Unjust enrichment

What it means

Unjust enrichment is a financial benefit someone has obtained without legal grounds. The Civil Code ties it to four situations: performance without legal grounds, performance under a void contract, performance on grounds that later fell away, and benefit from dishonest sources.

In business the most common cases are a payment sent by mistake, an invoice paid twice, an overpayment a supplier never refunded, or an advance for a delivery that never took place. Whoever received the money must return it, even if the mistake was not theirs.

Enrichment also arises when a party withdraws from a contract: what the parties had performed until then is to be returned. Likewise, under a void contract everything provided under it is returned, or money in lieu if the thing itself cannot be given back.

How it works in practice

When reconciling ledgers we often find overpayments to suppliers or duplicate payments. We first recommend asking the partner for a refund or agreeing a set-off against the next invoice. Court is the last resort, because the claim is usually undisputed.

In the books an overpayment is carried as a receivable from the partner, not as an expense. If it cannot be recovered, it is treated like any other receivable, including an impairment allowance or write-off, and the tax treatment follows the rules for irrecoverable receivables.

If a client of ours receives money by mistake, we advise returning it promptly and in writing. Keeping someone else’s payment brings no advantage: the sender is entitled to it with late payment interest, and in the worst case it may be a crime.

What to watch out for

A claim for unjust enrichment becomes time-barred within a subjective period running from when the injured party learned of the enrichment and who obtained it, and within an objective period from the enrichment itself. An old overpayment found years later may no longer be recoverable.

Unjust enrichment is not the same as compensation for damage. Only what the other party gained is returned, not lost profit or other losses. If the partner’s mistake caused further damage, it has to be claimed separately and proven.