Account of Profits: Definition, Example and Related Terms

An account of profits is a legal remedy often used in contract law where a court mandates that a defendant must surrender the profits earned from a wrongful act to the claimant. Essentially, it prevents the defendant from unjustly benefiting from their misdeeds by transferring any profits made from the wrongful action back to the party that was wronged. This remedy is particularly relevant in cases involving breaches of fiduciary duty, intellectual property violations, and other scenarios where one party has benefited at the expense of another through unlawful actions.

For example, if a partner in a business secretly profits from a side deal that breaches the partnership agreement, the court may order an account of profits. This means the partner must hand over any profits made from the side deal to the business. It aims to restore the wronged party to the financial position they would have been in if the wrongful act had not occurred.

The purpose of an account of profits is to ensure justice by stripping away any ill-gotten gains from the wrongdoer, rather than simply compensating the wronged party for their loss. It is a way of preventing unjust enrichment—a principle rooted in equity and fairness. The claimant does not necessarily need to prove any financial loss resulted from the defendant's actions; what matters is the profit gained through wrongdoing.

However, it's worth noting that an account of profits is a discretionary remedy, and courts will consider various factors before granting it. One significant factor is whether the profits are directly attributable to the wrongful act. Another is the behavior of both parties. Courts will assess the conduct of the claimant and the defendant to ensure that the remedy is equitable and just.