Inasmuch as the right of one who confers a benefit in misreliance on a right or duty is equitable in character, although enforced in an action at law (ante, Sec. 6), it should be held to arise only when the recipient of the benefit is notified or learns that a mistake has been made in consequence of which he ought to make restitution. For to hold one responsible for a failure to restore a benefit received and retained without knowledge of any mistake and without notice of any claim for restitution would be manifestly inequitable.
It follows that where the recipient of the benefit knows, at the time of its receipt, that it is conferred upon him in mis-reliance upon a right or duty, and that its retention would be unjust, he is under an immediate obligation to make restitution and is not entitled to notice or demand before suit.1 Likewise, where the recipient, though innocent at the time of the receipt of the benefit, subsequently learns of the mistake, as the result either of his own investigations or of information from a third person, demand is unnecessary.2 But where the recipient remains in ignorance of the fact that a mistake has been made and that his retention of the benefit is consequently inequitable, he should be notified of the mistake and of the claim for restitution before an action is instituted against him.3
1 Sharkey v. Mansfield, 1882, 90 N. Y. 227; 43 Am. Rep. 161, (money paid); Martin v. Home Bank, 1899, 160 N. Y. 190; 54 N. E. 717, aff. 30 App. Div. 498; 52 N. Y. Supp. 464, (money paid).
2 See Sheppard v. Lang, 1905, 122 Ga. 607; 50 S. E. 371, (money paid); Earle v. Bickford, 1863, 6 Allen (Mass.) 549; 83 Am. Dec. 65, (money paid); Bishop v. Brown, 1879, 51 Vt. 330, (money paid).
3 Freeman v. Jeffries, 1869, L. R. 4 Exch. 189, (money paid); Worley v. Moore, 1881, 77 Ind. 567, 569, (money paid; cf. Schultz v. Bd. of Commrs., 1883, 95 Ind. 323); Sibley v. County of Pine, 1883, 31 Minn. 201; 17 N. W. 337; Gillett v. Brewster, 1890, 62 Vt. 312; 20 Atl. 105, (money paid); Stocks v. City of Sheboygan, 1877, 42 Wis. 315, (money paid ; defendant ought to have known facts). See Sharkey v. Mansfield, 1882, 90 N. Y. 227 ; 43 Am. Rep. 161. In Sharkey v. Mansfield, supra, Finch, J., said (p. 229): "Where the mistake is mutual, both parties are innocent, and neither is in the wrong. The party honestly receiving the money through a common mistake owes no duty to return it until at least informed of the error. It is just that he should have an opportunity to correct the mistake, innocently committed on both sides, before 49 "
Unfortunately there are a number of cases of money paid under mistake which hold that the cause of action arises upon the receipt of the money, and that even against one who receives and retains it in good faith a demand is unnecessary.1 But in few of them does the question appear to have been carefully considered.2 One, at least, is virtually overruled on this point by later decisions in the same jurisdiction.3 In the most important of them, Leather Manufacturers' Bank v. Merbeing subjected to the risks and expenses of a litigation. It was said in Abbott v. Draper (4 Denio, 53) that 'when a man has paid money as due upon contract to another, and there is no mistake, and no fraud or other wrong on the part of the receiver, there is no principle upon which it can be recovered back until after demand has been made.' While this language is not accurate as to a mistake on the part of the receiver, if that was the meaning intended, the doctrine is clearly recognized that where the receiver is guilty of fraud or other wrong in taking the money, he is not entitled to notice. The necessity of a demand does not, therefore, exist in a case where the party receiving the money, instead of acting innocently and under an honest mistake, knows the whole truth and consciously receives what does not belong to him, taking advantage of the mistake or oversight of the other party, and claiming to hold the money thus obtained as his own. In such case he cannot assume the attitude of bailee or trustee, for he holds the money as his own, and his duty to return it arises at the instant of the wrongful receipt of the overpayment. He is already in the wrong and it needs no request to put him in that position."
In Stotsenburg v. Fordice, 1895, 142 Ind. 490, 496; 41 N. E. 313, 810, it was held that where the defendant to an action to recover on a promissory note claimed to set off interest paid by mistake, "the suit of the appellant [plaintiff] excused the demand if one was necessary."
1 Leather Manfrs.' Bank v. Merchants' Bank, 1888, 128 U. S. 26; 9 S. Ct. 3; Rutherford v. Mclvor, 1852, 21 Ala. 750, 757; Johnson v. Saum, 1904,123 la. 145, 148 ; 98 N. W. 599 (semble) ; Sturgis v. Preston, 1883, 134 Mass. 372, 373; Utica Bank v. Van Gieson, 1821, 18 Johns. (N. Y.) 485, (but see Southwick v. First Nat. Bank, 1881, 84 N. Y. 420, and cases cited in note 1, p. 49).
2 Professor Keener has shown (" Quasi-Contracts," pp. 144-151) that most of the cases cited in the opinion in Leather Manfrs.' Bank v. Merchants' Bank, 1888, 128 U. S. 26; 9 S. Ct. 3, and Sturgis v. Preston, 1883, 134 Mass. 372, do not fairly support the conclusion that against an innocent defendant the cause of action arises on the receipt of the benefit.
3 Although in Utica Bank v. Van Gieson, 1821, 18 Johns (N. Y.) 485, it was expressly declared that demand is unnecessary, the opposite view is taken in Southwick v. First Nat. Bank, 1881, 84 N. Y. 420, and Sharkey v. Mansfield, 1882, 90 N. Y. 227; 43 Am. Rep. 161.
chants' Bank,1 decided by the United States Supreme Court, the reasoning of the court fairly applies only to cases in which the defendant, by reason of express or implied representations, innocent but false, is held responsible upon the theory of a breach of warranty and not merely as the recipient of a benefit conferred by mistake.2
In Vermont it is held that the necessity of a demand depends upon the responsibility for the mistake. If the plaintiff appears to have been at fault, or if neither party is at fault, a demand must be made; but if the responsibility lies with the defendant, though he is unaware that a mistake has been made, demand is unnecessary.3 This rule, while less objectionable than that which excuses the plaintiff from making a demand under any circumstances, seems hardly fair to the negligent but honest defendant.