This section is from the book "The Law Of Quasi Contracts", by Frederic Campbell Woodward. Also available from Amazon: The Law of Quasi Contracts.
If there is a difference of opinion between A and B as to the existence of a fact essential to an obligation from A to B, and a compromise is effected between them, A cannot, upon learning that his belief in the nonexistence of the fact was well founded, recover a benefit conferred pursuant to such compromise.2 His belief in the nonexistence of the fact is convincing evidence that there was no misreliance, but that the benefit was conferred from some other motive, e.g. to avoid litigation or dispute. Moreover, to permit a recovery would be utterly to destroy the stability of compromise contracts.
1 In Chatfield v. Paxton, a case cited in Bilbie v. Lumley, 1802, 2 East 469, 471, and briefly reported in a note to that case, Ashhurst, J., is said to have expressed the opinion that "where a payment had been made not with full knowledge of the facts, but only under a blind suspicion of the case, and it was found to have been paid unjustly, the party might recover it back again." But, according to Lord Ellenborough, "it was so doubtful at last on what precise ground the case turned that it was not reported." See also Guild v. Baldridge, 1852, 2 Swan (32 Tenn.) 294, which is stated and quoted, ante, Sec. 13.
2 Troy p. Bland, 1877, 58 Ala. 197; Jones v. Fulwood, 1852, 12 Ga. 121; Thompson v. Nelson, 1867, 28 Ind. 431; New York Life Ins. Co. v. Chittenden, 1907, 134 la. 613, 620; 112 N. W. 96; 11 L. R. A. (N. S.) 233, 237 ; 120 Am. St. Rep. 444; Carter v. Iowa, etc. Loan Ass'n, 1907, 135 la. 368; 112 N. W. 828; Brooks v. Hall, 1887, 36 Kan. 697; 14 Pac. 236; Stuart v. Sears, 1875, 119 Mass. 143; Lamb v. Rathburn, 1898, 118 Mich. 666; 77 N. W. 268; Pearl v. Whitehouse, 1872, 52 N. H. 254; Moore v. Fitzwater, 1824, 2 Rand. (Va.) 442. See Bennett v. Bates, 1884, 94 N. Y. 354, 373; Sears v. Grand Lodge, 1900, 163 N. Y. 374; 57 N. E. 618; 50 L. R. A. 204; Consolidated Fruit Jar Co. v. Wisner, 1905, 103 App. Div. 453; 93 N. Y. Supp. 128, 131. Cf. Worth v. Stewart, 1898, 122 N. C. 258; 29 S. E. 579.
The foregoing considerations apply with equal force where there is no difference of opinion between A and B as to the existence of the fact, but where both are in doubt as to its existence. If they choose to settle upon certain terms, without ascertaining the truth, A cannot, upon learning that the fact did not exist, recover a benefit conferred pursuant to the settlement.1
Care must be taken, in these cases of compromise and settlement, to distinguish the case in which the fact disputed or doubted turns out to have been nonexistent, and the case in which another fact, essential to the obligation but not doubted, turns out to to have been nonexistent. In the latter case, there is a genuine misreliance upon a supposed duty and a benefit conferred pursuant to the compromise or settlement may be recovered:
Rheel v. Hicks, 1862, 25 N. Y. 289: Action to recover money paid to the defendant, the county superintendent of the poor. One Louisa Hehr had testified that she was pregnant and that the plaintiff was the father of the unborn child. The plaintiff was arrested and in compromise of the claim for the support of the child paid fifty dollars to the defendant. It subsequently developed that Louisa Hehr had not been pregnant, and this action was brought. Wright, J. (p. 291): "The plaintiff was charged with being the father of a child likely to be born a bastard, of which Louisa Hehr was alleged to be pregnant. Both the plaintiff and defendant acted upon an erroneous assumption that she was pregnant, and they compromised relative to the support of the child that, it was supposed, would be born a bastard and become chargeable to the county. . . . The fact as to who was the father of the child may have been waived by the compromise, but not the vital fact which gave it all its force and without the existence of which the superintendent had no power to act, viz. the pregnancy of Louisa Hehr. There was no disagreement or compromise between the plaintiff and the defendant as to the fact of pregnancy. They both believed and acted upon the assumption that she was pregnant, and it turns out that they were both mistaken. As there was no pregnancy, the county has not been put to any expense, and never can be, and as the plaintiff paid his money to indemnify the county under a mistake of fact, I think he was entitled to maintain this action." 1
1 See New York Life Ins. Co. v. Chittenden, 1907, 134 la. 613, 620 ; 112 N. W. 96; 11 L. R. A. (N. S.) 233, 237; 120 Am. St. Rep. 444; Kowalke v. Milwaukee Elec., etc., Co., 1899, 103 Wis. 472; 79 N. W. 762; 74 Am. St. Rep. 877.
Wheadon v. Olds, 1838, 20 Wend. (N. Y.) 174: Action to recover a portion of the money paid for a quantity of oats. The defendant agreed to sell to the plaintiff from 1600 to 2000 bushels of oats at 49 cents per bushel. The delivery of the oats was commenced by removing them from a storehouse to a canal boat; tallies were kept, and when the tallies amounted to 500, it was proposed to guess at the remainder; and after a while it was agreed between the parties to call the whole quantity 1900 bushels, and the plaintiff accordingly paid for that quantity at the stipulated price. When the oats came to be measured it was ascertained that there were only 1488 bushels delivered. It was then found that the mistake had happened by both parties assuming as the basis of the negotiation fixing the quantity of 1900 bushels, that 500 bushels had been loaded in the boat at the time when they undertook to guess at the residue, whereas in fact only 250 bushels had been loaded, - the tallies representing half bushels and not bushels, - and that the parties supposed that the quantity loaded was not a quarter of the whole quantity. The vendor refusing to refund a portion of the money received by him, this action was brought by the purchaser, who declared for money had and received. Cowen, J. (p. 176): "All the excess of payment arose from a count of half bushels as bushels. And the only question in the least open is, whether an agreement, based on that mistake, to accept the oats at the plaintiff's own risque of the quantity, shall conclude him. The mistake which entitles to this action, is thus stated by the late Chief Justice Savage from the civil law: 'An error of fact takes place, either when some fact which really exists is unknown, or some fact is supposed to exist which really does not exist.' ... In judging of its legal effect, we must look ' to the regard which the contractors have had to the fact which appeared to them to be true.' And when we see that the agreement is the result of such a regard, or, as the judge said to the jury, is based upon it, I am not aware of any case or dictum, that because part of the agreement is to take at the party's own risque, or, as the parties expressed it, here, hit or miss, it therefore forms an exception to the general rule. The agreement to risk was, pro tanto, annulled by the error." l
1 Cf. Lawton v. Campion, 1854, 18 Beav. 87, 97-8; Thompson v. Nelson, 1867, 28 Ind. 431, in which the dispute compromised was as to the fact of pregnancy, and not as to the fact of fatherhood.
Care must be taken also to distinguish a settlement made by way of compromise or without regard to the actual facts and a settlement made by one who, though at first doubtful of his obligation, satisfies himself by an investigation of the facts that the claim against him is valid, only to learn, after the settlement, that his original doubt was well founded. In the latter case, the benefit is conferred by one who, at the time, is conscious of no doubt and consequently assumes no risk. It is a benefit conferred in misreliance upon a supposed duty, and the retention of the benefit is inequitable.
The distinction just pointed out appears to have been overlooked in a Michigan case:
McArthur v. Luce, et al., 1880, 43 Mich. 435; 5 N. W. 451; 38 Am. Rep. 204. The defendants demanded in good faith, that the plaintiff pay them for logs cut upon their land. "When the claim was made upon the plaintiff he employed a surveyor and they went upon the land, and the plaintiff then became satisfied that he had cut and taken logs from off the defendants' land, and authorized a settlement to be made, which was done. This was in 1871 and all parties rested in the belief that a correct settlement had been made until sometime in 1875, when a new survey established the fact that no logs had been cut upon the defendants' land, and this action was brought to recover back the moneys paid, upon the claim of having been paid under a mistake of fact." The court denied relief, Chief Justice Marston saying (p. 437): "Where a claim is thus made against another who, not relying upon the representations of the claimant, has the opportunity to and does investigate the facts, and thereupon becomes satisfied that the claim made is correct and adjusts and pays the same, I think such settlement and payment should be considered as final. If not, it is very difficult to say when such disputed questions could be considered as finally settled, or litigation ended. In the settlement of disputed questions where both parties have equal opportunity and facilities for ascertaining the facts, it becomes incumbent on each of them to make his investigation, and not carelessly settle trusting to future investigation to show a mistake of fact and enable him to recover back the amount paid. One course encourages carelessness and breeds litigation after witnesses have passed beyond the reach of the parties: the other encourages parties in ascertaining what the facts and circumstances actually are while the transaction is fresh in the minds of all, and a final and peaceful settlement thereof." 1
1 Cf. Calkins v. Griswold, 1877, 11 Hun (N. Y. Sup. Ct.) 208.
In the first place it should be said that since the plaintiff "employed a surveyor and they went upon the land" it cannot fairly be assumed that he "carelessly" settled. And in the second place, even if he did carelessly settle, since at the time he settled he had resolved any previous doubt he may have entertained and fully believed that he was under a duty to pay the defendants' claim, the payment was made, neither by way of compromise of a dispute, nor without regard to the real facts, but in misreliance upon a supposed duty which turned out to be nonexistent. Even if the decision rests upon the ground that the plaintiff was negligent in failing to ascertain the truth, it is believed to be unsound, though not without the support of other cases (ante, Sec. 15). If negligence is not imputed to the plaintiff, it is difficult to conceive of a clearer case of quasi contractual obligation.
1 See also Carlisle v. Barker, 1876, 57 Ala. 267; Wheeler v. Hatheway, 1885, 58 Mich. 77; 24 N. W. 780.