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DISCHARGE OF A DEBT

Where the claimant pays money which effectively discharges a debt,[1] this constitutes the provision of a legally effective basis which will operate to bar the unjust enrichment claim against the creditor, at least to the extent of the value of the debt. This was recognized by Lord Sumption in Fairfield Sentry Ltd v Migani,79 who said that a mistaken payment could not be recovered ‘to the extent [it] discharges a contractual debt of the payee’. But he went on to recognize that, ‘[s]o far as the payment exceeds the debt properly due, then the payer is in principle entitled to recover the excess’.

This has sometimes been described as constituting a ‘defence’ of good consideration.[2] [3] It is the discharge of the debt which constitutes the provision of good consideration[4] and which means that the creditor is no longer enriched at the expense of the claimant to the value of the discharged debt.[5] But the language of a good consideration defence is liable to mislead for two reasons. First, this is preferably treated as a denial of the unjust enrichment claim, because of the existence of a legally effective basis for the payment, rather than as a defence. Secondly, the language of ‘consideration’, with its contractual connotations of the quid pro quo for an enforceable promise, is not appropriate in the context of a restitutionary claim. The discharge of the debt should consequently be recognized simply as a lawful basis which should bar a claim for restitution against the creditor. Since the payment to the creditor has effectively discharged the liability, it is not for the law of unjust enrichment to reverse the transaction by recreating the debt.

Where the debt was owed by the claimant to the defendant, this will typically have arisen by virtue of a contract between them such that restitution will be barred through the operation of the contractual regime.[6] But the claimant’s payment to the creditor might instead discharge a debt owed by a third party to the creditor. In such circumstances, a claim for restitution against the creditor will be barred because of the discharge of the debt, even though there was no contract between the claimant and the creditor. Since, however, the debtor will have been enriched from the discharge of the debt,[7] the claimant will have a claim in unjust enrichment against him or her. This is illustrated by Exall v Partridge85 where the claimant had left his carriage on land, which was leased by the defendant, for the defendant to repair. The defendant had not paid his rent to his landlord, who entered the land and lawfully seized the claimant’s carriage. The claimant was compelled to pay the rent to the landlord in order to recover his carriage. The claimant then sought restitution from the defendant. As between the claimant and landlord there was a legally effective basis for the payment, since the rent liability was discharged. As between the claimant and the defendant there was no basis and, since the defendant had been unjustly enriched at the claimant’s expense, it was appropriate to award restitution.

Whether the claimant’s payment will be effective to discharge a debt owed to the creditor will depend on whether it was authorized by the debtor. So in Barclays Bank Ltd v W J Simms, Son & Cooke (Southern) Ltd86 the claimant bank had mistakenly paid money to the defendant in respect of a cheque drawn on a customer’s account. If, which did not occur on the facts, the claimant’s mistake had simply been to believe that the customer had sufficient funds in the account, it would follow that, since the customer had authorized the payment, the debt which the customer owed to the defendant would have been discharged and the claimant bank would then have to seek restitution from the customer.[8] But, in this case the mistake related to the fact that the claimant had paid the money even though the customer had countermanded the payment. Consequently, the payment ceased to be authorized and so did not discharge the debt. It followed that the claimant could recover the money from the defendant because the payment had had no legal effect.

  • [1] (1976) 92 LQR 188, 201. See further p 235, below.
  • [2] [2014] UKPC9, [18].
  • [3] Barclays Bank Ltd v W J Simms, Son & Cooke (Southern) Ltd [1980] QB 677, 695 (Robert Goff J). Seefurther p 189, below.
  • [4] David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, 406 (Dawson J).
  • [5] Lloyds Bank plc v Independent Insurance Co Ltd [2000] QB 110, 132 (Peter Gibson LJ).
  • [6] See p 134, above. 84 See p 77, above.
  • [7] 85 (1799) 8 Term Rep 308, 101 ER 1405 . 86 [1980] QB 677.
  • [8] See Aiken v Short (1856) 1 H and N 210, 156 ER 1180; Pollard v Bank of England (1871) LR 6 QB 623;Kleinwort Benson Ltd v Lincoln CC [1999] 2 AC 349, 408 (Lord Hope); Lloyds Bank plc v IndependentInsurance Co Ltd [2000] QB 110, 132 (Peter Gibson LJ).
 
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