(C) UNENFORCEABLE CONTRACTS

Where the claimant transfers a benefit to the defendant under a contract which is unenforceable, he or she cannot recover the value of the benefit under the contract, since this would involve the enforcement of what is unenforceable. It may, however, be possible to bring a restitutionary claim since, being an independent legal obligation, liability in unjust enrichment does not involve enforcement of the contract.^[1] A contract may be unenforceable for a number of reasons, but often unenforceability arises as a result of failure to comply with statutory formalities relating to the contract.

There used to be a number of statutory formalities in English law, particularly by virtue of the Statute of Frauds 1677. Today, most of these formalities have been removed, but formalities remain particularly important for contracts involving sale of land.^[2] Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 requires contracts for the sale and other dispositions of land to be in writing and to be accompanied by a signature of, or on behalf of, each party to the contract. Failure to comply with these formalities means that the contract is unenforceable, but not invalid.

Where the claimant wishes to obtain restitution of a benefit which has been transferred pursuant to an unenforceable contract, the ground of restitution will typically be total failure of basis. Although such a restitutionary claim will succeed even though the contract has not been set aside,^[3] it must be shown that the defendant is no longer ready, able, and willing to perform his or her part of the bargain.^[4] This is well illustrated by Monnick- endam v Leanse,^[5] where the claimant had contracted to buy the defendant’s house. The claimant paid the defendant a deposit but, because the contract was unenforceable for lack of writing, the claimant repudiated the contract and sought to recover the deposit. It was held that, because the defendant remained ready and willing to perform the contract, the claimant could not recover the deposit. But it was accepted that, if the contract had been repudiated by the defendant, the claimant would have been able to recover the deposit, since this would have meant that the defendant was no longer willing to perform.^[6]

Restitution of benefits which have been transferred pursuant to an unenforceable contract may be awarded regardless of whether the enrichment is money^[7] or a nonmoney benefit.^[8] This is particularly well illustrated by Pulbrook v Lawes^[9] where the claimant had entered into an oral agreement with the defendant for the lease of a house, on condition that certain alterations were made to it. The claimant paid to have the drawing room of the house painted and to have gas pipes installed. After the alterations had been done, the defendant defaulted and no lease was executed. The claimant sought to recover the amount he had spent in altering the house, but was unable to sue the defendant on the contract because it was unenforceable due to lack of writing. The claimant did successfully bring a claim to recover the reasonable value of the work done. The ground of restitution was specifically held to be akin to that of total failure of basis, which was established because the claimant had incurred the expenditure in the expectation that he would take a lease of the house and no lease had been executed. But the difficulty in analysing this case as involving the reversal of the defendant’s unjust enrichment relates to the identification of the benefit, particularly because Blackburn J described the work as ‘fanciful painting of no benefit to the house’. Since, however, some of the work had been requested by the defendant, and it was assumed that some of the work was beneficial to the house, the defendant could be considered to have been enriched, at least to some extent.

The most complex issue relating to whether restitution can be awarded where a benefit has been transferred pursuant to an unenforceable contract concerns whether the policy which made the contract unenforceable should prevent the restitutionary claim from succeeding as well. In principle, because the obligation to make restitution is an independent obligation imposed by law and does not arise from any agreement between the parties, the restitutionary obligation should not be affected by the policy of the statute which makes the contract unenforceable. This was recognized by the High Court of Australia in Pavey and Matthews Pty Ltd v Paul,^[10] where the claimant renovated the defendant’s cottage, having made an oral contract to do so. The defendant regarded the price for the work as excessive and, having paid part of it, refused to pay the balance.^[11] The claimant was not able to sue the defendant on the contract to recover the balance because, being an oral contract, it was unenforceable as a result of a statutory provision which required such an agreement to be in writing. The claimant therefore brought a restitutionary claim for the reasonable value of its services and succeeded. The High Court specifically recognized that, by allowing the claim to succeed, it was not contravening the policy of the statute. The statute sought to ensure that the terms of building contracts were in writing and clear so that builders could not make spurious claims against customers. But this policy did not affect the restitutionary claim, because the court was not enforcing the defendant’s contractual promise to pay the claimant but was enforcing an independent obligation to make restitution, an obligation which was triggered by the fact that the defendant had been unjustly enriched at the claimant’s expense, and this obligation did not depend in any way on proving the terms of the contract.

Although in cases such as Pavey and Matthews the statutory policy which made the contract unenforceable did not affect the claimant’s right to restitution, great care must always be taken to ensure that the policy of the statute is not undermined by awarding restitution. It is therefore vital to identify the policy of the statute carefully in an attempt to determine why the contract was made unenforceable. For example, in Dimond v Lovell^[12] a car hire agreement, which was characterized as a consumer credit agreement, was held to be unenforceable under the Consumer Credit Act 1974. It was further held that the hirer could not bring a restitutionary claim for the defendant’s use of the vehicle, since this would be inconsistent with the policy of the Act, because Parliament intended that if a consumer credit agreement was improperly executed the debtor would not have to pay.^[13] It follows that the defendant’s enrichment would not be characterized as unjust because allowing restitution would undermine the policy of the statute.^[14]

Even though it was decided in Pavey and Matthews that the obligation to make restitution was independent of and unaffected by the unenforceable contract, this will not always be the case, since there may be circumstances where the terms of the contract will be highly relevant to the restitutionary claim. For example, the fact that a contract was made shows that the benefit which was provided by the claimant was not intended as a gift and the contract may also assist the court in valuing the benefit which was received by the defendant.^[15] Similarly, the contract may need to be referred to where the ground of restitution is total failure of basis, since it will assist in identifying what was the anticipated basis for the transfer of the benefit to the claimant.^[16] It should be possible to refer to the contract in any of these circumstances as evidence of the parties’ intention even though it is unenforceable, save where the contract is considered to be particularly unreliable. This is most likely to be the case where the contract was made unenforceable because of a policy to prevent abuse of a weak party by a stronger party. Where the contract is unreliable for this reason it should not be taken into account for the purposes of establishing any elements of the restitutionary claim.

• [1] As was recognized by the House of Lords in Westdeutsche Landesbank Girozentrale v Islington LBC[1996] AC 669.
• [2] Note also contracts made with minors which are unenforceable against the minor under the Minors’Contracts Act 1987. Where a minor has transferred a benefit to the defendant under such a contract there is astatutory right to restitution, but this is properly characterized as being grounded on the minor’s incapacityrather than total failure of basis. See p 385, below.
• [3] Pavey and Matthews Pty Ltd v Paul (1986) CLR 221, 256 (Deane J).
• [4] See the discussion of Thomas v Brown (1876) 1 QBD 714 at p 315, above.
• [5] (1923) 39 TLR 445 . 252 Ibid, 447 (Horridge J). 253 See Monnickendam v Leanse, ibid.
• [6] 254 See Scarisbrick v Parkinson (1869) 20 LT 175 and the decision of the Supreme Court of Canada in
• [7] Deglman v Guaranty Trust Co of Canada and Constantineau [1954] 3 DLR 785. Scott v Pattison [1923] 2 KB
• [8] 723 has sometimes been treated as a further example, but in that case the claimant recovered remuneration in
• [9] respect of work he would have done had he not been sick. Since he had not actually done this work it is notpossible to treat this aspect of the case as restitutionary, since there was no evidence that the defendant hadbeen enriched. 255 (1876) 1 QBD 284.
• [10] (1986) 162 CLR221.
• [11] This means that it is difficult to identify the ground of restitution which was relied on in this case. Sincethe claimant had been partly paid the ground of restitution could not be total failure of basis, unless the moneyreceived could be apportioned. The relevant ground might have been partial failure of basis, although this wasnot acknowledged, and some dicta suggests that the defendant was required to make restitution because shehad freely accepted the benefit: (1986) 162 CLR 221, 228 (Mason and Wilson JJ). See also Proactive SportsManagement Ltd v Rooney [2010] EWHC 1807 (QB) where a contract with the footballer Wayne Rooney wasunenforceable on grounds of unreasonable restraint of trade, but a claim for quantum meruit succeededbecause he had freely accepted the services provided. Whether free acceptance constitutes a ground ofrestitution is considered, at p 122, above.
• [12] [2002] 1 AC 384. See also Wilson v First County Trust Ltd (No 2) [2003] UKHL 40, [2004] 1 AC 816 (norestitution of money lent pursuant to unenforceable money lending agreement with pawnbroker).
• [13] Dimond v Lovell [2002] 1 AC 384, 398 (Lord Hoffmann).
• [14] See further p 377, below.
• [15] Pavey and Matthews Pty Ltd v Paul (1986) 162 CLR 221,257 (Deane J). See also Scarisbrick v Parkinson(1869) 20 LT 175. See p 99, above.
• [16] Pavey and Matthews Pty Ltd v Paul (1986) 162 CLR 221, 227 (Mason and Wilson JJ), 257 (Deane J).