Summary
In Newburgh Savings Bank v. Town of Woodbury (173 N.Y. 55) the court, per O'BRIEN, J., said (at pp. 60, 61): "Without referring to the numerous authorities cited from other jurisdictions, or attempting to explain them, it is quite sufficient to say that the rule in this State from the earliest times to the present day has been consistent and uniform in favor of the general rule that money paid under a mistake of law cannot be recovered back.
Summary of this case from M. C. Creditors Corp. v. PrattOpinion
Submitted December 5, 1902
Decided January 6, 1903
Charles F. Brown for appellant.
J.W. Gott for respondents.
On the first day of February, 1894, the plaintiff purchased from the supervisor of the town of Woodbury, one of the organized towns of Orange county, four bonds of one thousand dollars each, issued by the town, bearing date on that day and payable respectively in one, two, three and four years thereafter. The bonds were authorized to be issued by the board of supervisors of the county, under chapter 664 of the Laws of 1892, for the relief of certain persons drafted into the military service of the United States under the act of Congress passed March 3, 1863, known as the Conscription Act. The bonds on their face disclosed the authority under which they were issued and the purpose to which they were to be applied. The statute under which they were issued was declared by this court to be void as in conflict with the State Constitution. ( Bush v. Bd. Supervisors of Orange County, 159 N.Y. 212.) The plaintiff brought this action against the town, the county treasurer and three drafted men who had been paid money under the provisions of the act. No relief was asked against the town, and it is only a nominal party. The relief demanded against the county treasurer was that he account for and pay to the plaintiff such part of the money as remained in his hands as could be traced as the proceeds of the bonds paid by the plaintiff to the town; and the relief demanded against the drafted men was that they pay over to the plaintiff any moneys received by them which could be traced in like manner. At the trial judgment was rendered in favor of the plaintiff against the county treasurer and the drafted men for certain sums or amounts that were found to represent the proceeds of the bonds or moneys paid to the town by the plaintiff upon the purchase of the bonds. No judgment was rendered against the town. The county treasurer took no appeal from the judgment, and but two of the drafted men appealed. On their appeal the judgment rendered against them was reversed at the Appellate Division and a new trial granted, and from that judgment the plaintiff has appealed to this court.
The only question presented by the appeal is whether these two persons were liable to the plaintiff, and if so, the amount of the liability. The proceeds of the bonds were intermingled with other moneys in the treasury, one of the bonds was paid when due, and various questions of the right to interest and the methods of tracing the proceeds are involved in the inquiry concerning the amount of the liability. If these questions were material to the disposition of the case it is only fair to say that some of the objections presented and argued by the learned counsel for the defendants would be difficult to answer, but in the view that we are disposed to take with respect to the fundamental question involved, it will not be necessary to consider them. If the defendants are not liable at all, any errors committed in the statement of the account against them become wholly immaterial.
The learned court below has held that they are not liable, since the money received by them was under a mutual mistake of law and under a claim of right and, therefore, cannot be recovered from them by the plaintiff. That proposition presents the real and important question in the case. That the act under which the bonds were issued was void is admitted on all sides and at every stage of the argument. It should also be noted that the case contains no element of fraud and no question of a trust in favor of or against any one, and, hence, certain cases cited from this court, where one or both of these elements were present and made the basis of an action to compel the restoration of money, have no application. ( Am. Sugar Refining Co. v. Fancher, 145 N.Y. 552; Holmes v. Gilman, 138 id. 369.) The original transaction was a loan of money by the plaintiff to the town upon the security of its bonds. There is no doubt that where a municipal corporation borrows money upon a void security it may be compelled to restore the money to the lender so long as the money remains in the treasury or under the control of the corporation, but such cases do not involve the question of payment under a mistake of law. The right to restoration of money so received rests upon the principle that there was no consideration and that it would be unjust in the forum of conscience for the corporation to retain it. Many of the cases cited by the learned counsel for the plaintiff are cases of this character, where in the discussion the effect of a mistake of law is often referred to arguendo but was not really involved or made the basis of any recovery.
It must be conceded that in most text books on equity jurisprudence, and in some of the adjudged cases, dicta or argument of more or less force and authority may be found to the effect that in some cases equity will grant relief founded upon a mistake of law. In none of the authorities cited by the learned counsel for the plaintiff is the principle stated in clearer or broader language or more favorably for his contention than by Mr. Pomeroy in his work on Equity Jurisprudence. We may adopt all that he says with reference to the general rule and its qualifications and limitations, since the views of the learned author occupy a very prominent place in the printed argument submitted in support of the appeal:
"The doctrine is settled that, in general, a mistake of law, pure and simple, is not adequate ground for relief. Where a party with knowledge of all the material facts, and without any other special circumstances giving rise to an equity in his behalf, enters into a transaction affecting his interests, rights and liabilities, under an ignorance or error with respect to the rules of law controlling the case, courts will not in general relieve him from the consequences of his mistake. * * * While this general doctrine prevails in equity as well as at law, its operation is not universal; it is subject to modifications and limitations; equity does sometimes exercise its jurisdiction on the occasion of mistakes of law. If the mistake of law is not pure and simple, but is induced or accompanied by other special facts giving rise to an independent equity in behalf of the mistaken person, such as inequitable conduct of the other party, there can be no doubt that a court of equity will interpose its aid. Even when the mistake of law is pure and simple, equity may interfere. The difficulty is to ascertain any general criterion which shall determine and include all such cases." (§ 842.) And again: "Wherever a person is ignorant or mistaken with respect to his own antecedent and existing private legal rights, interests, estates, duties, liabilities, or other relation, either of property or contract, or personal status, and enters into some transaction, the legal scope of which he correctly apprehends and understands, for the purpose of affecting such assumed rights, interests or relations, or of carrying out such assumed duties or liabilities, equity will grant its relief, defensive or affirmative, treating the mistake as analogous to, if not identical with, a mistake of fact." (§ 849.)
These extracts from the learned author present in a condensed form the most favorable view in support of the appeal that is sustained by any authority. But the learned author has qualified and modified much of what has been quoted above in another part of his work, and this qualification has a very material bearing on this case: "The general rule stated in the paragraph before the last, concerning mistakes as to one's own private legal rights and duties, is also subject to another important limitation. It is settled at law, and the rule has been followed in equity, that money paid under a mistake of law with respect to the liability to make payment, or with full knowledge, or with means of obtaining knowledge of all the circumstances, cannot be recovered back." (§ 851.) The discussion by the learned author of the question concerning a mistake of law, when read as a whole, does not tend to support the contention of the plaintiff in this case. Without referring to the numerous authorities cited from other jurisdictions, or attempting to explain them, it is quite sufficient to say that the rule in this state from the earliest times to the present day has been consistent and uniform in favor of the general rule that money paid under a mistake of law cannot be recovered back. In the early case of Shotwell v. Murray (1 Johns. Ch. 512) Chancellor KENT stated the principle in the following terms: "A person cannot be permitted to disavow or avoid the operation of an agreement entered into with a full knowledge of the facts on the ground of ignorance of the legal consequences which flow from those facts. I assume that this is a settled principle of law and sound policy. * * * Every man is to be charged with knowledge of the law." And subsequently in Lyon v. Richmond (2 Johns. Ch. 60) the learned chancellor said: "A subsequent decision of a higher court in a different case, giving a different exposition of a point of law from the one declared and known when a settlement between parties takes place, cannot have a retrospective effect and overturn such settlement. The courts do not undertake to relieve parties from their acts and deeds fairly done on a full knowledge of facts though under a mistake of law. Every man is to be charged at his peril with a knowledge of the law. There is no other principle which is safe and practicable in the common intercourse of mankind. And to permit a subsequent judicial decision in any one given case, on a point of law, to open or annul everything that has been done in other cases of the like kind for years before, under a different understanding of the law, would lead to the most mischievous consequences. Fortunately for the peace and happiness of society there is no such pernicious precedent to be found."
Perhaps the most striking and forcible illustration of this rule is to be found in the decision of this court in the case of Doll v. Earle ( 59 N.Y. 638). There the plaintiff paid off to the defendant in 1863 a mortgage on premises that the plaintiff had just purchased, and by an agreement between them $985.00, being the difference between gold coin and legal tender currency on the amount of the mortgage, was held to await the decree of the United States Supreme Court in the legal tender cases. When that court decided that the Legal Tender Act was unconstitutional and void as to contracts executed prior to its passage, of which this mortgage was one, the mortgagor ordered the money paid to the mortgagee. Afterwards a reargument was allowed in the United States Supreme Court, and the validity and constitutionality of the Legal Tender Act was declared. Thereupon the mortgagor sought the court's aid to recover the money. This court held that the payment had been voluntarily made on a claim of right under no mistake of fact and could not be recovered back, although by a subsequent decision of the United States Supreme Court ( Knox v. Lee, 12 Wall. 457) it appeared that the payment was made under a mistake of law. That case in principal ought to control the decision in the case at bar. About the same time this court decided the case of Flower v. Lance ( 59 N.Y. 603). Those cases cover the law of this State on the question, and have been cited with approval and followed as authority to the present day. ( Flynn v. Heard, 118 N.Y. 26; Jacobs v. Morange, 47 N.Y. 57; People v. Stephens, 71 N.Y. 559; Weed v. Weed, 94 N.Y. 243; Cox v. Mayor, etc., of N.Y., 103 N.Y. 526; First National Bank of Ballston Spa v. Bd. Supervisors Saratoga Co., 106 N.Y. 488; Vanderbeck v. City of Rochester, 122 N.Y. 289; Redmond v. Mayor, etc., of New York, 125 N.Y. 632.)
We think that the general rule that money paid under a mistake of law cannot be recovered back, which was asserted and applied in these cases, is applicable to the case at bar. The two drafted men who appealed from the judgment had no contract relations with the plaintiff; they owed to it no duty, express or implied. There is no privity between them and the plaintiff. The plaintiff did not pay to them any money at any time. What the plaintiff did was to loan money to a municipal corporation on void securities which the plaintiff could recover so long as it remained under the control of the borrower, but when the town in this case disbursed the money for the purpose for which it was raised, to various persons who claimed and received it as a right, the rule referred to will protect the defendants. The plaintiff advanced the money to the town on its bonds for the very purpose of enabling the town to discharge what was supposed to be its obligation to the drafted men, and the latter received the money by virtue of the law as it then existed under a claim of right. All parties supposed at the time that the drafted men were entitled to the money and that it was their legal right to receive it. It now turns out that they were all mistaken, but it was a mistake of law and, therefore, the drafted men who received the money under the circumstances are not under liability to the plaintiff to restore what they have received.
It follows that the order appealed from should be affirmed and judgment absolute rendered against the plaintiff on the stipulation, with costs to the defendants who have appealed in all the courts.
PARKER, Ch. J., GRAY, VANN and CULLEN, JJ., concur; MARTIN and WERNER, JJ., absent.
Ordered accordingly.