Rethinking Section 142 of the Restatement of Restitution: Fault, Bad Faith, and Change of Position

As a general rule, benefits transferred by mistake, such as moneys paid when mistakenly thought due, are recoverable in a restitution claim. Section 142 of the First Restatement of Restitution creates a defense to such claims to the extent that the payee, in reliance on the receipt, engages in a detrimental change of position, thereby making it inequitable to require repayment. The defense is unavailable, however, where the conduct of the payee in initially inducing the payment or in subsequent retention or dealings with the payment was either tortious or more at fault than the payer or, further, in the context of subsequent dealings, was undertaken by the payee with knowledge of the circumstances entitling the payer to recovery. Under the Section 142 scheme, then, if payer\u27s conduct lacks fault, payee fault disqualifies the defense. Where both payer and payee were at fault, the payee\u27s ability to raise the defense rests on establishing that the payee\u27s conduct was not tortious and was no more at fault than that of the payer. This balancing test aspect of Section 142 has proven to be particularly controversial. Harsh criticism of the test by John P. Dawson has been influential abroad After examining rationales underlying the basic recovery rule and the change of position defense, this Article provides an analysis of the various threads of Section 142 and concludes that they are essentially sound. In particular, Dawson\u27s critique of the balancing test is rejected as unpersuasive. The Article further suggests, however, that the Section 142 disqualification rule is both over- and under-inclusive in certain respects and proposes reforms designed to achieve a more satisfactory reconciliation of payer and payee interests. The Article also considers whether payee crime should disqualify the payee from raising the defense and argues that an absolute bar is unwarranted