This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
The right of one person to recover money which belongs to him, and which is paid to another person, depends not on whether the person to whom such payment was made could have compelled it by law if it had not been made voluntarily, but upon whether the person to whom the money is paid is entitled in equity and good conscience to retain it.1 Examples of payments which the payee could not have compelled by law, but which when made the payor cannot recover, are to be found in gifts and voluntary payments.2 This principle is not limited, however, to cases of payment which are technically voluntary. Where a widow pays the just debt of the estate of her husband out of the assets of such estate which are in her possession, and subsequently she is appointed administratrix, she cannot recover on behalf of the estate the money thus paid by her without authority where there are no other creditors whose rights are interfered with, since the party to whom the money is paid is entitled in good conscience to retain it; and if such payment had not been made, he would have had a right to enforce payment from the administratrix in her official capacity.3 If A received money from X for the use of B, A is liable to B therefor, even if A could not have enforced the payment to himself of such money from X, or if he was not bound to B to receive such money when paid in. Thus, A, a factor, took out insurance on butter which was consigned to him, and received the premiums therefor from his principal, B. Subsequently A claimed that loss was sustained upon B's butter, among other lots of butter; and the insurance money was paid to A, in part upon such loss. A was held liable to B for the amount of such insurance money representing the loss upon B's butter, although such butter was not in fact damaged; and A was not bound by a contract with B to procure such insurance.4 An application of this principle is often found in cases of payment by mistake of fact. Thus, A owed B, but B's right of action was barred by the statute of limitations. A subsequently paid B under mistake as to the existence of such defence. It was held that A could not recover.5 So where A loaned two hundred eighty dollars to B and by mistake the note was drawn for two hundred thirty dollars, and B repaid two hundred eighty dollars to A, B cannot recover the fifty dollars from A as paid under a mistake of fact.6 So where a retired army officer on half pay accepted a position in the diplomatic service, which by statute deprived him of his rank and pay in the army, and after his diplomatic service was ended he performed military duties for which he received pay, the United States cannot recover such pay, since even if he was not an officer de jure he was de facto, and as such entitled to compensation.7 A, a grantee of a mortgagor X, and B, a mortgagee, both believed that certain land owned by A was covered by a mortgage to B. A made a payment to B to procure the release of such land from the lien of such mortgage. Subsequently, in a foreclosure suit between B and X, such payment was credited upon the amount of the mortgage debt. A majority of the court held that inasmuch as B had changed his position in reliance upon such payment, and his rights had been fixed by the decree, and A, who had opened the negotiations, and had asked B to receive the payment, was the more negligent of the two, A could not recover such payment.8 Another application of this principle is found in payments made by duress or compulsion of law.9 Where A had erected buildings upon the land of B, a minor, under a contract with B's father, whereby A was to erect certain buildings, collecting rents therefrom as payment, it has been held that after A has erected such buildings and collected rents to apply on the cost thereof, he is not liable to the minor for such rents received, as it would not be just to give the minor the benefit of such material and labor without any compensation therefor, even though the contract is unenforcible.10 Taxes which have been paid, cannot be recovered because of technical irregularity in the proceedings affecting the substantial rights of the parties, even though such irregularity might have been a ground of resisting the payment in the first instance.11 The same principle applies to money paid on street assessments, which are technically, but not substantially, invalid.12
28 National Bank v. Bank, 122 N. Y. 367; 25 N. E. 355.
29Arbuckle v. Templeton, 65 Vt. 205; 25 Atl. 1095.
1"However tortiously it (the money) may have come into his hands, the defendant can in this form of action set the plaintiff at defiance if he has the best right to it." Goddard v. Seymour, 30 Conn. 394. 401; Lime Rock Bank v. Plimpton, 17 Pick. (Mass.) 159; 28 Am. Dec. 286; Le Breton v. Pierce, 2 All. (Mass.) 8. 2 See Sec. 797.
3 Rainwater v. Harris, 51 Ark. 401; 3 L. R. A. 845; 11 S. W. 583.
4 Fish v. Seeberger, 154 111. 30; 39 N. E. 982.
5 Hubbard v. Hickman, 4 Bush. (Ky.) 204.
6 Foster v. Kirby. 31 Mo. 496.
7 Badeau v. United States, 130 U. S. 439.