Money paid under a mistake of material facts is recoverable as money paid without consideration; a partner who, on dissolving partnership, paid his partner too much for his share, and who discovered his mistake later on, was allowed, in spite of his carelessness, to recover the amount paid in excess. But the person who receives money paid under a mistake of fact must not, through the mistake or misconduct of the payer, be placed in a worse position than if it had not been paid. A banker who honours the cheque of a customer who has overdrawn his account cannot recover the amount from the party to whom it has been paid. In such a case there is no mistake in reality, but only carelessness on the part of the cashier in not inquiring into the customer's account before payment.
Where the mistake is mutual - that is, when both parties are acting on a misapprehension of facts, the contract is void, and money paid under it is recoverable; as, for instance, when a person attends an auction sale and bids for one lot under the impression that he is bidding for another.
Money paid with a knowledge of all the facts, but under a mistake of the law, cannot be recovered; and so, too, money paid under compulsion of the law or threat of legal proceedings. If, therefore, a person is unable to produce a receipt for a bill which he knows he has paid, the tradesman can compel him to pay over again; but should he subsequently discover the original receipt which he had mislaid, an action against the tradesman for the recovery of his money will fail. The argument that there would be no end to litigation if everybody could have their cases tried over again when fresh evidence came to light, does not recommend itself as a sound one. In the instance given it is not equitable that the tradesman should be allowed to retain money twice paid over to him for the same article. There are, however, other cases that go to show that, however harshly the doctrine may apply, money paid under the pressure of legal process cannot be recovered.
In order to get free of this doctrine it is necessary to show that a fraudulent use has been made of legal process, as when a foreigner, being arrested for an imaginary debt, paid a large sum for his release; or that the money has been obtained by extortion or overcharges under which people are forced to pay a larger sum than they intended to recover their goods; in all which cases an action for the recovery of the excess is maintainable.
Where a person parts with a portion of his property, acting in ignorance of a clear and elementary principle of law, he will be relieved from the consequences of his mistake on the ground of a presumption that there has been fraud or undue influence of some kind. When the mistake arises on a doubtful point of law, a fair compromise will be upheld.
Where money has come under a mistake of law into the hands of an officer of the court, such as a trustee in bankruptcy or official liquidator, the court will compel its officer to repay the money.
Where a woman who attended an auction sale out of curiosity, and without making any bid, had an article knocked down to her for which she was compelled to pay before she was allowed to leave the sale-room, it was held that the auctioneer who conducted the proceedings was rightly convicted of larceny. A travelling grinder who extorted an excessive price from a woman by menaces for some knives which she had given him to grind was also convicted of stealing.
The swindle called " ringing the changes," by which by a series of tricks a person, generally a barmaid, is fraudulently induced to pay over money without having received the proper change, is rightly punishable as theft.
Sovereign in Mistake for a Shilling
The person who receives a sovereign in mistake for a shilling, and, on discovering the mistake that has been made, determines to benefit by it, and fraudulently appropriates it to his own use, is guilty of stealing. If, however, the person who receives the wrong change does not find it out until later, when there is no opportunity of returning the money, no offence has been committed.
In a case where a clerk, referring to the wrong letter of advice, handed a depositor in the Post Office Savings Bank who intended to withdraw 10s., the sum of 8 16s. Iod., four judges held that the depositor who went off with the money could not be convicted of stealing; but eleven judges decided that he was guilty of larceny, though not on the same grounds.
The Irish Court of Criminal Appeal took a contrary view to the decision of the English Court of Crown Cases Reserved in a case where a man handed another a 10 note in mistake for an Irish £1 note, and held that the man who took the note thinking it was a £1 note, and, when he suddenly discovered the mistake, kept it without offering to restore the balance or return the original note to the man who had given it to him, could not be convicted of larceny.