Menu
Home
Log in / Register
 
Home arrow Law arrow The principles of the law of restitution
Source

(ii) Circumstances in Which Title Will Not Pass

In addition to the general rules as to when title in property will pass, there are certain recognized situations in which title will not pass to the defendant. Sometimes the claimant will make it clear that he or she has no intention that title in the particular property should pass to the defendant. This is illustrated by those transactions in which the claimant agrees to sell property to the purchaser but includes a reservation of title clause to ensure that legal title to the property does not pass to the purchaser until he or she has paid for it.[1] Similarly the claimant will not intend title to pass to the defendant where the transaction is a bailment.

Also, title will not pass to the defendant either where the claimant lacks an intention that title should pass or where the claimant’s intention can be treated as vitiated. Such vitiation of intention will only arise in certain exceptional cases. Analysis of the categories of cases in which the claimant’s intention is vitiated suggest that they mirror the recognized grounds of restitution within the action founded on the reversal of unjust enrichment. But it must be emphasized that these categories have a different function in the context of proprietary restitutionary claims and are consequently defined in a different way from the recognized grounds of restitution. For, in this context, we are not concerned with whether the claimant actually intended to benefit the defendant. Rather, we are concerned to determine whether the claimant actually intended that title in the property should pass to the defendant.

(1) Ignorance

Where the claimant is unaware that his or her property has been taken by the defendant, or that it was taken by a third party and has subsequently been received by the defendant, the claimant clearly does not intend that title to the property should pass to the defendant and so he or she retains a proprietary interest in it. So, for example, where the claimant’s property is stolen, title will not pass to the thief.[2] In a number of cases the claimant, who was ignorant that his or her property had been taken, was able to bring a restitutionary claim against the defendant who was either the direct or the indirect recipient of the property. In each of these cases the courts emphasized that the effect of the claimant’s ignorance was that it prevented title from passing to the defendant.

(a) Direct recipients

In Neate v Harding[3] the defendants went into the house of the claimant’s mother and took the claimant’s money. It was held that the claimant could recover the amount of money which had been taken in an action for money had and received. Pollock CB emphasized that the money belonged to the claimant and continued to belong to him even though it had been taken by the defendants. As he said, ‘[t]he owner of property wrongfully taken has a right to follow it... treat it as his own, and adopt any act done to it’.[4] In Merry v Green105 the court specifically relied on the claimant’s ignorance to explain why his property had not passed to the defendant. In this case the claimant had sold a bureau in a public auction to the defendant, who later discovered that a purse containing money was hidden in a secret drawer inside the bureau. It was held that the claimant could recover the value of the money since he had never intended it to be delivered to the defendant.

(b) Indirect recipients

In a number of cases the claimant has been able to bring a restitutionary claim against a defendant who has received property belonging to the claimant via a third party, in circumstances where the claimant was unaware that the third party had taken the property. In each case the success of the claim depended on proof that, when the defendant received the property, the claimant continued to have a proprietary interest in it. Consequently, the award of restitutionary relief could be justified because the defendant had interfered with the claimant’s continuing ownership of the property. This is illustrated by Clarke v Shee and Johnson106 where the claimant’s clerk had received payments from the claimant’s customers which he used to buy lottery tickets from the defendants, without the knowledge of the claimant. The claimant successfully recovered this money from the defendants in an action for money had and received. Lord Mansfield specifically recognized that the claimant’s action succeeded because he was able to identify his money in the hands of the defendants.106 107 108

Another important decision in this context is that of Denning J in Nelson v Larholt.108 In this case the claimant beneficiaries of the deceased brought an action to recover money which had been paid to the defendants without their knowledge by the deceased’s executors. Denning J held that the claimants’ action succeeded both in Equity and in an action for money had and received. In an important dictum he identified the essential principle relating to the recovery of money which has been taken from the claimant without his or her knowledge:109 * *

If [money] is taken from the rightful owner, or indeed, from the beneficial owner, without his authority, he can recover the amount from any person into whose hands it can be traced, unless and until it reaches one who receives it in good faith and for value and without notice of the want of authority... This principle has been evolved by the courts of law and equity side by side... It is no longer appropriate, however, to draw a distinction between law and equity... The right here is not peculiar to equity or contract or tort, but falls naturally within the important category of cases where the court orders restitution, if the justice of the case so requires.

This suggestion that the approaches of Law and Equity have fused is unduly optimistic, but this remains an important dictum since it recognizes that the claimant has a proprietary restitutionary claim where his or her money has been taken without authority.

The best example of this principle in operation is the decision of the House of Lords in Lipkin Gorman (a firm) v Karpnale Ltd,110 where it was accepted that the claimant retained a proprietary interest in the money which had been stolen from it by one of its partners and which had been received by the defendant. Consequently, the claimant was able to recover the value of the money in an action for money had and received by virtue of its proprietary rights. Clearly the claimant did not intend title in the money to pass because it was unaware that the money had been taken. Similarly, in Foskett v McKeown111 the claimants were able to establish an equitable proprietary claim where property which was held on trust for them was stolen by the trustee.

(2) Mistake

Where the claimant has made a mistake[5] this will only prevent title in property from passing to the defendant where the mistake is fundamental, since it is only such mistakes which can be regarded as sufficiently serious to vitiate the claimant’s intention that title should pass to the defendant.[6] The notion of a fundamental mistake is notoriously uncertain, but it is possible to define the principle to some extent. The question whether title passes to the defendant when the claimant is affected by a mistake is a question which has been rigorously examined in the context of the crime of theft, when it is necessary to determine whether the property mistakenly transferred by the victim can be considered to belong to the victim or to the defendant.[7] A number of criminal cases have recognized that a mistake will be fundamental in three situations,[8] with the consequence that the claimant’s intention to transfer the property to the defendant will have been vitiated so that title to the property will not pass. These cases should be regarded as applicable to the law of restitution as well, because the question for both the criminal law and the law of restitution is the same: when does a mistake prevent title from passing?

(a) Mistake as to the identity of the recipient

That a mistake as to the identity of the recipient of the property will constitute a fundamental mistake is illustrated by Middleton,[9] a criminal case in which the defendant, who wished to withdraw money from his post office saving’s account, was handed a sum of money by the post office clerk. This sum was more than was standing to the defendant’s credit at the time. The clerk paid this amount of money because he had referred to a letter which authorized the payment, but the letter referred to another depositor. It was held that in these circumstances the mistake of the clerk was such that it prevented the title in the money from passing to the defendant. The clerk’s mistake was fundamental since he was mistaken as to the identity of the defendant and this mistake vitiated his intent to pay the defendant.[10] The claimant’s mistake as to identity will, however, only vitiate his or her intention where the identity of the recipient is a matter of fundamental importance.[11]

(b) Mistake as to the identity of the property

That a mistake as to the identity of the property will constitute a fundamental mistake was recognized in Ashwell[12] where the defendant was convicted of stealing a sovereign. The defendant had asked the victim to lend him a shilling but the victim handed over a much more valuable sovereign, thinking that it was a shilling. Cave J held that ‘as there was a mistake as to the identity of the coin no property passed’.[13]

(c) Mistake as to the quantity of the property

Whether a mistake as to the quantity of the property which is transferred should be regarded as a fundamental mistake is a matter of some controversy, but where the claimant transfers more property to the defendant than he or she intended this must be a fundamental mistake because the claimant did not intend to transfer the excess property to the defendant. Birks described such a mistake as one ‘which all men would agree that it decisively vitiated the intention to give’.[14] This view has also been endorsed in a number of judicial pronouncements.[15] There are, however, other cases which suggest that a mistake as to quantity does not prevent title from passing.[16] [17]

That a mistake as to the quantity of the property transferred can constitute a fundamental mistake was recognized by the High Court of Australia in Ilich,124 where the defendant was charged with stealing money from the victim. The defendant assumed that money, which had been left on a table by the victim, constituted payment by the victim for the work the defendant had done as a locum in a veterinary practice, and so the defendant took the money. The High Court accepted that the victim had made a fundamental mistake in overpaying the defendant and so in principle title to the money did not pass.[18] [19]

Whether a similar result would be reached in this country must be considered in the light of the difficult case of Chase Manhattan Bank NA v Israel-British Bank (London) Ltd.126 In this case the claimant bank mistakenly paid $2 million to the defendant bank, thinking that it was liable to pay the money but forgetting that it had already been paid. The claimant sought to recover the money. Since the defendant had gone into liquidation and did not have sufficient assets to pay off all of its unsecured creditors, it was crucial for the claimant to establish that it had a proprietary interest in the money so that it could claim a proprietary restitutionary remedy, and so achieve priority over the general creditors. The trial judge held that the claimant had an equitable proprietary interest in the money which had been paid to the defendant, with the result that the money was held on constructive trust for the claimant.127 It is implicit in this decision that legal title to the money had passed to the defendant. But why did title pass when the claimant’s mistake related to the amount of money paid and so could be considered to have been fundamental? In fact, a finding of fundamental mistake should have been easier to reach in Chase Manhattan than it was in Ilich because, when determining whether there is a fundamental mistake as to quantity, the nature of the transaction between the parties is significant. A distinction should be drawn between those cases where the claimant intends the defendant to have some money but simply overpays the defendant, and those cases where the claimant pays the defendant twice in two separate transactions. The best example of a simple case of overpayment is Ilich itself, where arguably the mistake was not sufficiently fundamental after all. This was because the victim only intended to give the defendant part of the money, but it was not possible to identify which money was intended to pass and which was paid by mistake.1 8 Consequently, the victim’s intention that title to the money should pass should not have been treated as vitiated. But the facts of Chase Manhattan were very different, because in that case it was possible to identify which money the claimant did not intend the defendant to have, namely the whole of the second payment. As regards the payment of this money, the claimant’s mistake should have been treated as fundamental so that the claimant retained legal title to the money.[20] [21] Despite this identification of a fundamental mistake, the reason why legal title was considered to have passed to the defendant in this case was presumably not because of the nature of the mistake but simply because the claimant’s money had been paid into the defendant’s bank account and so it was not possible to identify it at Law.[22]

The preferable view therefore is that, whenever the claimant makes a fundamental mistake as to the identity of the recipient or the identity or quantity of the property which has been transferred, title to that property will not pass because the claimant’s intention to transfer title will have been vitiated by a fundamental mistake. All other mistakes are mistakes as to motive only and will not prevent property from passing. So, for example, a mistake as to a liability to pay money to the defendant will not prevent title from passing, because it is not sufficiently fundamental to vitiate the claimant’s intention that title to the money should pass to the defendant. The mistake will, instead, have a lesser consequence, namely to vitiate the claimant’s intention to benefit the defendant so that the claimant will be able to recover the amount of money paid by mistake by reference to the unjust enrichment principle.[23]

(3) Misrepresentation

Where the defendant has induced a mistake to be made by the claimant so that he or she transfers property to the defendant, generally title will pass to the defendant,[24] save where the mistake which has been induced can be characterized as fundamental.[25] This is defined in the same way as for spontaneous mistakes. Where the induced mistake was not fundamental but was induced by a fraudulent misrepresentation it will be possible to rescind at Law any transaction entered into as a result of the misrepresentation and revest title in the claimant.134

(4) Powerlessness

Although powerlessness has never been specifically recognized as a reason why the claimant did not intend title to be transferred to the defendant, it is obvious that, in the same way that the claimant lacks such an intention where he or she is ignorant of the transfer, similarly the claimant will lack such an intention where he or she is powerless to resist the transfer. So, for example, if the defendant enters the claimant’s house, ties him up and then takes his property, title in that property will not pass to the defendant because clearly the claimant did not intend title to pass.

(5) Compulsion

Compulsion will not operate to vitiate the claimant’s intention that title should pass save in the most exceptional case where the pressure is so extreme that the claimant had no choice but to do as the defendant demanded.[26] For example, if the defendant threatened to kill the claimant if he or she failed to pay a sum of money to the defendant, since the pressure was so extreme the claimant had no choice but to do as the defendant demanded, and so any apparent intention of the claimant that the defendant should obtain title to the money should be treated as vitiated.

An example of such a case is Duke de Cadaval v Collins,[27] where the claimant was arrested by the defendant, on the false ground that he owed the defendant ?10,000. To secure his release, the claimant paid the defendant ?500. It was held that the claimant could recover this money in an action for money had and received. Lord Denman CJ held that ‘the property in the money... never passed from the plaintiff, who parted with it only to relieve himself from the hardship and inconvenience of a fraudulent arrest’.[28] The restitutionary claim was therefore brought to vindicate the claimant’s continuing proprietary interest. Since a threat to continue to deprive the claimant of his liberty is a particularly serious threat, Lord Denman’s analysis is perfectly acceptable, since the claimant could be treated as having no choice at all but to pay the defendant. Where the threat is less extreme, such as a threat to meddle with the claimant’s property or reputation, title to money paid as a result of the threat will presumably pass to the defendant and so the claimant’s restitutionary claim can only be founded upon the reversal of unjust enrichment.1 8 Consequently, it is highly unlikely that duress of goods or economic duress could ever be considered to be so serious as to vitiate the claimant’s intention that title in the property should pass to the defendant.

  • [1] This is called a Romalpa clause after the case which first recognized the validity of such clauses:Aluminium Industrie Vassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676.
  • [2] Ilich (1987) 69 ALR 231, 244 (Wilson and Deane JJ). This is also implicit in the decision of the House ofLords in Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548.
  • [3] (1851) 6 Exch 349, 155 ER 577. See also Holiday v Sigil (1826) 2 Car and P 177, 172 ER 81 and Moffat vKazana [1968] 3 All ER 271.
  • [4] Neate v Harding (1851) 6 Exch 349, 350, 155 ER 577, 578. 105 (1841) 7 M and W 623, 151 ER 916.
  • [5] Presumably, after the decision of the House of Lords in Kleinwort Benson Ltd v Lincoln City Council[1999] 2 AC 349, this encompasses both mistakes of law and fact.
  • [6] Barclays Bank Ltd v Simms [1980] QB 677, 689 (Robert Goff J). See also Chambers v Miller (1862) 13CBNS 125, 143 ER 50.
  • [7] The offence is now defined by the Theft Act 1968, s 1. The question of whether the victim has retainedtitle for the purposes of theft is less important today because, by virtue of s 5(4) of the Theft Act 1968, if thedefendant is under an obligation to restore property received by mistake, that property is deemed to belong tothe person who is entitled to restitution.
  • [8] See the decision of the High Court of Australia in Ilich (1987) 69 ALR 231, 243 (Wilson and Dawson JJ).See also G Williams, ‘Mistake in the Law of Theft’ (1977) 36 CLJ 62, 64.
  • [9] (1873) LR 2 CCR 38. See also Cundy v Lindsay (1878) 3 App Cas 459 and R E Jones Ltd v Waring andGillow Ltd [1926] AC 670, 696 (Lord Sumner).
  • [10] Middleton (1873) LR 2 CCR 38, 42.
  • [11] Citibank NA v Brown Shipley and Co Ltd [1991] 2 All ER 690, 699 (Waller J).
  • [12] (1885) 16 QBD 190. See also Middleton (1873) LR 2 CCR 38, 45.
  • [13] Ashwell (1885) 16 QBD 190, 201. This was doubted in Potisk (1973) 6 SASR 389 on the basis that themistake did not relate to the identity of the metal disc which was handed over but to its value, and so themistake should not have been treated as a fundamental mistake. But surely the identity of a coin depends onthe value which is ascribed to it, so that a mistake as to the type of coin handed over is properly characterized asa fundamental mistake.
  • [14] Birks, An Introduction to the Law of Restitution, 158. See also G Williams, ‘Mistake in the Law of Theft’(1977) 36 CLJ 62, 64.
  • [15] See Eldan Services Ltd v ChandagMotors Ltd [1990] 4 All ER 459, 462 (Millett J) and Friends’ ProvidentLife Office v Hillier Parker May and Rowden [1995] 4 All ER 260, 275 (Auld J). See also Russell v Smith [1958]1 QB 27.
  • [16] See, for example, Moynes v Cooper [1956] 1 QB 439. 124 (1987) 69 ALR 231.
  • [17] 125 On the facts of the case title did pass because the defendant was considered to be a bona fide purchaser
  • [18] for value. See Chapter 23.
  • [19] [1981] Ch 105. 127 On this aspect of the decision see p 598, below.
  • [20] This was recognized by Brennan J in Ilich (1987) 69 ALR 231, 254.
  • [21] This analysis is supported by a number of theft cases where it was held that title passed to the defendantwhere money had simply been overpaid. See, for example, Moynes v Cooper [1956] 1 QB 439 and Attorney-General’s Reference (No 1 of 1983) [1985] QB 182. Cf Shadrokh-Cigari [1988] Crim LR 465, a case ofoverpayment where it was held that property did not pass because of the supposed application of ChaseManhattan. But Chase Manhattan was distinguishable because it involved a double payment rather than asimple overpayment.
  • [22] See p 615, below. 131 See Chapter 9.
  • [23] 132 Clough v North Westers Rly Co (1871) LR 7 Exch 26 and Moynes v Coopper [1956] 1 QB 439, 445 (Lord
  • [24] Goddard CJ).
  • [25] Cundy v Lindsay (1878) 3 App Cas 459. See p 574, above. 134 See p 580, below.
  • [26] D Fox, ‘The Transfer of Legal Title to Money’ [1996] RLR 60, 68. Usually, where compulsion operates,the claimant does have a choice as to whether or not to submit, albeit not a free choice. See p 206, above.
  • [27] (1836) 4 Ad and E 858, 111 ER 1006. 3 Ibid, 864; 1009. 4 See Chapter 10.
  • [28] 139 Though failure of basis may operate to create an equitable proprietary interest in the claimant.
 
Source
Found a mistake? Please highlight the word and press Shift + Enter  
< Prev   CONTENTS   Next >
 
Subjects
Accounting
Business & Finance
Communication
Computer Science
Economics
Education
Engineering
Environment
Geography
Health
History
Language & Literature
Law
Management
Marketing
Mathematics
Political science
Philosophy
Psychology
Religion
Sociology
Travel