1968, which date was later extended to July 1, 1968. In the interim plaintiffs-appellees filed a motion for summary judgment on March 19, 1968. On July 26, 1968, defendants-appellants sought, and were granted, a change of judge. Thereafter, a hearing upon appellees' motion for summary judgment was set for September 7, 1968. The hearing was held on said date and the court took its ruling under advisement. However, on September 7, 1968, defendants- appellants finally filed an amended counterclaim which, pursuant to the court's ruling to plead over, was approximately two months late.

After the various proceedings and delays, the trial court, on September 13, 1968, granted appellees' motion for summary judgment and held that appellees were the owners in fee simple of the real estate on which the appellant, Lindner Homes, had made the improvements and that they were entitled to recover possession of the real estate and that the defendants-appellants take nothing by their counterclaim.

Thereafter, and within due time, appellants praeciped for a complete tran- script of the entire record. Following the judgment of the trial court, defendants- appellants filed an assignment of errors, consisting of five specifications, which reads as follows:

"1. The Court erred in granting plaintiffs' Motion for Summary Judgment on defendants' Amended Counterclaim.

"2. The Court erred in sustaining plaintiffs' Motion for Summary Judgment as to defendants' Amended Counterclaim.

"3. The decision is contrary to law in that defendants' Amended Counterclaim stated a cause of action and defendants were entitled to have the allegations contained in their Amended Counterclaim put to a trial.

"4. The decision is contrary to law in that there is no evidence to support the Entry of Judgment against defendants on their Amended Counterclaim.

"5. The Court erred in entering judgment against defendants on the Amended Counterclaim in that a Summary Judgment may not be used to test the suAEciency of a pleading."

Appellees maintain, for the first time, in this court, that inasmuch as ap- pellants' amended counterclaim was filed nearly two months late, the same was not properly before the trial court. While it is true that appellants were ruled to plead over on or before July 1, 1968, we find counterclaim was not filed until September 7, 1968, we find no instance of record where appellees filed timely objection below to the late filing.

Furthermore, as the trial court entered summary judgment upon appellants' amended counterclaim, we must assume that the court considered the filing as timely and disposed of the matters presented upon the merits. Therefore, the sole question presented to this court is whether the trial court properly granted summary judgment to appellees on appellants' amended counterclaim.

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5.4. CASES INVOLVING MISTAKES 537

In support of the trial court's ruling, appellees assert that the Occupying Claimants' Act (Acts 1881 (Spec.Sess.), ch. 38, x 694, p. 240, Ind.Stat.Anno., x 3-1501, et seq., Burns' 1968 Repl.) provides an exclusive remedy in this in- stance and as appellants do not contend to be within its provisions, the court properly granted summary judgment. We cannot agree with appellees' con- tention in this respect. Our Supreme Court held to the contrary in the recent decision of Phar-Crest Land Corporation v. Therber (1969), 251 Ind. 674, 244 N.E.2d 644, at 648, 16 Ind.Dec. 570, at 575-576, wherein the court stated:

"Finally, it is urged that the Occupying Claimant's Act, Burns' x 3-1501 et seq., is the appellees' remedy. We find no law that com- pels the appellees to follow such a statutory remedy for reimburse- ment for improvements made. The appellees had the right to elect whether to stand upon the equitable principle of estoppel and laches and retain possession and title, or to accept the benefits of Burns' x 3-1501. This statute offers reimbursement where improvements have been made in situations that go beyond equitable estoppel and laches or where the facts do not support such a position, as the statute says, when improvements have been made `in good faith'."

Assuming that the remedy afforded by the Occupying Claimants' Act is not exclusive, appellee urge, in the alternative, that Indiana follows the common law rule that improvements placed upon the real estate of another accrue to the land and are lost by the improved. In support of their position, appellees cite a number of early Indiana decisions . . . .

Conversely, appellants assert that by the allegations of their amended coun- terclaim they seek the jurisdiction of equity and that equity is not bound strictly to the common law. Although the authorities cited by appellees have not been consistently applied, the courts have deviated from strict application of the com- mon law rule and have applied equitable principles in permitting recovery by an innocent improver of another's real estate.

. . . . Although the facts and circumstances inherent in the above decisions differ by varying degrees from those in the instant case, these later decisions enunciate a liberalization of the strict common law rule and the principles utilized therein seem appropriate for application in this instance.

In Phar-Crest Land Corporation our Supreme Court discussed the equitable principles of laches and estoppel as they apply to a case where one is asserting legal title to real estate which another has improved, and at 679 of 251 Ind., at 647 of 244 N.E.2d stated:

"The evidence in this case shows that the appellees have been injured by reason of the improvements made on the property if ap- pellant's claimed legal title prevailed. Silence when there is a duty to speak can constitute fraud, and a failure to assert one's right to

538 CHAPTER 5. CONTRACTS, VOLUNTEERS, AND MISTAKES

real estate when his interest is challenged, to the extent that the other party assumes no claim is made thereto, can constitute fraud. Fraud in many instances is `constructive' in that there may not be any active intentional purpose to deceive or defraud, yet the non- action or action is so prominent and misleading as to cause a party to rely thereon. In our opinion, the trial court found in this case such a situation existed.

" `As stated infra x 69 a, fraud is an element of estoppel only in the sense that a fraudulent result would follow a denial of the truth of the representation, and not in the sense that the representation must have been made with an intent to deceive.' "31 C.J.S. Estoppel x 59, p. 376."

In Bahar et al. v. Tadros etc., et al., supra,

after recognizing the common

law rule, this court proceeded to enunciate the following principles at 583-584 of 123 Ind.App., at 760 of 112 N.E.2d:

"It is said to be a very familiar rule of the law of estoppel that if the owner of an estate stands by and sees another erect improvements on the estate in the belief that he has a right to do so and does not interpose to prevent the work, he will not be permitted to claim such improvements after they are erected. 76 A.L.R. 304 and cases cited.

"We believe it is a general recognized rule of law that equity rec- ognizes a lien which is based upon general consideration of justice between the parties to the transaction involved. Such a lien may result by implication from a duty resting on the owner of property which is the subject matter of the lien and the lien is completed by equity in pursuance of the maxim quoted in Carpenter v. Dummit, supra, [(1927), 221 Ky. 67, 279 S.W. 700, 10 RCL. 351] `that is deemed done that ought to be done'. Failure on the part of a court of equity to recognize the general rule and to grant relief under the occupying claimant statute under the facts of this case upon which this decision is made would have the effect of granting immunity to the owner and thusly permit him to the use and benefits of the improvements made on his property. It is apparent that the appel- lants did have an equitable lien upon the real estate based upon the general considerations of justice and that it is the duty of a court of equity to see that is done that ought to be done."

Again, in Hutter v. Weiss, supra, [132 Ind.App. 244, 177 N.E. 2d 339 (1961)] at 256 of 132 Ind.App., at 345 of 177 N.E.2d, this court quoted with approval the language of Chancellor Kent in Wendell v. Van Rensselaer (1815), 1 Johns Ch.(N.Y.) 345, 353, as follows:

123 Ind. App. 570, 112 N.E. 2d 754 (1953).

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5.4. CASES INVOLVING MISTAKES 539

" `There is no better principle established in this Court, nor one founded on more solid considerations of equity and public utility, than that which declares, that if one man, knowingly, though he does it passively, by looking on, suffers another to purchase and expend money on land, under an erroneous opinion of title, without making known his claim, he shall not afterwards be permitted to exercise his legal right against such person. It would be an act of fraud and injustice and his conscience is bound by this equitable estoppel. Qui tacet consentire vidtur. Qui protest et debet vetare, jubet.' "

We are quite cognizant of the fact that the case here before us differs from Phar-Crest, Bahar and Hutter to the extent each of those cases presented a factual situation where the improver of another's real estate held some semblance or "color of title" to the real estate improved. However, the fact that in each of those cases the improver held "color of title" was not, in our opinion, the sole reason for the application of the principles above quoted. The phrase "color of title" was defined by this court in Philbin et al. v. Carr et al. (1920), 75 Ind.App. 560, at 577-578, 129 N.E. 19, at 25 (Transfer denied), as follows:

"As a matter of general law, color of title must be a document purporting to convey title to real estate, but which for some reason does not do it. It must designate a grantor and a grantee, must contain apt words of conveyance, and a description of the land in- tended to be conveyed. An examination of a large number of cases has wrought the convection [conviction] that no court ever has held otherwise where the question was legitimately decided, and that all statements to the contrary, when scrutinized, will be found to be either dicta or instances of carelessness of expression."

Applying the definition stated in Philbin, appellants in the case at bar do not, and cannot, maintain to have held "color of title" to the real estate in question. Appellants base this action merely upon their alleged innocence and a mistake by the surveyor. Realizing the lack of Indiana precedent for their position, appellants have sought this court's consideration of the case law from other jurisdictions. The law in this area is quite thoroughly analyzed in an annotation at 57 A.L.R.2d 363. It appears that the courts of other jurisdictions, when confronted with a set of circumstances such as here presented, have consistently granted the innocent improver a remedy in equity.

In Farmers National Bank of Bloomsburg v. Albertson (1964), 203 Pa.Sup. 205, 199 A.2d 486, plaintiff-creditor brought suit to impose an equitable lien upon realty owned by parents of the debtor. The debtor had borrowed money from the plaintiff-creditor to erect a house and said house was erected by mistake upon the land of the debtor's parents. The Pennsylvania Court, in aAErming the trial court's imposition of the lien, at 489 of 199 A.2d, stated:

540 CHAPTER 5. CONTRACTS, VOLUNTEERS, AND MISTAKES

"If the parents were unjustly enriched, equity has the power to fix a lien upon the property. General Casimir Pulaski Building & Loan Association v. Provident Trust Co. of Philadelphia, 338 Pa. 198, 202, 12 A.2d 336 (1940).Where one party has been unjustly enriched at the expense of another, he is required to make restitution. In order to recover, there must be both an enrichment and an injustice resulting if the recovery for the enrichment is denied. Meehan v. Cheltenham Twp., 410 Pa. 446, 449, 189 A.2d 593 (1963).

"Ordinarily, where one in possession of land which he mistakenly believes that he owns builds a house thereon, he is not entitled to restitution from the owner of the land. Restatement of the Law of Restitution, x 42(b) and Illustration 1 on page 170. As the comment on this section in the Restatement indicates, the rule is harsh and not wholly consistent with the principles for restitution for mistake. Its harshness has been substantially relieved, in most cases, either by statute or by equity in case of land.p. 168."

And, further, at 490:

"[It] would be unjust for the defendants to be permitted to retain the house in question free and clear from all encumbrance when it was built largely from funds supplied by the bank."

Likewise, Cecil Ruby Company v. Jones, (Tex.Civ.App. 1965), 398 S.W.2d 337, presents a set of circumstances quite similar to those in the instant case. The dispute in that case involved the placing of a house upon the wrong lot by mistake. As in the case at bar, the lots in question were adjacent and similar in appearance. The Texas court, finding that the plaintiff-improver had, in an act of good faith, placed the house upon the wrong lot by mistake, ordered a lien imposed upon the property.

Furthermore, Toalson v. Madison (Mo.App. 1957), 307 S.W.2d 32, involved an innocent mistake of ownership relating to two adjacent lots with the result that improvements were placed upon the wrong lot. The Court of Appeals reversed the trial court's denial of relief to the innocent improver, and in so doing, at 34 of 307 S.W.2d, stated:

"American Law holds it to be inequitable, regardless of fraud, to allow another to be enriched by expenditures made on land by one who supposed himself, in good faith, to be the owner. Schleicher v. Schleicher, 120 Conn. 528, 182 A. 162, 164, 104 A.L.R. 572. See 4 Pomeroy's Equity Jurisprudence, par. 1241.

* * * "In 104 A.L.R. 588, note (b) it is said that certain cases, including Valle v. Fleming, 29 Mo. 152, McLean v. Martin, 45 Mo. 393, and

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5.4. CASES INVOLVING MISTAKES 541

Calloway Banks v. Ellis, 215 Mo.App. 72, 238 S.W. 844, support the general doctrine that even in the absence of fraud, acquiescence with knowledge, or other inequitable conduct on the part of the owner of land one who, mistakenly believing himself to be the owner, in good faith makes improvements on premises, may as plaintiff, recover therefor, by way of lien or otherwise, when the circumstances render such relief just and equitable; . . . ."

In Pull v. Barnes (1960), 142 Colo. 272, 350 P.2d 828, the plaintiffs had erected a cabin upon the land of the defendants due to a mistaken belief as to the boundary lines. The court in granting favor to the innocent improvers, stated the following principle of law at 829 of 350 P.2d:

"As an abstract principle of law it is true that the moment a house is built upon land, it belongs to the owner of the land by mere operation of law and he may possess and enjoy it as his own. But this is merely stating the technical rule of law by which the owner seeks to hold what, in a just sense, he never had the slightest title to; that is, the house if it were not attached to the realty. It is not answering the objection by merely and dryly stating that the law so holds; for admitting this to be so, in law, such a situation furnishes a strong ground why equity should and does interpose and grant relief in proper cases."

The Colorado court in Pull concluded its decision by reversing the trial court's denial of relief to the innocent improver and recognizing the flexibility of a court of equity in such an instance, remanded the cause with instructions for the trial court to hold a hearing and determine the feasibility of removing the cabin and if it should find removal of the cabin not to be feasible, to impose a lien upon the premises in favor of the innocent improver.

Subsequent to a review of the decisions from other jurisdictions, we are of the opinion that the modern trend favors relief in equity to an innocent improver of another's real estate who has acted under a mistake. The common law rule has not been recognized and applied by the courts of this State for a number of years and the apparent harshness in its application serves a just rationale for its growing obsolescence.

It is our opinion that appellants are entitled to a trial upon the allega- tions of their amended counterclaim for equitable relief and that the trial court improperly granted summary judgment against them. However, it should be noted that appellants seek the aid of equity and must comply with the bur- den of proof which equity requires. Under these circumstances it is, therefore,

As it relates to the power of a court of equity to render a decree which is just under the

circumstances, See: Jensen v. Probert (1944), 174 Ore. 143, 148 P.2d 248, wherein the court on appeal held that under the circumstances of the case, to permit removal of the house was more equitable than imposition of an equitable lien.

542 CHAPTER 5. CONTRACTS, VOLUNTEERS, AND MISTAKES incumbent upon appellants to establish by clear and convincing evidence their innocence in placing the house on the premises. The trial court is not limited in respect to the relief afforded and should mold its decree so as to render justice under the circumstances as revealed by the evidence.

Judgment reversed and cause remanded with instructions. Lowdermilk, C.J., Cooper and Sullivan, JJ., concur.

5.4.2 Monroe Financail Corp. v. Disilvestro

Monroe Financial Corporation v. E. Ruth Disilvestro

Court of Appeals of Indiana, First District

529 N.E.2d 379

1988

Sullivan, J. Plaintiff-appellant, Monroe Financial Corporation (MFC), appeals the neg- ative judgment of the Monroe Superior Court on its suit. seeking to recover a sum of money paid in error to defendant-appellee, E. Ruth DiSilvestro (DiSil- vestro). The money paid represented the market price for 62 shares of stock in Avery International Corporation. In fact DiSilvestro owned shares in Avery, Inc., the shares of which were trading at a substantially lower figure.

The issues before us are as follows: I. Whether MFC's mistake in quoting a prospective sales price for Avery International Corporation instead of for the shares in Avery, Inc. actually owned by DiSilvestro, permits MFC to recover the amount paid as a result of that mistake.

II. Whether DiSilvestro substantially changed her position prior to the dis- covery of the mistake so as to bar MFC from recovering the proceeds.

The facts germane to this appeal are gleaned from an approved statement of the evidence in conformity with Ind. Rules of Procedure, Appellate Rule 7.2 (A)(3)(c).

DiSilvestro owned 62 shares of Avery, Inc. stock. Having no special knowl- edge or expertise regarding stock transactions, DiSilvestro's husband, Frank, telephoned MFC on October 20, 1987 to determine at what price Avery, Inc. was trading. He spoke to Wayne Schuman (Schuman), a professional stock- broker and vice-president of MFC, who informed Frank that Avery, Inc. was trading at $ 38.50 per share. In fact, Avery, Inc. was not trading at that price. Schuman had made a mistake in researching the stock value. When consult- ing his list of stocks, Schuman saw only one Avery listed, Avery International Corporation. Schuman mistakenly assumed Ruth owned Avery International Corporation and quoted that price.

DiSilvestro brought the stock certificates to MFC that afternoon at which time Schuman informed her that the trading price of the stock had decreased

September 11, 2000

5.4. CASES INVOLVING MISTAKES 543 50 cents. This quote also represented the price at which Avery International Corporation was trading. DiSilvestro decided to sell her shares of Avery, Inc., and Schuman agreed that MFC would sell them as an agent for a commission. She left the stock certificates with Schuman, and he placed a sell order with the company in New York (the Company) that executes transactions entered into by MFC. On October 27, 1986, DiSilvestro returned to MFC and picked up a check in the amount of $ 2,304.97. The check represented the market price of 62 shares of Avery International Corporation at $ 38 per share less the commission retained by MFC for services rendered as agent for her in the transaction.

MFC, as it usually does in the course of its business, had advanced the pro- ceeds of the stock sale to DiSilvestro prior to receiving the actual funds from the Company. Upon receiving the stock certificates from MFC, however, the Company detected the discrepancy in names. The Company informed Schu- man of the mistake by telephone and returned the stock certificates directly to DiSilvestro. By the time MFC first notified her of Schuman's mistake on October 30, 1987, DiSilvestro had already spent a significant portion of the proceeds on home improvements. MFC requested that DiSilvestro return the money. She refused. Thereafter, MFC brought suit against her under the small claims procedures seeking to recover the $ 2,304.97. Following a hearing, the trial court issued a judgment permitting DiSilvestro to retain the proceeds of the transaction.

The trial court issued special findings of fact and conclusions of law as per- mitted by Ind. Rules of Procedure, Trial Rule 52(A). We will not reverse a trial court's judgment entered pursuant to T.R. 52 unless the findings of fact, conclusions of law or judgment are clearly erroneous. Chase Manhattan Bank v. Lake Tire Co. (1986) 3d Dist. Ind.App., 496 N.E.2d 129. A judgment is clearly erroneous if not supported by the conclusions of law. Conclusions of law are clearly erroneous if unsupported by the findings of fact. Lafayette Realty Corp. v. Vonnegut's, Inc. (1984) 1st Dist. Ind.App., 458 N.E.2d 689. Findings of fact are clearly erroneous if the record discloses there were neither facts nor inferences to support them. In determining whether the findings are clearly er- roneous this court will not reweigh the evidence. Rather, we will consider only that evidence in the record and the reasonable inferences to be drawn therefrom which support the findings. Baker v. Compton (1983) 2d Dist. Ind.App., 455 N.E.2d 382. The judgment controls as to any issue not covered by the special findings. Mishawaka Brass Manufacturing, Inc. v. Milwaukee Valve Co. (1983) 3d Dist. Ind.App., 444 N.E.2d 855, trans. denied.

ISSUE I RECOVERY OF FUNDS MISTAKENLY PAID

It must be kept in mind that this litigation involved a claim by MFC to recover moneys mistakenly paid to DiSilvestro. It does not encompass any claim by DiSilvestro that MFC failed to perform a contract to sell Avery, Inc. stock or that such contract was breached by MFC.

544 CHAPTER 5. CONTRACTS, VOLUNTEERS, AND MISTAKES

MFC contends DiSilvestro may not retain the money paid to her. It claims that to allow her to retain the money would constitute unjust enrichment. Un- der such circumstances, MFC argues it is entitled to restitution. DiSilvestro contends that a party making a unilateral mistake of fact is not entitled to restitution unless the mistake is basic to the contract and known to the other party, or circumstances are such that the other party should have known of the mistake. She claims she was unaware of the value of the stock and relied upon the expertise of MFC to value the stock. She claims further that recovery should be denied because she has expended the proceeds of the sale and substantially changed her position as a result.

Relatively few reported cases have been found which have considered whether the proceeds from a purported sale of stock other than that intended by the customer may be recovered. In fact, our research has failed to disclose any Indiana authority which has addressed the issue. However, other jurisdictions have had occasion to address the subject.

Almost identical fact patterns are presented in Castock Corp. v. Bailey (1985) 128 Misc. 2d 1068, 492 N.Y.S.2d 921, and Donner v. Sackett (1916) 251 Pa. 524, 97 A. 89. In Castock, the plaintiff-brokers sold 1,000 shares of Microbiological Sciences, Inc. stock for Bailey and delivered a check to her in the amount of $ 7,088.08. The stock certificate given by Bailey to the plaintiff-brokers, however, was for shares of Microbiological Research Corpo- ration/Microbiological Sciences, Inc. This stock was worth between seven and ten cents a share, whereas the stock which was sold was worth approximately $ 7 per share. The mistake was solely the result of the conduct of the plaintiff- brokers. The trial court denied the plaintiff's complaint seeking to recover the overpayment of proceeds following the erroneous sale of stock. Upon appeal the Castock court reversed the trial court, holding that money paid under a mistake of fact may be recovered however careless the party paying it may have been. 492 N.Y.S.2d at 922.

In Donner, supra, 97 A. 89, the customer owned shares of stock in the Pitts- burgh Westmoreland Coal Company, which was quoted to him by the brokers as trading at $ 60 per share. In fact, the customer's stock was selling at only a fraction of $ 60 per share. Upon receiving the quotation, the customer ordered the brokers to sell his stock at $ 55 per share or better, and they in turn com- municated the order to their correspondents on the exchange. After the sale was reported completed, the brokers advanced the proceeds to the customer and received his certificates. Shortly thereafter it was discovered that the cor- respondents had mistakenly sold the stock of the Westmoreland Coal Company. The brokers returned the certificates to the customer and requested that the customer repay the money, which he refused to do. In aAErming a judgment for the brokers, the Pennsylvania Supreme Court held that money paid under a mistake of fact may be recovered where it is clear that the party receiving the money will sustain no damage if compelled to make repayment. 97 A. at 90.

Also factually similar is Smith v. Rubel (1932) 140 Or. 422, 13 P.2d 1078. A broker purported to sell shares of a company's Class A stock when the customer

September 11, 2000

5.4. CASES INVOLVING MISTAKES 545 owned Class B stock in that company. A transaction for sale of Class A stock was completed, and the proceeds were forwarded to the customer in an amount twice the value of the Class B stock. The error was discovered and cancellation of the sale was secured. The customer's broker-agent requested return of the proceeds of the erroneous sale. The customer refused. Reversing a judgment for the customer, the Oregon Supreme Court stated the general rule applicable to actions for restitution based on a unilateral mistake:

"[P]ayment made under a mistake of fact which induces the belief that the other party is entitled to receive the payment when, in fact, the sum is neither legally nor morally due to him, may be recovered, provided the payment has not caused such a change in the position of the payee that it would be unjust to require the refund." 13 P.2d at 1079.

Under the facts stated, the court required the customer to return the proceeds.

A similar result was reached in Stifel, Nicolaus & Co. v. Coloia (1971) 2 Ill. App. 3d 224, 276 N.E.2d 408. There, the broker sold 400 shares of stock in a certain company and forwarded the proceeds to the customer. The broker was unaware, however, that two years earlier there had been a five-to-one reverse stock split. As a result, the customer's certificates for 400 shares actually repre- sented only 80 current shares. To account for the mistake the broker requested that the customer deliver 320 new shares or return the corresponding portion of the proceeds. when the customer refused to comply, the broker brought suit and obtained a summary judgment in the amount of the overpayment. On appeal, the customer maintained that the broker's negligence presented a question of fact not subject to summary judgment. In aAErming the grant of summary judg- ment, the Illinois Court of Appeals observed that money paid under a mistake of fact may be recovered where it would not have otherwise been paid had the facts been known. The court held that the question of the broker's negligence was irrelevant as a matter of law. 276 N.E.2d at 412. Under equitable principles the customer had no right to retain the overpayment. See also W. E. Richmond & Co. v. Security National Bank (1933) 16 Tenn.App. 414, 64 S.W.2d 863 (broker entitled to recover the entire proceeds of the erroneous sale of stock with similar name to that held by customer regardless of broker's negligence in failing to discover the mistake); Dobbs v. Perlman (1939) 59 Ga. App. 770, 2 S.E.2d 109 (broker entitled to recover proceeds from mistaken sale of stock with same name but worth only 1/6 of its apparent face value due to corporate reorganization); Pierce v. Schnitzer (1937) 279 Mich. 341, 272 N.W. 699 (broker recovered the excess proceeds on the sale of stock which was more valuable than that actually held by customer due to a corporate reorganization unknown to either party); Toombs v. Lewis (1935) 362 Ill. 181, 199 N.E. 127 (broker entitled to recover proceeds of mistaken sale of interest bearing certificates of a more valuable issue than those owned by customer).

In Winslow, Cohu & Stetson, Inc. v. Skowronek (1975) 136 N.J. Super. 97, 344 A.2d 350, the broker mistakenly issued certificates to customer for preferred

546 CHAPTER 5. CONTRACTS, VOLUNTEERS, AND MISTAKES stock after purchasing common stock on his behalf. The broker was permitted, under an undue enrichment and restitution theory, to recover the excess amount realized by the customer and the difference in dividends paid thereon prior to such sale, even though five years had elapsed and the customer had sold the preferred stock without knowledge of the broker's mistake and negligence. only last year, the United States Court of Appeals for the Sixth Circuit reached the same conclusion despite the recipient's assertion of negligence on the part of the broker. Shearson/American Express, Inc. v. Mann (1987) 6th Cir., 814 F.2d 301.

In the above cases the courts recognized that as a general rule money paid under a unilateral mistake of fact may be recovered when it would have not been otherwise paid, even though the party paying it may have been careless. This comports with the law of this state as enunciated in Stotsenburg v. Fordice (1895) 142 Ind. 490, 41 N.E. 313, wherein it was stated that money paid under a mistake of fact, which the payor is under no legal obligation to pay, may be recovered, notwithstanding a failure to employ the means of knowledge which would disclose the mistake.

DiSilvestro contends, however, that the doctrine of mistake governs the transaction. She argues that under this doctrine a party who makes payment under a unilateral mistake of fact is not entitled to restitution unless the mistake is basic to the contract and known to the other party or the circumstances are such that the other party should have known of the mistake. She relies totally upon Foster & Marshall, Inc. v. Pfister (1984) 66 Or. App. 685, 674 P.2d 1215, in support of her argument. This case was also cited in the conclusions of law entered by the trial court in support of its judgment.

In Pfister the brokerage firm entered into a contract to purchase 100 shares of stock in a company from Pfister. As a result of its faulty research in determining the price, the brokerage firm agreed to buy the stock from Pfister at a value ten times the actual market price and delivered a check to him for that amount. The Oregon Court of Appeals rejected the firm's argument that it was entitled to restitution based upon the firm's unilateral mistake in determining the price of the stock.

Both the trial court and DiSilvestro fail to recognize, however, that the bro- kers in Pfister purchased the stock from the defendant as a principal. The firm determined for itself the value of the stock and acquired its ownership. Accord- ingly, a contract of sale had been entered into between the parties. Because the firm was attempting to avoid a consummated sale and its contract as a prin- cipal, the doctrine of mistake governed the transaction. This distinction was noted by the Pfister court while discussing Smith, supra, 13 P. 2d 1078. As discussed above, the Oregon Supreme Court permitted the broker to recover proceeds paid after an erroneous sale of stock where the broker was acting as an agent for the customer. Smith was cited with approval in Pfister.

In the present case, MFC did not purchase the stock as a principal. Al- though the trial court made no direct finding of fact on this question, it is clear from the statement of the evidence that MFC was acting as an agent for DiSil-

September 11, 2000

5.4. CASES INVOLVING MISTAKES 547 vestro in the stock transaction, not purchasing it as a principal from her. MFC mistakenly sold shares of stock in a company not held or intended to be sold by DiSilvestro and delivered to her the proceeds of that sale in exchange for a commission. In essence DiSilvestro retained ownership of the stock certificates and had possession of the proceeds from the erroneous sale. Accordingly, MFC was entitled to recover the proceeds paid to DiSilvestro following its erroneous sale of Avery International Corporation on her behalf.

ISSUE II DETRIMENTAL RELIANCE AND CHANGE OF POSITION

The rule permitting a party to recover money paid under a unilateral mistake of fact is subject to a limitation. That is that the party receiving the money must not have so changed his position so as to make it inequitable to require him to make repayment. The result reached in each of the cases discussed above was based upon the court's determination that the money paid by reason of the mistaken sale had not caused the party receiving the money to change his position such that requiring repayment would be inequitable. Likewise, Indiana courts recognize that a payment made under a mistake of fact may not be recovered where the party receiving the money has changed his position to his prejudice in reliance upon the payment and cannot be restored to status quo. Hullet v. Cadick Milling Co. (1929) 90 Ind.App. 271, 168 N.E. 610.

DiSilvestro argues that upon receiving the payment of $ 2,304.97 and prior to learning of the mistake, she expended nearly $ 2,000 on redecorating and home improvement equipment, and that `it would therefore be inequitable to require repayment. MFC argues DiSilvestro did not rely to her detriment upon receiving the payment. It contends that by purchasing furniture and appliances, DiSilvestro obtained value for value and therefore retained the benefit of the money paid to her.

As far as we can discern Indiana courts have not considered whether the application of money paid under a mistake of fact to purchase tangible prop- erty constitutes a detrimental change of position. In support of its argument that DiSilvestro has not detrimentally changed her position MFC cites Ohio Co. v. Rosemeier (1972) 32 Ohio App. 2d 116, 288 N.E.2d 326. In Rosemeier a stockbroker mistakenly sold shares of a California corporation instead of the customer's unlisted stock of little value in a similarly named Colorado corpora- tion. Before the mistake was discovered the customer had applied the proceeds of the sale to the payment of an existing mortgage on her home and other debts. In determining whether there had been a detrimental change of position, the Ohio Court of Appeals noted that the customer merely converted the cash into a paid mortgage and retained the value originally represented by the mistaken payment. The court held that such an expenditure did not constitute a detri- mental change of position. 288 N.E.2d at 329. Rosemeier cited with approval Donner, supra, 97 A. 89.

In Donner, the broker recovered although defendant had used the money to pay some of his debts. The court reasoned that it was defendant's duty "to

548 CHAPTER 5. CONTRACTS, VOLUNTEERS, AND MISTAKES pay his debts, whether he sold or kept the stock. It is not becoming that he asks to be relieved from paying back the money which he received by mistake for comparatively worthless stock, because he turned it over to a creditor." 97 A. at 90. Similarly, in Castock, supra, the broker was permitted to recover despite defendant's expenditure of the funds "to pay debts and purchase tangible property or benefits." 492 N.Y.S.2d at 922-23. See also Skowronek, supra, 344 A.2d 350.

Even where the payee used the money mistakenly paid as downpayments on three parcels of investment real estate and in doing so incurred substantial debt obligations, the court held that this did not constitute a detrimental change of position suAEcient to preclude the broker's recovery. In Shearson/American Express, Inc., supra, 814 F.2d at 306, the Court held:

"While appellant assumed new debt obligations, the value of the mistaken payment has not been lost. We find this case, for analytical purposes, indistinguishable from Rosemeier [supra]."

If we were to hold that DiSilvestro has successfully circumvented the duty to repay the amount mistakenly paid by MFC due to her purchases and expen- ditures, we would be encouraging payees to hastily convert such receipts into tangible personal property in order to avoid clear equitable duty. We should not adopt a principle of law which encourages a race to furniture and appliance stores.

MFC is entitled to recover the amount paid to DiSilvestro less any diminution in value of the Avery, Inc. stock which may have occurred as a result of MFC's failure to consummate the sale. See Western Casualty & Surety Co. v. Kohm (1982) Mo. App., 638 S.W.2d 798, in which the defendant used the money mistakenly paid to purchase a car. The court there stated:

"Normally this type of change is not suAEcient to bar restitu- tion, since a purchaser generally receives something of value for his money." 638 S.W.2d at 801 (original emphasis).

The trial court in ordering restitution may fashion the judgment so as to protect DiSilvestro from being unduly burdened. Among other possibilities available to the trial court is the possibility that a restitution judgment for $ 2,304.97 might be satisfied by delivery to MFC of those items purchased plus any cash amount as may represent the difference between the sum spent by DiSilvestro and the $ 2,304.97 paid by MFC.

Notwithstanding the flexibility with Which the trial court might frame the judgment, the judgment upon appeal is in error and is hereby reversed with instructions to enter judgment for MFC.

Neal, J.

DISSENTING OPINION

September 11, 2000

5.4. CASES INVOLVING MISTAKES 549

While conceding that MFC would not be entitled to recover if DiSilvestro had changed her position to her prejudice so that it would be inequitable to require her to make restitution, the majority opinion then proceeds to ignore, not merely reweigh, the evidence. Paraphrasing ancient legal bromides, the majority bases the rationale for its conclusion solely upon the extraordinary statements that "we would be encouraging payees to hastily convert such receipts into tangible personal property in order to avoid a clear equitable duty," and "we should not adopt a principle of law which encourages a race to furniture and appliance stores."

Indiana courts have not considered whether the application of money paid under a mistake of fact to purchase tangible property constitutes a detrimental change of position. In support of its argument that DiSilvestro has not detri- mentally changed her position, MFC cites Ohio Co. v. Rosemeier (1972), 32 Ohio App. 116, 288 N.E.2d 326. In Rosemeier a stockbroker mistakenly sold shares of a California corporation instead of the customer's unlisted stock of little value in a similarly named Colorado corporation. Before the mistake was discovered the customer had applied the proceeds of the sale to the payment of an existing mortgage on her home and other debts. In determining whether there had been a detrimental change of position, the Ohio Court of Appeals noted that the customer merely converted the cash into a paid mortgage and retained the value originally represented by the mistaken payment. The court held that such an expenditure did not constitute a detrimental change of po- sition. 288 N.E.2d at 329. Rosemeier cited with approval Donner v. Sackett (1916), 251 Pa. 524, 97 A. 89.

In Donner the customer alleged he had detrimentally changed his position due to the fact that he had used the proceeds of the sale to pay some of his debts. The court rejected this contention, pointing out that the customer had a duty to pay his debts regardless of whether he sold or kept the stock. The court held that the customer would not be damaged by being compelled to make repayment. 97 A. at 90. Likewise, in Castock Corp. v. Bailey (1985), 128 Misc. 2d 1068, 492 N.Y.S.2d 921, the court held the discharge of a debt or the expenditure of money which was otherwise required did not constitute a detrimental change of position suAEcient to excuse repayment. 492 N.Y.S. at 922.

Under these cases MFC maintains DiSilvestro did not change her position to her detriment because she retained the value of the money by purchasing home improvement equipment. I disagree. In each of the cases relied upon by MFC the courts held that the expenditure of money paid under a mistake of fact to discharge a debt did not constitute detrimental reliance. The underlying rationale of these cases is that an individual who receives money under a mistake of fact is not excused from repayment where he has expended the money in a way which he was otherwise required to. In each of the cases discussed above the defendant had applied the money received to the payment of an existing mortgage or to pay off other pre-existing debts.

550 CHAPTER 5. CONTRACTS, VOLUNTEERS, AND MISTAKES

In this case the evidence reveals that MFC is a professional stockbroker with connections of some sort in New York. In reliance upon MFC's professed ex- pertise in stock matters, DiSilvestro sold her stock through MFC, upon MFC's terms, and upon MFC's dictated price. Without any knowledge of MFC's self- induced negligence she spent the money and it is gone. Under the majority's unfortunate ruling, DiSilvestro will now have a judgment lien upon her resi- dence, and if she is unable to pay it she will lose her home upon an execution sale. Absent MFC's negligence, there would have been no sale, no purchase of improvements, and no judgment lien. It is to be emphasized that this is not the payment of an old debt, but the incurrence of new obligations in reliance upon a misplaced trust in MFC. If the facts of this case do not show a detrimental change of position, I am at a loss to know what facts would so qualify.

The majority has ignored the well established rule of appellate review that we do not reweigh the evidence or adjudge the credibility of the witnesses, such being the function of the trial court. In this case it was for the trial court, sitting without a jury, to decide whether or not DiSilvestro had changed position to her detriment. It decided that issue in the aAErmative. The majority has now reweighed the evidence in clear violation of its appellate function.

I support the rule that would protect hapless citizens from the inexcusable mistake of professional brokers, and would aAErm the decision of the trial court.

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