It is sometimes said that money paid or other benefits conferred under a mistake of fact cannot be recovered if the mistake is as to a collateral or extrinsic fact. The words "collateral" and "extrinsic," as here used, however, are too indefinite. What is generally meant - and this seems a more illuminating statement of the rule - is that unless the fact mistaken by the bestower of the benefit is one essential to the existence of his legal duty, or to the existence or enforceability of his legal right, there is no obligation on the recipient to make restitution.
The effect of this limitation is to prevent a recovery by one who confers a benefit under the inducement of a mistake of fact which affects merely the policy of his act. And the reason for denying relief in such cases is that by the common understanding of mankind one must accept the responsibility of determining in advance whether or not a proposed transaction is to his advantage. If it turns out to his disadvantage, whether because he failed accurately to evaluate a material fact or because, consciously or unconsciously, he was ignorant of a material fact, he must suffer the loss. He will not be permitted to withdraw from his engagement, if unperformed; nor will he be restored to his original position if he has already performed. The other party to the transaction, it is true, may profit by his error of judgment or his ignorance, but in the absence of fraudulent representation or concealment, the profit is not an illegitimate one, and there is no obligation to make restitution.
The following cases illustrate the point:
Harris v. Loyd, 1839,5 Mees. & Wels. 432: Action to recover money paid by the plaintiff, an assignee under a trust deed for the benefit of creditors, to the defendant, a sheriff, to release goods from an execution which had been levied by the defendant to satisfy a judgment against the plaintiff's assignor. After . the goods were released from the execution they were taken from the plaintiff by an assignee in bankruptcy appointed because of an act of bankruptcy committed by the plaintiff's assignor before the assignment. The plaintiff sought to recover upon the ground that he was induced to make the payment by a mistake of fact, since he did not know, at the time of the payment, that the act of bankruptcy had been committed. Lord Abinger, C.B. (p. 436): "The short answer, however, to the action is that the money was not paid under a mistake of fact [i.e. such a mistake of fact as entitles the plaintiff to relief], but upon a speculation, the failure of which cannot entitle the plaintiffs to recover it back." Alderson, B. (p. 436): "This is money paid, not under a mistake, but under a bargain. True, it turns out to be a bad bargain; but that will not affect its validity."
Aiken v. Short, Executrix, 1856,1 Hurl. & Nor. 210: Action by a bank to recover money paid. The defendant's testator had a claim against one George Carter, which was secured by a bond and an equitable mortgage on property devised to George by what was supposed to be Edwin Carter's last will. George Carter subsequently mortgaged the same property to the bank. The defendant applied to George Carter for payment of the testator's claim, and was referred to the bank. The bank paid the debt to get rid of the equitable mortgage, but subsequently discovering that Edwin Carter made a later will by which George did not take the property mortgaged, brought this action to recover the amount paid. Bramwell, B. (p. 215): "In order to entitle a person to recover back money paid under a mistake of fact, the mistake must be as to a fact which, if true, would make the person paying liable to pay the money; not where, if true, it would merely make it desirable that he should pay the money. It is impossible to say that this case falls within the rule."
Buffalo v. O'Malley, 1884, 61 Wis. 255; 20 N. W. 913; 50 Am. Rep. 137: Action to recover money claimed to have been overpaid by the plaintiff to the defendant for the transportation of tanbark. The terms or the contract were that the defendant was to be paid two dollars per cord for carrying the bark to Duluth. The plaintiff measured the bark as it was piled at the place of shipment, found that there were sixty-three cords, allowed three cords for shrinkage and paid for the carriage of sixty cords. The bark was badly curled, however, and when it reached Duluth it was so piled for sale, according to the customary manner of piling badly curled bark, as to measure only forty cords. The plaintiff was ignorant of the fact that "where bark was curled badly it was customary to make allowance for it in the measurement when sold; or to pile the bark tight by tramping it down and filling up the holes." Cole, C.J. (p. 257): "It is needless to observe, courts do not relieve against every mistake a party may make in his business transactions. A mistake in a matter of fact, to be the ground of relief, must be of a material nature, inducing or influencing the agreement, or in some matter to which the contract is to be applied. It is obvious the mistake which the plaintiff made was in supposing that curled bark, piled in the loose manner his bark was piled, would hold out in measure when piled as dealers required. But this was a mistake as to a collateral fact, which had nothing to do with the contract of carriage. It is said the plaintiff paid for the carriage upon the belief that there were sixty cords of it, and that his belief was founded upon his having measured the bark on the bank. He certainly was not mistaken as to the quantity of the bark on the bank, but was mistaken in supposing that a dealer would take it at Duluth piled in the manner he had piled it."
In all of the cases above stated the plaintiff was induced by a mistake of fact to pay money which otherwise, presumably, he would not have paid. But in all of them the fact mistaken was one which affected merely the policy of paying the money, not his legal duty to pay the money nor his legal right to something in return for the money. There are other cases in which, with more or less clearness, the same distinction is taken.1
1 Cleveland Cliffs Iron Co. p. East Itasca, etc., Co., 1906, 146 Fed. 232, 237-8; 76 C. C. A. 598; Brooks v. Hall, 1887, 36 Kan. 697; 14 Pac. 236; First Nat. Bank p. Burkham, 1875, 32 Mich. 328; Lan-gevin v. City of St. Paul, 1892, 49 Minn. 189, 196; 51 N. W. 817; 15 L. R. A. 766; Southwick p. First Nat. Bank, 1881, 84 N. Y. 420, 434; Youmans p. Edgerton, 1883,91 N. Y. 403, 411. And see Holt p. Thomas, 1894, 105 Cal. 273; 38 Pac. 891; Segur v. Tingley, 1835, 11 Conn. 134; Lemans v. Wiley, 1883, 92 Ind. 436; Sears v. Leland, 1887, 145 Mass. 277; 14 N. E. Ill; Needles p. Burk, 1884, 81 Mo. 569, 573; 51 Am. Rep. 251; Franklin Bank p. Raymond, 1829, 3 Wend. (N. Y.)_69; Dambmann v. Schulting, 1878, 75 N. Y. 55.
In Franklin Bank v. Raymond, supra, where money was paid in ignorance of a fact which gave the payor a set-off, the court said (p. 72): "The general principle of law is indisputable, that if a party pays money under a mistake of the real facts, without any negligence imputable to him for not knowing them, he may recover back such money. What sort of facts are meant? Such facts, I apprehend, as shew that the demand on which the money was paid did not actually exist against the person paying at the time the money was paid." In Dambmann v. Schulting, supra, the court said (p. 64): "There are many extrinsic facts surrounding every business transaction which have an important bearing and influence upon its results. Some of them are generally unknown to one or both of the parties, and if known, might have prevented the transaction. In such cases, if a court of equity could intervene and grant relief, because a party was mistaken as to such a fact which would have prevented him from entering into the transaction if he had known the truth, there would be such uncertainty and instability in contracts as to lead to much embarrassment. As to all such facts, a party must rely upon his own circumspection, examination and inquiry; and if not imposed upon or defrauded, he must be held to his contracts. In such cases, equity will not stretch out its arm to protect those who suffer for the want of vigilance." 1 1907, 106 S. W. 280 (Ky.).
The Kentucky case of Tucker v. Dentonl is of interest in this connection. The plaintiff's parents having entered into a contract for the sale of their farm to the defendants and having become dissatisfied with the transaction, the plaintiff paid eight hundred dollars to the defendant for the release of her parents from their contract. Subsequently the plaintiff discovered that the form of the written contract was such that it was unenforceable under the Statute of Frauds, and she brought this action to recover the money paid for its cancellation. Since the contract for the sale of the farm was valid even though unenforceable, and imposed at least a moral obligation upon the plaintiff's parents so long as it remained uncanceled, it would seem that the plaintiff received just what she paid for, i.e. the cancellation of the contract, and that her only mistake was as to the worth of the contract and consequently as to the policy of paying eight hundred dollars for its cancellation. But the court took the view that either the defendants were guilty of fraud in concealing the unenforceability of the contract for the sale of the farm or there was such a mutual mistake as to the existence of the fact of enforceability as to invalidate the contract (see post, Sec. 59), and in either case the plaintiff was entitled to restitution.